Jeff Judy

Jeff's Thoughts - April 14 , 2010

Simple Democracy, Or Thoughtful Leadership?

In the end, it is the shareholders who really set the direction for your financial institution. They are the ones who have to be satisfied with the returns on their investments, and if they are not happy, they can certainly force changes in strategies, practices, and management personnel.

But do they run your bank? Or do they ask you to run their bank for them?

When times are good, risks are low, and profits not that hard to come by, of course, the management and the shareholders associated with the institution are likely to be well in synch. And that, as we have seen, can give rise to problems.

It all comes down to what the banks executive team thinks they are supposed to do for the shareholders. Are they to bend to shareholder desires without questions? Or are they there, at least in part, to protect shareholders from themselves?

Great managers have the following qualities:

And that last point is crucial. Simply following the whims of investors, who tend to focus on short term outcomes, is unlikely to produce good results consistently over the long haul. But if management cannot illuminate the difference between desires and needs for their shareholders, they are doomed to simple obedience to the majority of their "voters," their shareholders, in the place of true leadership for the benefit of all parties.

Events of the last couple of years might lead you to think that persuading shareholders to embrace prudence over maximum short term profits is a fool's errand, but that need not be the case. After all, all of us know how to separate what we want from what we need, even if we sometimes need help seeing the difference.

Do you love going to the doctor? Long for your next trip to the dentist? I didn't think so. But you do it, and at least halfheartedly follow their advice, because you know that a little short term inconvenience, based on their advice, can make a huge difference to how you feel down the road.

And plenty of people mean to exercise, and eat less, but they do not manage to really act on those intentions until they get a coach or personal trainer to help them resist temptation.

If you truly want to serve your shareholders, it is your job to detect temptation where the shareholders see only opportunity; to establish your leadership role as a trusted advisor to your investors; and to communicate consistently and effectively to achieve the best outcomes for your institution.