Wikipedia defines the term “the elephant in the room” as referring “to a question, problem, solution, or controversial issue which is obvious to everyone who knows about the situation, but which is deliberately ignored because to do otherwise would cause great embarrassment, or trigger arguments or is simply taboo.”
So, what – or who – is the elephant in the room at most banks? In my experience, it’s managers who avoid or delay decisions they need to make. This kind of inaction can leave problems to fester and worsen while everyone else in the institution is afraid to speak up.
Related to some current client work, we interviewed two business heads, one of whom was relatively recent in his position while another had long tenure. Each mentioned the critical importance of dealing with their people issues. The recently hired leader reviewed his staff and saw that while most teams were performing well, in many cases one or two members of those teams were not, which pulled down overall results. Most teams made their goals anyway, but this executive believed that with better people those goals could be exceeded with higher compensation for all team members. Since arriving at that bank, this manager has replaced about a fourth of his sales staff and achieved stronger results.
The veteran manager, during the recent recession, faced the need to reduce his costs as part of a bank-wide efficiency program. With some initial reluctance, he eliminated poor performers. Subsequently, he realized that these employees not only failed to contribute but also destroyed productivity beyond sales, bringing in inappropriate deals that clogged up the pipeline and wasted the credit and operations groups’ time. In both cases, these managers found that they could achieve more with fewer employees as long as the fewer employees possessed the right strengths.
The people issue pops up in almost every project we conduct. Personnel issues include:
- Managers who are incapable or unwilling to make decisions;
- Managers who make the wrong decisions;
- Employees who are just putting in their time until retirement;
- Long-term employees who seem to have tenure despite their failure to perform;
- Tendency to avoid what should be the inevitable. This includes the willingness of management to move a poorly performing employee to another area, burdening the receiving group with the poor performer rather than exiting the employee from the bank;
- Unwillingness of management to go outside to attract the best employee for a new position. Oftentimes, mediocre current employees are moved to a new position rather than bringing in fresh blood with greater experience. This step is taken in the name of preserving bank culture, but the culture being supported may in fact need to change.
Banks do not need outside consultants to recognize these problems; these are ELEPHANTS after all. So, why do many banks, often the ones who can least afford to do so, allow these situations to continue? Basic human psychology seems to be at fault, such as the desire to avoid conflicts; long standing personal relationships; concern that a new hire may be worse than the old (“the devil you know”); concern about lawsuits; poor leadership skills; and, sometimes, good old fashioned cowardice. In many cases, banks have complicated the situation by failing to create an accurate Human Resources (HR) performance record. We have seen many cases in which abysmal performers are ranked average or above on their reviews, making a near-term exit more difficult to achieve.
Unfortunately, poor employees also cause good employees to leave. We know of one recent case in which a strong employee cited the poor leadership of an already controversial manager in his decision to go to a rival bank. This represents a double whammy for a bank, as the good employee leaves and the poor one stays. Excellent employees attract excellent employees; the opposite is also true.
Up or Out
Now, more than ever, banks need to attract and retain good people. While bank earnings are up, for many institutions revenues remain sluggish and future growth paths are uncertain. Strong, innovative, well-motivated and well-compensated employees will take banks where they need to go but how do you get bankers to act rather than avoid? Up to now, many have been happy to ignore these types of fundamental decisions by hoping a new training program or compensation policy will turn dross to gold, usually resulting in frustration.
In the past, we have seen the following circumstances encouraging managers to improve personnel:
- New leadership, whether of a bank or business line. New leadership brings with it a new attitude and a willingness to confront issues that need to be addressed;
- An obvious economic crisis. Certainly the recent downturn resulted in the elimination of some subpar personnel and business lines. Remarkably, virtually all the banks we know continue to have the opportunity to reduce or upgrade personnel, as some weak employees remain;
- Recognizing that a less obvious economic crisis exists. That is the situation today. Banks are no longer bleeding, with many making good profits. However, relatively few are operating with a sustainable growth model, for example, one that demonstrates an ability to build wallet share consistently.
What steps should management take? First, they need to ensure that their HR review process is honest and rigorous; in other words, toughen up the grading and organize for excellence. They also need to establish an “up or out” policy for employees, perhaps along the lines of the approach championed by Jack Welch at General Electric of exiting the bottom 10% of employees each year.
Management needs to have the courage to make decisions that they would often rather not make but which serve the best interests of their stakeholders. If they are unable or unwilling to do so, then, perhaps, they themselves are the elephant in the room.
Mr. Wendel is president of New York City-based Financial Institutions Consulting, Inc. He can be reached at firstname.lastname@example.org.