THE BANKING SECTOR MUST EVOLVE TO CREATE A BETTER WORLD

There is a societal and human need to transform our financial institutions if we want to see an impact on the overall economy and society. To realize this fundamental change we have to create leaders with transformational skills and a deep understanding of cross-cultural management.

Professor Jaap Boonstra, ESADE Business School (www.esade.edu), teaches on the CEMS programme

Transforming financial institutions

There is a societal and human need to transform our financial institutions into a more sustainable and value driven business.

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The banking sector is one of the most internationalized services in our world, as we have experienced in the recent worldwide financial crisis.  Changing the way of banking is a huge challenge for bankers, governments and academics. In the last few decades our financial institutions have been expanding and growing by mergers and acquisitions and through this expansion we have created international operating banks and insurance companies. Because of this globalization, these institutions are too big to fail and difficult to control.

It is time to reconsider our worldwide financial institutions and raise the question how we are able to create financial services that support global development combined with local presence and transparency. Building alliances might be a solution in transforming financial services that are focused on real economy and connected to local communities.

International collaboration in alliances

In our global world international collaboration in alliances is developing very fast, however many international mergers or takeovers fail because cultural differences are neglected.

Alliances of international firms are more successful then mergers, especially when cultural differences are taken seriously in development of the alliance.

To transform our financial institutions we need to think in terms of cultural transformation and building alliances with transparency and local presence. This transformational challenge is closely connected with the values of CEMS, the alliance of 28 prestigious business schools worldwide (www.cems.org):

– Pursuit of excellence with the highest standards of integrity, humility, and ethical conduct.

– Professional responsibility and accountability in relation to society and the environment

– Drawing upon the value of cultural diversity with respect and empathy

When we take these CEMS values seriously, the banking sector is one of the most important businesses that needs to change in order to create a better world.

Cultures in the banking sector

The banking sector culture differs enormously across countries.

Shareholder value is a main driver in the banking sector in the Western world with a short-term perspective on profit. Profit goes before people.

In South-East Asia harmony and loyalty are important values and these influence financial services in Asia. Islamic banking means that banking activities are consistent with the principles of the Sharia and the Sharia prohibits acceptance of specific interest or fees for loans of money; you are not allowed to make money out of money.

In China the principle of Guanxi is important to understand banking activities – it is based on trust to people you know and distrust to strangers. Intermediaries are required to overcome mistrust. In China profit is important but it is based on a long-term perspective.

India has unique geographic, social and economic characteristics and these features are reflected in the banking sector. The banking sector has to serve the goals of economic policies and India has a huge experience in micro finance.

These examples make clear that it is impossible to speak about the banking sector culture in general. We need a deep understanding of country cultures and banking habits if we want to build new financial alliances and contribute to a fundamental change in our financial institutions.

Deep cultural changes

Deep cultural changes within banks in our Western world are forced by governmental regulations, which means that change on a deeper level of values and basic assumptions is not obvious. Shareholder value and short-term profit still go before people.

Cross-cultural and global management skills are necessary when we really want to transform our international banking sector and effect deep cultural changes. Transnational leadership is a quality, more than a competence. It is related to the quality of life and the quality of our society.

 Transnational leaders have a worldwide view, are open-minded and willing to experiment with new behavior. They are cultural sensitive and able to develop a deep understanding of guiding values in human interaction. They are social aware, interested in the needs and values of people around them and they recognize what inspires and fascinates them. Maybe most importantly: they know where they come from and understand their own cultural values.

Value based banking

There are good examples of value based banking worldwide.

In Europe Triodos Bank is an excellent example of a bank that pays attention to sustainability and the needs of customers and society. Worldwide, the Global Alliance of Banking on Values (GABV. www.gabv.org) is one of the most remarkable initiatives of banks that puts people before profit and is based on values like transparency, long-term resilience, investing in real economy and long term client relationships.

The alliance comprises 28 financial institutes operating across 31 countries in Asia, Africa, Australia, Latin America, North America and Europe, serving 20 million customers. It is a growing movement that influences the way people are doing business and create a living.

The glue in the alliance is based on their key values: Long term orientation, transparency and respect for people and nature. Being a manager in a GABV bank is quite a difficult task since it is not about making money but about being reasonably profitable in a people centered organization with strong values.

One of the toughest challenges in values based banks is recruiting executives that combine banking experience and technical knowledge with the right values so that they become role models within the bank and promote a value based banking culture.

Young talents exploring value based banking

Last spring almost fifty CEMS students at ESADE business school collaborated with the GABV and have developed an interesting tapestry of ideas with regards to the banking industry. One of the most important insights is that value based banking is possible all around the world, in almost every country, including Russia, China and India.

The students presented findings about cultural differences in banking around the world and offered ideas for new member banks for the GABV in India, China, Russia, Latin America, Africa, South-East Asia and Arab countries. Next to this they shared ideas to develop the GABV as a worldwide movement to change the way of banking.

The GABV representatives who experienced the research and contributions of the students, commented: “A group of 50 students with 22 nationalities took our breath that day at ESADE Business School in Barcelona. The quality of ideas and their positive energy opened-up our minds. That day we had an excellent experience that really contributed to Value Based Banking. With all that talent at hand, we didn’t miss out on the opportunity to ask these young talents what it would take to get them interested in working in the banking industry.

They framed it as “the five I’s”:

  1. Innovation
  2. International experience
  3. Impact for a better world
  4. Intrinsic values
  5. Interactions with people of different backgrounds

Sharing knowledge and reflective learning

Working on transformational issues in banking by students opens up new perspectives on worldwide banking and at the same time contributes to reflective learning and transforms the way students think about finance in business schools.

Transformational change in finance starts with the engagement of young professionals because they are the future in our businesses. Reflections of the students who participated in this mutual learning experience express that transforming financial services is valuable and possible.

“I heard in the past years various stories about certain irresponsible and careless behavior of professionals working in the banking area. Therefore, I see the coming years as a real clarification phase for myself in terms of how my generation can change banking and how the whole market values develop.“
                – Christopher Brunert, ESADE Business School, Barcelona, Spain.

“My first impression was “ah yeah, sustainable banking, how is it possible? Banking is the least attractive sector for sustainability”. However, by the end of the course I had changed my mind: we need to tackle the toughest sector if we want to see an impact on the overall economy and society!”

  • Arturo Villa, Bocconi University, Milan, Italy

“After interacting with GABV and getting to know their business model, it is inspiring to think beyond the existing culture in the banking sector. Having worked in a bank it was refreshing to see the norms challenged.”

                – Divya Patodia, Ivey Business School, Ontario, Canada

“Involving huge international bank into value based banking will be a very challenging and beneficial thing because huge bank groups have more capital capability and more relationship and management experience in local markets. Then they can help more people and don’t need to worry about lack of local relationships and responsibilities any more.”

                – Mengyao Ma, Shangai Lixin University of Commerce, Shanghai, China.

“I liked especially the collaboration between corporation and university working on practical issues that are supportive to the further development of value based banking. It is a perfect opportunity to apply what I have learnt. Such experience also inspires me to make a contribution, more or less, to change the world.”

                – Ying Zhou, University of Sidney, Sidney, Australia

“To put it simply, it is all about humanizing your environment and making it personal”.

                – Yves Patoux, University of Economics, Prague, Czech Republic.

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