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WHAT MAKES A GREAT LEADER IN THE FINANCIAL SECTOR?

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Elaine Wilson

Elaine Wilson, Managing Consultant, ASK Europe plc

To answer such a broad question, one place to start is to identify some of the particular characteristics of the sector: a highly regulated environment, in which compliance, process and procedure are more highly visible than in most other fields, and in which internal targets also loom large.

Elaine Wilson

Elaine Wilson

One measure of leadership, and more specifically its impact, is engagement and satisfaction. A recent Weber Shandwick survey scored the sector highly for access (having the tools to perform a job), involvement (feeling listened to) and desire (a sense that jobs are aspirational). A 2012 Maritz Employeement Engagement Poll meanwhile identified the sector as performing strongly in terms of recognition and reward, particularly around customer service, although the eye is caught by the additional phrase “and adherence to the prominent values of the organization”.

Equally informative, however, are the aspects of engagement where the sector showed room for improvement. While a lower than average sense of excitement about the job may not be entirely surprising in a process-dominated environment, the weakest performances were in ‘meaning’ (a sense of purpose) and in having a sense of common goals and shared interests.

There is perhaps a link here to the target-driven nature of the sector, much of which relates specifically to sales targets. Finance is not, of course, the only sector where a potential downside has been noted. In January 2013, Prof Norman Williams, president of the Royal College of Surgeons, commented in The Daily Telegraph that:
“Managers at Mid Staffordshire NHS Foundation Trust […] were so focused on hitting financial and waiting time targets that they “forgot why they were there.”

Targets derived – with good intentions – as indicators of progress towards a higher objective (in this case, providing health care and quality of life), can also become drivers of behaviour and serve as blinkers to the bigger picture. They can also act as a handbrake on innovation: the more narrowly attention is focused on ticking the box, the harder it becomes to see or think beyond it – a tendency that a ‘compliance culture’ may also serve to reinforce.

In his book The Art of Action, Stephen Bungay includes the (fictional) tale of Joe, recently appointed to head a major organisation’s product development centre and wrestling with complex challenges with his team. Here is part of one of his conversations with them:
“What we are trying to optimise is the outcome. The measures are the dashboard. We’ve got a speedometer, a milometer, and a fuel gauge. We need to watch them, but we should not confuse the readings on them with what we really want to do, which is to arrive at our destination.”

In a major 2010 research study, Exceeding Expectation: the Principles of Outstanding Leadership, the Work Foundation explored the difference between ‘good’ leaders and those considered truly ‘outstanding’:
“Outstanding leadership focuses on the few key systems and processes which help provide clarity, give structure, enable feedback, allow time for discussion and enable the development of vision. They use them to achieve outcomes rather than focus on the process, and put flexibility and humanity first.”

Another key distinguishing factor also bears re-iteration: outstanding leaders strive to create and enable a strong, shared sense of purpose with direct, clear meaning. ‘What?’ is a vital question to answer, but the finest leaders do so without forgetting that also answering ‘Why?’ will give their first answer a greater sense of meaning. This enhanced answer connects the employee not only to their specific role, providing a context for their own input that enables them to feel a sense of contribution, but also connects them to the organisation – it enables them to see the wheel within which they might otherwise identify only a small number of cogs.

One way to recast this distinction is to consider the difference between leading and managing. The latter is primarily concerned with making the optimum use of resources, and with controlling, organising and marshalling. By contrast, leading – in the sense of working to inspire a team – is focused less on ‘resources’ and more on ‘human’: leaders must inspire and motivate, balancing the needs of both task and team and developing an acute understanding of both.

If we consider what Goleman, Boyatzis and McKee called ‘The Leadership Repertoire’ in their book, Primal Leadership, two leadership styles are particularly relevant: visionary leadership and coaching. The visionary leader prioritises destination over the details of the route, and inspires the team not only to innovate and experiment (thereby promoting both innovation and a sense of meaningful contribution) but also to be fully committed to completing the journey. This prioritising of the requirement to inspire requires a specific emotional intelligence: empathy. Without an understanding of their audience’s perspective and outlook, a leader cannot hope to convey an articulate or meaningful vision.

