Jeff Judy

Jeff's Thoughts - August 24, 2016

Responsibility is to Accountability as Systems are to ...

How do you ensure that credit staff fulfill their respective responsibilities?

It takes:

If staff responsibilities are not clearly defined, you cannot expect them to be met with any consistency. A clear credit process, supported by a coherent policy and detailed procedures, is the starting point for responsible performance.

Yet I regularly encounter institutions where the process, policy, and procedures that are on paper are not the ones that are put into practice. Unfortunately, as practices evolve, no one may catch the growing disparity between official and actual process until they have significantly diverged from each other.

There are a variety of measurements that can help reveal this divergence. When exceptions to policy grow from period to period, a policy overhaul is in the institution’s future. In well-run credit operations, management picks up on the trend – perhaps with additional information from audit, credit review, and compliance functions – and initiates review and revision. In other cases, the inspiration to overhaul policy comes directly from the regulators. Either way, there is usually ample data available to indicate the need to update those definitions of staff responsibilities.

But measurement is not enough. Good systems can produce a lot of indicators of how well, how consistently, those responsibilities are met. What really distinguishes the best organizations is the action that follows those numbers.

Responsibility means little without accountability. And by accountability, I mean consequences.

Systems can reveal problems, but it takes human intervention – management action – to produce change, to improve practices. For every institution that responds to growing exceptions and deteriorating asset quality with vigorous action, there is another that has the same information but does not act on it until it is difficult, costly, and, perhaps, too late.

Good, clear process, policy and procedures set the stage for success. Good systems and measurement create the opportunity to tweak and correct practices. But the best long term outcomes depend on good people, strong, committed management, to apply consequences to take advantage of that opportunity.

And really good management understands that “consequences” is not a negative word. It is not a synonym for “punishment”. In exceptional institutions, everyone knows who the “credit heroes” are, the staff who are recognized by management for meeting, and exceeding, the responsibilities defined for their roles.

Good systems that produce useful numbers are great management tools. But they will make little difference unless your institution enjoys a culture of accountability.