Appearances
can
deceive
Why change in the financial sector
is not what it seems, and how
organizations can reform for success
Towers of strength? Or struggling in a tougher market? Despite the outward appearance of
success, financial firms are under-performing. Our new study suggests that leadership will be
the source of the sector’s renewal
A distorted perception
The image projected by leading firms in the financial services
industry is one of a highly profitable sector led by successful
leaders. Hay Group research highlights that this does not
accurately reflect reality. It shows that while firms know
they must adapt to the post-crisis environment, they are
struggling to do so. Many are following old ways of working
that are out of step with their new world of squeezed margins,
©2013 Hay Group. All rights reserved
disenchanted customers and disruptive new market entrants.
Yet for leaders ready to address the barriers to change there is
an opportunity for renewal and growth.
It’s a change that must be led from the top, however. And the
first step is for leaders to take an honest look in the mirror.
Appearances can deceive
A pause for reflection
Financial firms now find themselves in an
uncertain – even hostile – environment, beset
by low interest rates, tougher regulation and
more demanding clients (who trust them less
than before).
Since spring 2011, The KBW Bank and Dow Jones
US Select Insurance and US Asset Managers
Indices have underperformed the Dow Jones
Index by up to 40 percent. For the first time, the
financial sector was absent from the top 20 Best
Companies for Leadership. It’s clear that what
worked yesterday isn’t working today.
Our research suggests that leadership is the key
to change. Leaders in financial institutions are
using styles and behaviors that worked well in
the boom years, but are inappropriate today:
1. ‘Just do it’ leadership
Nearly half (43 percent) of financial service leaders rely heavily on the ‘coercive’ leadership
style compared with 34 percent across all sectors. As a result, 55 percent of them are creating
demotivating climates that make employees less inclined to give of their best.
2. Lack of external and customer focus
The balance of power is shifting to the customer. Yet only 67 percent of financial services
employees describe their firm as customer-focused compared to 79 percent of the world’s
best1. Ten percent fewer employees in this sector (72 vs 82 percent) agree their firm attempts
to understand customer needs; and less than two-thirds rate their customer support well,
compared to three-quarters of top companies.
3. Self-serving innovation
Financial firms need to innovate in order to survive – not only with creative financial
engineering that delivers short-term returns, but also in a way that works for the long term, and
for a wide group of stakeholders. Hay Group’s work shows that this sustained innovation needs
a positive culture that’s nurtured by leadership. With the coercive style dominant, it’s no surprise
that only 53 percent of financial services employees rate their firms’ capacity to innovate,
compared to 70 percent of high-performing companies.
4. Small gene pool
The financial sector attracts high-IQ people who are goal-oriented, resilient and perfectly suited
to generating value in fast-growth, deal-driven environments. However the new environment
needs 'disciplined listeners' who can empower teams to innovate while performing responsibly.
5. Rewarding short-term, company-oriented outcomes
Everyone has rushed to criticize financial sector remuneration, blaming it for rewarding shortterm results at the expense of long-term value. Any reforms implemented so far have not
achieved the desired result. There is little incentive to focus on the long or even medium term.
1
s ranked in FORTUNE
A
magazines World’s Most
Admired Companies 2012
©2013 Hay Group. All rights reserved
Our work shows that by their own perception, financial leaders believe they are already well
equipped to support the required changes. They consistently score themselves higher in
emotional and social intelligence than others rate them. While this is common amongst all
managers, the gap in perception is greater for financial services leaders. This overconfidence is
limiting their ability to see the need for change.
Breaking the cycle
Leadership is the driver of renewal. But leaders at
financial firms must recognize this opportunity
and change their mindset and behavior in order
to create the culture of innovation and customer
focus that success depends on. They need to
be able to project their vision and commit
employees to it, foster a healthy attitude to risk
and take a long-term view on value creation.
This can be achieved with three steps:
Step 1. Develop self-awareness. Financial services leaders have two choices. They can go
back to ‘business as usual’, ensuring sound practices and managing costs. But will this provide
the consistent 15+ percent ROE they need? The alternative is renewal – of business models,
technologies and partnerships. To do this requires an honest appraisal of their own leadership
skills against the capabilities needed to work this way.
Step 2. Experiment with new behaviors and lead by example. When old leadership approaches
no longer work, leaders must try alternatives: coaching rather than punishing, listening rather than
asking and engaging rather than tasking. These behaviors drive competitive advantage and inspire
others. To quote a European financial COO: “I led an army of specialists and subject matter experts to
turn our firm around after the financial crisis. I must now change the profile of my teams and seriously
alter my leadership style if we want to bridge across silos, collaborate and grow.”
