After a tsunami of scandals comes the reckoning. But are financial institutions ready to do some soul-searching and rethink how they add value to society? Joy Macknight investigates.

Hugh Harper

Banks are facing an existential crisis on two fronts. First, they are still grappling with the fall from grace in the eyes of the general public as a result of the global financial crisis. The ensuing bank scandals, including the misselling of products and price rigging, only strengthened the feeling that banks are not working in the public’s best interest but are doggedly focused on maximising profits and shareholder return instead. 

Second, traditional banks are contending with a wave of nimbler financial technology (fintech) start-ups coming in between the banks and their customers, offering a slicker experience and changing expectations of what financial services should look like. 

A frightening future

According to EY’s Global Consumer Banking Survey 2016, which polled 55,000 customers across 32 markets, one in three consumers believes that there will not be a need for traditional banks at all in the future. Four out of 10 customers express both decreased dependence on their bank and increased excitement about what alternative companies can provide. And while less than half (42%) of consumers have used non-bank providers in the past 12 months, 21% of the remaining are considering doing so.

“Banks are being forced to think harder about their reason for being,” says Peter Sands, ex-CEO of Standard Chartered Bank and current senior fellow of Harvard Kennedy School at Harvard University. “The public is asking high-level questions about the value that banks add to society and the trade-off between private gain and public risk. In addition, there is a more technology-driven micro-ask of the banks as to what their purpose is. 

“The combination of those two things is a fundamental challenge to the banks, both in terms of the right to play within society but also in the ability to have a sustainable business model,” he adds.

Antony Jenkins, ex-group CEO of Barclays and currently executive chair of cloud platform 10x Future Technologies, says: “The financial crisis of 2008 revealed how many banks were too aggressive, too self-serving and too focused on the short term, and I am convinced that only companies that consider the long-term impact of their actions on society will be able to build a sustainable business. In other words: there can be no choice between doing well financially and behaving responsibly in business.” 

“The banking industry needs to return to doing what it is supposed to be doing – serving real people, businesses and the economy – and win back the trust of society one customer at a time,” says Andy Maguire, group chief operating officer at HSBC.

Rebuilding trust

Today, many banks are reframing their purpose to reflect the new and emerging demands of society and industry. Phil Harkness, global leader for purpose-led transformation at EY, defines purpose as “an aspirational reason for being that is grounded in humanity and inspires a call to action”. 

He believes that it makes good business sense to be purposeful. “A purposeful organisation’s employees are more engaged, more satisfied and more likely to remain committed to the company. The same applies to customers – many would drive across town to support an organisation whose purpose is worthy, understandable and supportable,” he says.

Kris Pederson, EY’s Americas advisory strategy and customer leader, adds that being purposeful is of particular interest for the millennial generation. “If a company isn’t purposeful, millennials and Generation Z are more likely [than previous generations] to either move to one that is or start their own businesses,” she says.

While many banks have a purpose statement, some are more purposeful than others. For example, Bank of America’s purpose is in “helping to improve financial lives through the power of every connection”; Wells Fargo’s vision is “to satisfy our customers’ financial needs and help them succeed financially”; and Morgan Stanley says it believes “capital can work to benefit all of society”.

These encapsulate the broader mandate of contributing to social wellbeing, whereas Goldman Sachs’ aim to “provide superior return for our shareholders” perhaps reflects old-school thinking.

Action as well as words

But even a well-defined purpose does not guarantee exemplary behaviour, as evidenced by Wells Fargo’s recent accounts scandal. Organisations must “activate” their purpose, argues Michael Giarrusso, partner, financial services advisory, at EY, in order to ensure that the culture of the organisation reflects its purpose. “Banks need to demonstrate that they are living these values, not just paying lip service to them,” he adds.

In order to deliver on purpose, it needs to be activated in all aspects of the business, including recruitment, products and services, technology, performance evaluation systems, customers, suppliers and investments. “Every action a bank takes should be seen through the lens of whether it is furthering its purpose or not,” says Mr Giarrusso.

It is important to understand the difference between purpose and strategy, according to Hugh Harper, strategy and operations leader for Europe, the Middle East, India and Africa financial services at EY. “Whereas corporate strategy looks three to five years in the future, purpose is about why the bank is here and its essence for perhaps the next 30 to 50 years,” he says. 

As many of the people at the top of an organisation will not be responsible for the delivery of purpose because of their short tenure, it is critical the development of purpose engages and is supported by customers, employees, institutional stakeholders and others who have a long-term interest in the organisation’s sustainable success, says Mr Harper.

Purpose in action

Mr Jenkins agrees that banks must put purpose and values at the heart of all they do if they are to drive high performance for their customers, colleagues, shareholders and society.

“This involves clearly defining purpose and values; changing the systems of the organisation such as promotion and compensation to support the purpose and values; ensuring purpose and values are operative in decision making; using data to measure progress; and, crucially, leaders modelling the behaviours required,” he says.

Both Ms Pederson and Mr Giarrusso commend credit unions, such as Coast Capital Savings and Vancity for their ability to deliver on purpose. “Focus and passion on their purpose permeates everything they do,” says Ms Pederson. “They live value, with a different way of operating, and that can be seen through the whole lifecycle of customer engagement.”

“Coast Capital is a ‘for-purpose’ organisation,” says Don Coulter, CEO of Canada’s largest credit union based on membership. “We exist beyond simply wanting to earn profits and believe we can generate benefits for many stakeholders.” Coast Capital Savings' purpose is threefold: improve its members’ financial well-being; excel as an employer of choice; and invest in communities.

“We engage genuinely, authentically and in accordance with our purpose,” says Mr Coulter. “It is a virtuous cycle: the more successful we are at helping our members, the more members we attract, the more resources we have to invest in employees and innovation, and the stronger our communities become.”

In addition to promoting financial literacy and wellbeing programmes, Coast Capital sponsored Booster Buddy, a free app designed to help young people with mental health issues. Today, more than 100,000 people have downloaded the app, which provides online counselling tips in a user-friendly, game-type application. The credit union also has joint ventures with local universities to support start-ups through the incubation phase to become viable businesses.

Innovative solutions

Vancity, whose purpose is to “redefine wealth in a way that furthers the financial, social and environmental well-being of our members and their communities”, also goes beyond strictly financial services to support its membership. In May 2015 it partnered with Immigration Services Society of BC, a non-profit organisation, to help refugees’ settle in British Columbia.

Tamara Vrooman, CEO of Vancity, says: “The majority of Vancity’s business used to be based in traditional financial services, but in 2012 we began shifting to a business model of member-led innovation. We develop innovative solutions working with partners to meet members’ needs and grow a more resilient economy. All of these are essential to how we activate our own vision.”

The credit union is a member of the Global Alliance for Banking on Values, an independent network of financial institutions that focuses on a triple-bottom-line approach: people, the planet and profit. Other members include Bank of Palestine, Europe’s Triodos Bank and XacBank in Mongolia.

“It’s important to acknowledge that financial institutions do not have a neutral or benign role in society. They have both the power and responsibility to allocate resources in ways that not only do no harm but also create positive outcomes,” says Ms Vrooman.


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