Jeff Judy

Jeff's Thoughts - March 11, 2015

Where the Buck Stops

In any financial institution that has sound credit practices, "accountability" is a frequent topic of discussion. How much leeway do credit staff have in following policy and procedures? Who notices when the rules are bent a bit too far? What consequences follow shortcuts and end-arounds that violate the standards set for the credit process?

If I came into your boardroom and asked those questions, I'm pretty sure I'd get clear, cut-and-dried answers.

But what if I gathered your front-line credit staff at the local pub -- no management in sight -- and asked the same questions? Would I get the same answers?

And what if I asked a few more devious questions: "Who do you have to watch out for when you are trying to get a borderline deal on the books?" "How hard is it to get a policy exception approved?" "How is 'creative lending' viewed at your institution?"

Chances are that things are a little looser than you'd like. You'd probably find that the old hands in the group have a pretty good idea of how to bend the rules a bit (and they may be passing along this "wisdom" to the newer staff).

For me, the most interesting of the"devious" questions is the first one: who you have to get by to make a deal work. What makes it interesting is not the specific "who" in the answer, but the fact that often one name (or function) is enough to answer the question.

In fact, this may be an area where the front lines and the leadership largely agree: they put accountability for following procedures and adhering to standards largely in one place.

It might be the audit and credit review function in your institution. Or it might be the case that you have a senior credit analyst who is pretty picky. Perhaps anything that the senior lender agrees to is golden, or maybe there's an approval committee that has at least one stickler for the rules on it.

The point is, "accountability" is viewed as a very limited responsibility. While several people or functions may get involved in the larger exceptions, there's a lot of room for slippage in a system that really has only one point of accountability in the credit process.

My view? Accountability for meeting policy standards is a culture issue. And in a "tight" culture, everyone plays a role in accountability, including front line staff. Raising concerns about slipping standards is not just a top-down issue, it can be raised from any level. Responses to slippage, corrections to practices propagate through this tight culture quickly.

In a tight culture, the front lines spend less time gaming the system and more time being the system. Accountability is a shared value rather than an imposed burden.

There will always be policy exceptions, legitimate and otherwise. When everyone is working to limit exceptions to the ones that really make sense, it is good for your business, and, as it reduces conflict, it is good for morale!

Take another look at those questions I asked at the start of this article. Would you like to change your answers?