Step 3. Learn. The strongest organizations learn by experimenting, whether with new ways
of doing business or new leadership styles. The most effective approaches should then be
embedded into leadership models, as illustrated by a large insurance company. Viewing its
competency model as its main competitive advantage, it made great efforts to understand the
leadership behaviors that built its business. It then rolled these out to thousands of professionals
and has rapidly gained market share.
Ahead of the curve
In our work with the financial industry, we see a common response to the ongoing crisis. But the cost
cutting, efficiency improvements and compliance work that many firms emphasize will only take
them so far.
Our research suggests to succeed, firms will need to:
Focus on the customer. With disruptive competitors (like Simple and Square in US retail banking),
and increasingly digitally literate customers, financial organizations must respond. Successful firms
will focus outside the organization on the market and will prioritize customers and clients.
Devolve power and restructure along customer segments. Customers don’t care which part
of the business delivers it – they just want their banking done. Winning firms will organize around
customers and empower frontline staff to deliver a better customer experience.
Foster creativity and encourage the right risks. Creativity in the fittest institutions will no longer
be about chasing alpha with little consideration of risk. Their leaders will harness innovation that
directly benefits customers – and encourage risks that add, rather than destroy, value.
Reward contribution. Successful firms will have evolved reward from a primarily market-based
approach to a broader view of executives’ contribution. Their reward will reflect know-how,
accountability, responsibility and leadership skills as well as results.
Diversify recruitment. This will be a natural consequence of the new approach to leadership.
Recognizing they don’t have all the answers to every challenge, leaders will be less inclined to hire
in their own image, and will expand their recruitment ‘gene pool’ to add the new skills they need.
Appearances can deceive
Conclusion
If they are to end the current cycle of underperformance and grasp the opportunity for renewal, financial
services executives need a shift in their mindset. Some institutions are already making the change. At Barclays,
Antony Jenkins has signaled his intention to make the bank more customer-centric. Sweeping changes at HSBC
followed an admission by CEO Stuart Gulliver that its structure was not “fit for purpose for a modern world”. And
Citigroup plans to link bonuses more closely to performance.
An excellent opportunity exists for renewal. Long-term success awaits those leaders who pause, take a look in
the mirror and realign their approach.
About the research
This metastudy draws on an in-depth analysis of Hay Group data on financial services organizations, including:
Best Companies for Leadership – the 2011-2012 survey polled nearly 7,000 individuals at 2,300 organizations worldwide, with
results based on peer nominations and an organization’s own responses.
TalentQ database 2012 – these work-focused psychometric assessments are used for screening large talent pools. We drew on tens
of thousands of completions in financial organizations and compared them against global norms.
ESCI: Hay Group’s emotional and social competency database – Hay Group’s Emotional and Social Competency Inventory (ESCI), is an
online survey tool which delivers a 360º assessment of an individual’s behaviours across the 12 competencies that comprise emotional
and social intelligence: emotional self-awareness, achievement orientation, adaptability, emotional self control, positive outlook,
empathy, organizational awareness, conflict management, coaching and mentoring, influence, inspirational leadership and teamwork.
For this study we looked at data collected during the period 2011-2013 from 1,021 financial services senior executives, benchmarking
them against 12,385 of their peers from a variety of sectors including professional services, pharmaceuticals, technology, manufacturing,
retail, energy, public services and education.
Motives and values database (2005-2011) – Hay Group’s motive profiling methodology is one of the most widely researched
instruments in the entire field of psychology and personality assessment.
Leadership styles and climate data – we looked at 31,000 assessments of how financial services leaders affect performance climate
against our data file of 202,198 leaders.
Hay Group’s Insight database analysis (2007-2011) – we compared employee opinion data from 725,000 employees at 50
financial services firms against global and high performance norms.
Long-term success awaits
those leaders who pause
to take a long look in
the mirror, and realign
their approach.
©2013 Hay Group. All rights reserved
About Hay Group
Hay Group is a global consulting firm that
works with leaders to turn strategies into
reality. We develop talent, organize people
to be more effective and motivate them
to perform at their best. Our focus is on
making change happen and helping people
and organizations realize their potential.
We have over 2,800 employees working in
86 offices in 48 countries. Our clients are
from the private, public and not-for-profit
sectors, across every major industry.