Please send the shareholders away - Comment & Profiles -

Public companies have big disadvantages when it comes to making the huge changes needed to become a fully functioning digital bank, writes Brian Caplen.

Digital transformation is a long-term project for a bank and it involves completely changing the business model. It can’t be done piecemeal by adding an app here or a channel there, a point made by The Banker’s columnist Chris Skinner in his forthcoming book Doing Digital: Lessons from Leaders. But can it be done at the same time as undertaking all the day-to-day and short-term demands incumbent on a public company?

“The focus on quarterly shareholder returns and investor relations places inordinate pressure on most executives to purely manage numbers and ensure that financial objectives are met. This does not cut ice when you are in a transformation process. During a transformational process, the focus has to be on the change not the short-term results,” writes Mr Skinner.

Interestingly, of the five banks profiled in the book as digital transformation success stories, one is JPMorgan Chase – the others are BBVA, China Merchants Bank, DBS and ING – whose CEO Jamie Dimon has been outspoken on the disadvantages of being a public company.

Mr Dimon says he wishes he could take the bank private (it is owned directly or indirectly by 100 million shareholders) because being public has ‘real negative downsides’ including shareholder meetings that waste time and a lot of corporate governance box-ticking.

Recognising a problem, of course, goes some way towards solving it and JPMorgan does appear to have found a way to combine digital transformation with quarterly earnings reporting. But the worry is that other banks, and indeed other industries, have not navigated this issue so successfully and are getting left behind in the digital race. Board directors should be thinking hard about whether they are giving management irreconcilable goals. 

Brian Caplen is the editor of The Banker. Follow him on Twitter @BrianCaplen

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