Is Anyone Else Sick of Bad Behaviour and Mediocrity? / by Adam Howard

It’s been a busy month, and I hate being busy.

This is something I tell people all the time, and its generally something that gets laughs….but I’m serious.

Busy is all consuming.  Busy leaves no room for anything else other than what’s making you busy.

I like having some time for quiet thinking, reading a book, spending time with my family or getting out and raising a sweat, and busy prevents that.

            The exchange that used to piss me off the most when I was inside went something like this:

Q:  “How are you, mate?”

A:  “Good mate.  Busy, but good.”

No!  Busy is not good.  Busy makes you put in a 60 hour week.  Busy makes it tough to get to sleep and tougher to stay asleep.  Busy creates mistakes, poor communication and a failure to execute like a professional.

But, busy is what Big Corporate wants.  Busy means productive; means value for money in the eyes of executives.

But ask the customers of bankers, lawyers, accountants, engineers, doctors or any other professional service provider what they think of their chosen adviser being busy.  I can tell you, they aren’t fans.

They will tell you they are hard to get hold of, make mistakes and charge like wounded bulls.

If customers are saying that then it means what’s lacking is value for money.  It’s not what the customers are paying that’s the problem.  It’s the quality of the service they receive in return.

Price only becomes an issue when value becomes questionable.

And this is where banks find themselves today.

They are currently the subjects of unwanted political and popular scrutiny because they are providing a service of questionable value.

Yes, the banks form the bedrock of our economy, but they are enablers only.  Not leaders.  Not innovators.  They lend to others who show the sufficient credit worthiness, and those others then turn that debt into something worthwhile.

And yet the bankers are treated like leaders. 

Narev (CBA), Elliot (ANZ), Thorburn (NAB) and Hartzer (Westpac) are hauled before parliamentary committees and grilled about the misbehaviour of their staff; they apologise and no action is taken.

They are a protected species.  Somehow viewed as intellectually and morally superior to those who work for them and those beneath them.

Yet, who is responsible for the behaviour of their staff?  Who is responsible for the decliningvalue being provided? 

Is it reasonable to think that only ethically challenged and morally questionable folk go work for a major bank?

Or is there a reason why staff behave that way?

In the US, John Stumpf, CEO of Wells Fargo, ended up getting axed when it was revealed his staff had fraudulently opened 2 million accounts in the name of existing or even non-existent customers in attempts to meet sales targets.

Stumpf initially reacted by firing over 5,000 staff.


It finally became clear that he promoted Wells Fargo to investors and analysts based on its high “cross sell” component, which in bank terms make a bank more profitable as you are providing more products other than loans.

A loan has a cost associated with the money the bank needs to buy, to then lend.  This is called the “cost of capital”, “economic cost of capital” or “cost of funds”.

Any product a bank provides, other than loans, doesn’t have this cost, so the revenue that product generates then doesn’t have that cost base.

Once again, in bank speak, this makes the return on equity higher for products other than loans.

And this is what makes “cross sell” important.

Every bank I have worked at:  Bankwest as part of HBOS, Bankwest as part of CBA and ANZ, have hammered all staff on “cross sell.” 

Yes, it’s called different things at different places.

ANZ called it (I love this…) Whole of Wallet, and referred to it internally as the WoW factor.  How awesome is that??

And staff sales targets are explicitly set to demand cross sale performance.  It doesn’t matter if you are in a branch, small business banking, corporate and commercial or institutional banking, you must cross sell.

It’s part of your Key Performance Indicators.

And all staff inside a bank are managed on a quarterly, half yearly and annual basis by assessing their actual sales performance against their sales targets.

This is the conventional wisdom.  It’s taught at Harvard as part of their Masters of Business Administration (MBA) course, and has spread globally as a central pillar of any management strategy.

I was once told by a senior exec at Bankwest that “if its measurable, we can manage it.”

The carrot is the bonus payment;  cash, a trip somewhere nice, your name up in lights…

What about the stick?  Well, that’s euphemistically referred to as “performance management”.

If you aren’t good enough at your job then there are consequences, like getting fired.

Jack Welch (an old white guy who became a management guru while CEO of General Electric by introducing these beautiful management practices) introduced a process of rewarding the top 20%, coaching the middle 70% and firing the bottom 10%.

This is now common practice in Big Corporate and this wonderful, Darwinian practice has a name.  It’s called Relative Performance Outcomes management.

The early outcomes were very good and supported this practice.  Sales soared and revenue grew.

Have a look at the following link to see what happened at GE while Welch was in charge.

This strategy has been around now for 35 years or thereabouts, and the revenue results have been strong, but the impact on staff has been poor.

Initially it was found to cause a decline in morale, generated mistrust of management and damaged teamwork.

And now we have staff gaming the system to either ensure they get bonuses or to avoid getting fired….which I guess is a natural evolution of the system.

And it’s not rare for this to happen.  A brief list, perhaps?

