By Rona Beattie, Professor of Human Resource Development at GCU London.
The banking and financial sector have struggled to react responsibly to the intense and increasing competition in the industry resulting from deregulation, globalization and technology. Consequently, in the past 25 years the banking and financial sector’s reputation has plummeted as a result of various scandals and malpractice. These have included the industry, particularly banks, moving away from their core business of providing banking services to their existing customers to focusing staff efforts on add-on sales, such as insurance products, irresponsible lending on mortgages and credit cards, and appearing to put more effort in trying to attract new customers rather than supporting their existing ones.
Events such as the recent Global Financial Crisis, which many attribute to the sector’s poor practices, and the need for financial regulators in the UK and USA respectively to investigate PPI mis-selling and sub-prime mortgages have made the wider population more aware of the of the sector’s weaknesses. As the public does not tend to distinguish the difference between retail and investment banking, malpractice in one tends to reflect on the whole sector. The media frenzy resulting from these activities has been demoralizing for staff. Indeed there are many anecdotal stories of employees giving another occupation/employer when asked who they work for, whereas in the past working for a bank or investment house was a badge of pride.
In recent years poor management practices have further demoralized staff, as well as potentially putting off well-qualified and ethical recruits. The intense competition and bonus culture has seen managers resorting to very poor people management practices.
Firstly, ridiculing employees who have not hit sales targets. For example, following the merger of BoS and Halifax in 2001 to create HBOS, two managers put a cabbage and a cauliflower on the desks of employees who had not hit their targets. Whilst condemned by senior management this is an example of what can happen lower down in an organisation with a cutthroat sales and bonus culture.
Secondly, expecting junior staff to work excessive hours way beyond their pay grade. For example there was considerable concern expressed over the intern at Merrill Lynch in London who died last year after allegedly working all night several times in the period before his death. This tragedy exposed a wider practice of potentially exploiting ambitious young graduates keen to have to an investment banking career by either expecting them to work very long hours.
Thirdly, during the recent financial crisis, some banks created a culture of presenteeism by exploiting employees’ fear of job insecurity, so that they even turned up for work when they were ill. Ironically this is counter-productive as the individual may take longer to recover as well as being around a third less productive, while potentially passing their illness on to colleagues.
Finally, the ultimate misuse of managerial power can be seen when employees who have the courage to challenge senior management are dismissed or their life made so miserable they have no option, but to leave; in effect constructive dismissal. The most extreme examples of this occurred at HBOS and RBS in relation to concerns expressed by internal experts on risk management.
Such pressures, as those above, can lead to employee stress ultimately resulting in physical and mental health problems. The HSE in 2011 reported that 18,000 employees in the UK financial and insurance sectors had suffered from workplace stress, ranging from all levels of employees. Not only is this unethical it also costs the sector money in sick leave, reduced productivity, and recruitment costs for replacing employees who may leave. A hidden cost is also the impression this creates amongst potential recruits. The sector won’t be able to continue attracting high quality candidates if it doesn’t improve its image. Gen Y graduates, whilst looking for the good salary that the sector may provide, also want careers with ethical organisations that offer a good work-life balance. They will leave if they feel they are being mistreated and many also have a heightened awareness of the need for responsible leadership, both for employees and wider society.
How can the sector move on from this situation, and regain the respect of the public (and employees)? They need to make a significant investment in leadership development that focuses on trying to create a new culture within the sector. The sector needs to shift from a sales culture back to a service culture, and focus on responsible leadership for employees, customers and wider society. With regards to employees, research from the UK and USA has shown that line managers have a critical role to play in the development of staff and in their health and wellbeing; both of which can contribute to enhanced productivity. These studies have shown there are high levels of return from the investment good line managers make in caring for their employees. For example, managers who are supportive and encouraging, show a human interest in employees and provide feedback and praise where appropriate have seen evidence of improved retention and productivity and reduced absences in their organisations.
Achieving the above requires change at all levels of the organisation, especially among senior executives at the top. Research has demonstrated that junior managers tend to see senior managers (their line managers) as role models. If their manager is a bully there is a considerable risk that they will emulate that inappropriate behaviour. If senior managers actively demonstrate that responsible leadership is the way forward then there is a very real chance that the sector’s culture can become more positive and that ultimately the sector can retrieve its reputation, however it will take longer than the next 6-months financial report.