Trust as piece de resistance

What happens when a bank doesn’t put profit over principles?

This article summarizes a speech made by Richard Winder to Maize Live in November 2020 titled “The power of trust”.

 

Recent years have seen massive shifts in the banking industry forcing it to embrace new consumer expectations, emerging technologies and new models.
While many are looking to revolutionize their bank with a new focus on the concept of Open banking, one bank has chosen to build further on its strategy revolving around an open and decentralized culture.

Handelsbanken is a mid tier European bank originally from Sweden. Its main business areas are pretty traditional, but what they have become known for outside of the banking world is what they don’t do, like having a budget, setting top down targets or paying individual bonuses to colleagues.

These are unusual omissions in the modern business world, not to mention in banking, but for Handelsbanken there are three points that they have found to be most important for running their business: the first is to align the whole business around a common goal and a set of values. The second is to trust colleagues and to know that given the power and given the responsibility, those closest to the questions will find better answers. And the third is then to follow the natural consequences of this trust in how to structure and steer the organization. The main goal is to have higher profitability than the average of comparable banks in the home markets.

Handelsbanken’s one and only corporate goal is to be more profitable than its peers each year. But instead of focusing directly on this goal, potentially to the cost of its principles, the bank focuses on two means of achieving it: having more satisfied customers and lower costs. It argues that being more profitable requires a better mix of income and costs than the competition. On the costs side, one has control over three main types of costs: administrative costs, the cost of funding and the cost of default. On the income side, one can’t achieve high and rising revenues over any significant period without having satisfied customers, therefore cultivating relations with them leads to broader business with them and their friends, family and business associates. Therefore, instead of focusing on income per se, the objective is to create more satisfied customers through consistent, responsible behavior that supports sustainable development.

Pursuing these two objectives – more satisfied customers and lower costs – becomes more seamless when the operating model is supported by the bank’s core values of trust and long-term thinking. Trust in the individual and in their will and ability to do worthwhile work well; a long-term view in everything the bank does, leading to better, more sustainable decisions and a focus on deep and lasting customer relationships rather than transactions.

Trusting colleagues is the first pillar for building a new way of working both at the individual and at the organizational level, especially with new recruits that naturally want to do a great job and are able to do so if given the right conditions.
That means avoiding dictating what they should do in their own area of work or inflicting control by demanding of regular reports as a proof of their efforts. Daily targets or incentives are counterproductive, workers should be encouraged to set their own ambitions and take responsibility for their own decisions.
This is the humanistic operating model that Handelsbanken has developed and is committed to, it means giving employees real responsibility and accountability, a clear remit and a meaningful decision making mandate to lay out the framework of values and principles within which all employees are expected to perform their work.
The bank also provides practical support to enable employees to follow this path through transparent information and detailed benchmarks to make informed decisions.
An open network approach is encouraged both inside the bank and outside, as managers become available resources to the team, helping employees to develop their own leadership skills while supporting them to progress whichever direction they choose.

Trusting employees allows banks to decentralize the organization, which means that all branches operate in many ways as their own mini businesses rather than directed by head office. In such a decentralized structure, each branch is considered a profit center in its own right, responsible for the customers it chooses to work with in the local area with a very high level of credit discretion for the banking industry. 70% of credit decisions are taken within the branch itself as branch managers decide who to employ, what salaries to pay, where to locate the branch, and many other operational questions pertaining to the branch. The responsibility for the development of the whole business and reputation in their town is strictly in the hands of the branch managers.

When it comes to steering the bank, employees refer to the framework of values and operating principles; these are discussed all over the bank all the time and in a wide range of practical contexts, to help colleagues reach the best decisions that they can in line with the shared goal.
Handelsbanken chooses to focus on supporting its branches and their customers, knowing together where the bank is going and why, trusting its employees and then having the courage to follow the full consequences of that trust.

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