  • Wells Fargo fraudulent accounts;

  • CommInsure refusing to pay valid claims;

  • CBA Financial Planning providing misleading advice;

  • ANZ and Westpac staff manipulating LIBOR;

  • NAB Foreign Currency traders gambling with customer funds; and

  • sitting above all, the behaviour we are now familiar with in the lead up to the GFC which included:

    • Goldman Sachs, JP Morgan Morgan Stanley, Merril Lynch and Lehmann Bros execs continuing to sell investments to customers after they knew the investments were rapidly losing value;

    • AIG staff continuing to sell insurance on investments even after they knew the investments were losing value; and

    • The US Federal Government bailing out the above and a large portion of the bailout funds going to pay bank and insurance company bonuses.

It appears the carrot and stick model is broken… in a fundamental way.

I can say this because I worked for two major banking groups and saw and experienced a lot of immoral and unethical behaviour occur in the pursuit of sales targets.

What type of behaviour? I know… It’s the logical question. 

Well, here are some things that happened while I was inside:

  • Bankers’ employment or even careers being ended because they weren’t willing to work the ridiculous hours necessary or behave the right way to exceed a sales target;

  • Text messages being sent to two bankers to blackmail one of them into chasing a deal opportunity rather than let it be passed to another district;

  • Bankers transferring customer groups to each other for the sake of portfolio balance, and only transferring groups that had been tagged as needing to be sent to “bad bank”;

  • Managers actively looking for opportunities to “throw each other under the bus” when talking with senior executives;

  • Exploiting customer fears about either interest rate or foreign exchange volatility, just to sell hedging products; and

  • The charging of egregious application fees with no link to hours worked or effort applied.

Unpleasant reading, huh?

The study of how incentives can be used to encourage and discourage behaviour is the foundation of behavioural economics.

If you want to encourage behaviour, reward it.  If you want to discourage behaviour, punish it or apply a cost to it.

The problem here is the incentives are set, and then paid, as reward for selling, growing revenue and growing profit. 

In my eyes the obvious questions are now, what type of behaviour do we want to encourage, and what behaviour do we want to discourage?

Well, my initial thoughts are the types of behaviours Big Corporate usually list as their “core values”.  Stuff like integrity, reliability, care, perseverance. 

Problem is, those core values are just public relations tools to distract you from actual behaviour, while the way bonuses and incentives are paid reveals the behaviour that is truly valued.

With the scrutiny of the banks comes scrutiny of brokers as well.  It’s a natural progression.

Brokers are clearly incentivised to sell as we don’t get paid unless a loan settles, and this can and does cause moral conflict. 

That’s why both the Australian Securities and Investments Commission (ASIC) and the Australian Prudential Regulation Authority (APRA) are investigating the broking industry.

The focus is on “positive customer outcomes”.  Love that.  Management speak for making sure the customer gets what they wanted and needed and were aware of the implications of their choice before making the choice.

I stay informed; get daily updates from industry commentators; and not a week goes by where a broker isn’t banned either for many years or for life for behaving either immorally, unethically or both.

That’s what I mean about the incentives in my industry causing moral conflict as these reports are evidence that people have fallen prey to the incentives and ignored their own moral code.

I am sure the head honchos of our Big Four will respond the same way as I do when faced with evidence of widespread graft and corruption in their industry:  it’s a small minority; the rotten apples that ruin the barrel.

It’s easier to say that, and make ham-fisted attempts to weed them out, than to change the way incentives are set up.

In my view, every customer of mine should be called after we have complete our business and they should be asked if they are happy with the way their affairs were handled.  Did they feel comfortable and that their interests were being protected and promoted?

If the answer is yes, play on.  If no, then no payment to me.  Simple.

Now, I don’t know who would make that phone call.  I couldn’t do it as I have a vested interest, would likely ask the question in a loaded way and the customer would likely feel uncomfortable responding honestly.

But I’d like it to happen.

Now bankers?  That’s another question as they are employees, so they get paid regardless, but surely linking incentives to long term performance is better than short term.

Performance around reliability, ability to communicate often and clearly and show that customer’s interests are balanced with the organisation’s.

And once again, who makes that call?  Not a bank employee.  Once again, vested interests and loaded questions come to mind.

Then who?  We already have a lot of regulation and that seems to be a dirty word these days.

Tough question, and one to which I don’t have the answer.

So, I guess what I am trying to say here is self-interest is ugly, which is why attempts are always made to hide it. 

As the world becomes more global via digital technology, it appears we are actually trying to make it more local: create a better sense of community and belonging: look out for each other’s interests.

This seems to be widespread with courses in moral philosophy experiencing a resurgence in popularity at high school and university level.

There is a hunt on for ways to encourage better behaviour in business and social life, and identify and vilify poor behaviour.

The leaders of tomorrow will be the ones who exhibit these behaviours and set incentives from the top down to encourage them, rather than just talk at us while behaving badly.