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Sunday, 14th April 2024
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Irish banks need to win back the trust of their staff if they are to succeed Back  
The Irish banking sector is being undermined by the erosion of trust and a lack of respect for staff, according to Professor Ray Kinsella, who looks at what needs to be done to restore the balance between ethics and success.
The domestic based Irish banks and the wider financial services sector - of which they are core - have an importance to the economy that is not adequately captured by statistical data. Their contribution to employment is highly significant, not least because it is, at least in part, dispersed across the country as well as internationally. The Exchequer is also a major beneficiary more strategically - the IFSC alone generates E1 out of every E10 spent on our health system. Their delivery systems and electronic payments arrangements are the central nervous system of Ireland’s highly open ‘new economy’, which underpins growth and also living standards.

In the early 1990s at least some of the banks lost the plot. They bought into a flawed and subversive business model based on maximizing short-term shareholder value. At the same time, in 1992 the banks and the Irish Bank Officials’ Association (IBOA) engaged in a highly divisive strike. There were no winners. Banks felt empowered to initiate work, organisation and remuneration practices that have demonstrably led to a loss of value. Working relationships – and even hitherto close friendship – amongst staff were impacted.

Separately, and in combination, these developments established a highly negative dynamic within the organisations affected. Different ‘initiatives’ and change – programmes over the years were working against the grain of this dynamic. These inextricably bound-up events - a doomed business model and the bank strike - are the genesis of the ‘legacy’ issues, and other deficiencies, which culminated in the regulatory investigations in the first half of this year.

This investigative process, undertaken by the Irish Financial Services Regulatory Authority (IFSRA), as well as other departments and agencies in Ireland’s new multi tiered regulatory process, will be concluded next month. The outcomes may be painful.

More positively, however, the conclusion of these regulatory investigations provides a wholly unique ‘window of opportunity’ to develop a new-ethically based business model – and a competitive advantage based on the reality, rather than the rhetoric, of trust and partnership.

The core intermediation function of banking rest on trust and integrity. They were the hallmark of the banking profession. Behind the big issue of the restoration of trust between banks and their customers, not alone in personal financial services but also (as the US experience in recent years highlights) in investment banking, lies a still deeper issue.

This deeper issue has to do with the re-engineering of banks ‘corporate culture’ so that, for example, work/life balance, work organisation and systems of remuneration and promotion are determined, first and foremost, by the dignity of the individual person and the intrinsic value of work. People are not a ‘resource’, alongside capital or technology. The view that they are a ‘cost’ and, accordingly, disposable, is an expression of the corporate nihilism that is at the heart of this flawed business model. In purely commercial terms, no sustainable value proposition could possibly be based on this view of the individual. It would – and has been – found out by smart consumers, operating in a competitive and efficient set of markets, who have options.

If banks expect customers to trust them, this carries with it an acknowledgment of their duties and responsibilities to staff, who have to convey this trust to customers. Staff cannot communicate an ethic of trust in their relationship with consumers if this very ethic is missing in particular facets of their own work environment.

These are not just concepts - trust is an integral part of a healthy societal culture and business models that do not comprehend, and act on, this are semi detached from their customer base. It is not realistic to seek to differentiate between values lived out behind your hall door, and those you are expected to work to behind your office door.

It is not possible to legislate for ethics. For behaviour, yes. Not for ethics – which, by definition, involve ‘obedience to the unenforceable’. The role of leadership is to demonstrate ethical standards that are then diffused throughout the organisation. The responsibility of leaders to get ethical standards involves a terrifying responsibility. People screw up. They make mistakes. It is the quest for ethics – and the processes by which this is pursued within organisations - that is important. Ethical standards are the ‘building blocks’ of any sustainable value proposition, and of a credible post-reform business model. It is these standards that will determine whether, or not, the corporate culture is aligned to engage with the consumer, on the basis of verifiable trust.

There is a very real understanding of ethics – and the overriding importance of lived truth in corporate strategy - within the leadership of Irish banking. But it would be na?ve to underestimate the difficulties of changing ‘legacy’ attitudes and ‘mindsets’ embedded within – that is, in the guts of the organisation – or, indeed, of rooting out inequitable and, therefore, unethical practises that remain very much on the strategic agenda. It can be done. There are examples of institutions where trust is the oxygen that they breathe. They are successful. Quite simply, they bond with the customer – or, more specifically, staff are empowered to bond with the customer. People like working in these institutions.

Reflecting new insights, as well as the impact of the successive disclosures, there has been a substantial effort by banks – in anticipation of prospective penalties and enforcement action – to come to grips with these issues. There has been a rebuilding of trust between banks and the industry body – the Irish Banking Federation (IBF) – and the IBOA.

It is precisely within this framework that what Professor Bill Roche has called ‘second-generation’ partnership models have an indispensable role to play. Different institutions will have different structures. And both the banks and the IBOA have their own mandate. But there is still a real identity of interest. There is now a unique ‘window of opportunity’ to push this model forward.

The publications of reports by IFSRA, and the conclusions of other investigations, which will be made public next month, will require, as never before, a partnership approach.

In the post-reform banking system customers will be back at the centre of a principles-based consumer protection supervisory regime. The challenge facing some financial institutions is that the kind of commitment on the part of staff which is imperative to give substance to the vision at the heart of reforms – including the primacy of the interests of the consumer - has been ground down.

These are not malcontents. These are professionals. And even with the genuine changes and the good intentions of bank management, many staff don’t like what they see as part of their everyday working environment. It makes no sense whatever not to listen to them. And there is not enough listening going on.

They look at some aspects of micromanagement strategy – and they see a culture of target driven selling as a basis for performance assessment. But cross-selling, for example, retail banking with insurance type products should be about service enhancement – not incentivised pressure-selling. Just because it’s legal, it doesn’t mean it’s ethical or aligned with a principles based consumer protection regime.

Staff listen to platitudes when a colleague takes early retirement - and they know it really counts for nothing. They know how justifiable promotions can get sunk without trace because the individuals are more valuable where they are. They know what every good branch manager knows – that performance metrics don’t always measure the worth of a job well done. Expertise is, frequently, walking out the door – leaving a void in customer relations that is not easily filled and leads to loss of value. They know why it’s getting harder to retain young staff, who never knew the concept of loyalty - which is hardly surprising, since loyalty is begat by trust.

They look at contract based remuneration which is being extensively implemented - all very well in its own way – and they know that it can mean hours and weekends away from family with nothing to show for it. They see the dichotomy at the heart of the 80:20 mantra – how do you know who, of the 80, is going to make it into the 20? Sean Quinn once sold gravel from his back garden. You don’t know – that’s why ethics and good business practise both dictate that all customers be treated with equal respect.

That’s why co-opting the IBOA to the distinguished IFSRA Consultative Panels would be more than a wise political decision. It’s a strategic imperative, if we are to protect, and build on the domestic banks’ contribution to the economy and to national competitiveness. It would show we had learned something over the last decade – and that the importance of trust had been recognised not alone in the political sphere but also in a core sector of the economy.

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