Jeff Judy

Jeff's Thoughts - October 24, 2012

Sustainable Management: Is Your "How?" As Good As Your "What?"

It is not too much to claim that the difference between many banks that fared reasonably well when the downturn hit and those that quickly fell apart was the vision, beliefs, and courage of the leadership. Bank leadership -- the Board of Directors, the President and C-level positions -- set the direction for your entire organization. Strategies, policies, values and standards all flow from the top.

Performance is, of course, determined at the front lines. To the extent that what the leadership envisions is reflected in what the front lines do, leadership strategies have a chance to work for everyone's benefit.

But that vision is refracted, if you will, through a management lens. Directors don't coach tellers, and the CCO has limited interaction with individual commercial bankers. There's a layer of management and supervision that forms the conduit through which leadership directives reach front line personnel.

Good leaders are well aware of the possibility of their messages getting mangled in transmission. When what the front lines are doing is at odds with what the leadership expects, you have what I call a "loose" culture, and that seriously hampers the leadership's ability to guide the bank to better outcomes. (For a thorough discussion of the meaning, business value, assessment and management of "Culture", visit the "Culture Issues" section of my web site.)

Unfortunately, it is all to easy to look only at easily measurable results from the front lines. Is business getting booked? Are defaults and charge-offs being held down? You can monitor policy exceptions, customer satisfaction, and any number of variables and get results that are excellent ...

... and unsustainable!

Good leadership knows the answer to "What results are we getting from the front lines and how do they compare to our vision and strategies for the bank?"

Great leadership also knows the answer to, "How are our managers getting those results from their people?"

The issue is whether good short-term results are obscuring practices that will not carry those results into the long term. I work with hundreds of bankers, managers, and bank leaders every year, and I know that there are great managers and poor ones, there are those who lead and inspire, and those who threaten and bully. There are those who balance short-term and long-term objectives, and those who go for the most visible, quickest result without much regard to how their methods will play out over time.

The good managers can produce those results year after year. The poor ones will destroy employee morale and leave you with a staff that does the minimum, cuts corners, and rarely takes that extra step for either customers or shareholders. Effective leadership must make an explicit effort to figure out which kind of managers they have, regardless of this quarter's results.

There's a certain irony to the problem of focusing on short-term results. Many Directors regularly complain that shareholders put too much pressure on their banks for immediate results, even if achieving them raises long-term risks. So bank leadership should be well aware of the issue.

Great leaders do not just set targets, they set standards for how those targets will be achieved. They don't chew up bank staff in a relentless grind to squeeze out one more fraction of a percentage point this quarter, only to find themselves facing lots of bad credit, lots of disgruntled customers, and lots of employee turnover a few quarters later.

Set objectives, determine strategies, and monitor performance. Just make sure you take a big picture approach to that monitoring, one that includes assessment of the long-term sustainability of management practices.