The coaching leader also requires empathy, listening before giving feedback, reacting or setting challenges, but also creating a sense of trust and of a personal conversation. While responsibility for improving performance ultimately resides with the individual, the coaching leader encourages a sense of an investment being made in the individual and of a commitment to their improvement. Coaching is not micro-managing: the employee is not a tool to achieve the leader’s goals, but an individual working within the broader organisational context to achieve their own. Coaching is focused on the individual rather than the task, but encourages the self-confidence and motivation that enables the individual to master or rise to the challenge that the task embodies.

As in any sector, the single most important key to this is to remember that performance, whether individual or team, is ultimately achieved through and by people rather than by processes or procedures. And the important key to people is to work to understand them as individuals as well as holders of specific titles or performers of specific tasks: while the sector’s performance in equipping employees to fulfil their responsibilities is laudable, equipping someone to excel requires attention to the less tangible elements of the working environment – trust, honesty, openness, and a sense of being valued and developed.

Finance

Global dividend payouts forecast to revive in 2021

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Global dividend payouts forecast to revive in 2021 1

By Joice Alves

LONDON (Reuters) – Global dividend payments could rebound by as much as 5% this year, a new report estimated on Monday, after the coronavirus caused the biggest slump in payouts since the financial crisis more than a decade ago.

Companies’ payouts to shareholders plunged more than 10% on an underlying basis in 2020 as one in five cut their dividends and one in eight cancelled them altogether.

A total of $220 billion worth of cuts were made between April and December, based on investment manager Janus Henderson’s Global Dividend Index. But there are signs companies are beginning to reinstate at least some of them.

Janus Henderson’s report warned that dividends could still fall 2% this year, in a worst-case scenario. But its best-case scenario sees 2021 dividends up 5% on a headline basis.

“It is quite likely we will see companies pay special dividends in 2021, utilising strong cash positions to make up some of the decline in distributions in 2020”.

Banking dividends will be likely to drive the rebound in payouts in 2021, the report said, after the European Central Bank and Bank of England eased blanket bans for lenders on dividends and buybacks. These were imposed during the first wave of the crisis to prepare for a potential increase in bad loans.

UK lenders Barclays and NatWest resumed payouts this month.

Last year, dividend bans meant banks cut or cancelled $70 billion of payments globally, according to the report.

But the overall global dividend cuts proved less dramatic than expected. In August, Janus Henderson had expected the virus to drive corporates to cut $400 billion worth of dividends, nearly double the eventual outcome.

A resilient fourth quarter of 2020 helped, said Janus Henderson. The likes of German car maker Volkswagen and Russia’s largest lender Sberbank restored payments.

Mining and oil companies cut dividends after a slump in commodity prices, while consumer discretionary companies also took a hit following lockdowns.

European dividends, not including Britain, fell by 28.4% on an underlying basis in 2020 to $171.6 billion. “This was the lowest total from Europe since at least 2009,” Janus Henderson said.

(GRAPHIC: Dividend cuts by region –

Global dividend payouts forecast to revive in 2021 2

In contrast, North American payouts rose 2.6% for the full year, setting a new record of $549 billion, the report said. Canada had the fewest dividend cuts anywhere in the world, the index showed.

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Former Bank of England Governor Carney joins board of digital payments company Stripe

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Former Bank of England Governor Carney joins board of digital payments company Stripe 3

By Kanishka Singh

(Reuters) – Mark Carney, former head of the UK and Canadian central banks, has joined the board of U.S. digital payments company Stripe Inc, days after the company was reported to be planning a primary funding round valuing it at over $100 billion.

“Regulated in multiple jurisdictions and partnering with several dozen financial institutions around the world, Stripe will benefit from Mark Carney’s extensive experience of global financial systems and governance”, the company said on Sunday, confirming a report by the Sunday Times newspaper.

Forbes magazine had reported on Wednesday that investors were valuing Stripe at a $115 billion valuation in secondary-market transactions.

A senior Stripe executive told Reuters in December that the company plans to expand across Asia, including in Southeast Asia, Japan, China and India.

The company offers products that allow merchants to accept digital payments from customers and a range of business banking services.

Stripe raised $600 million in April in an extension of a Series G round and was valued back then at $36 billion.

Consumer-facing fintechs have seen a boost to their businesses during the COVID-19 pandemic, as people have been staying at home to avoid catching the virus and have increasingly been managing their finances online.

Carney, who headed the Bank of England and the Bank of Canada, had a 13-year career at Wall Street bank Goldman Sachs Group Inc in its London, Tokyo, New York and Toronto offices.

He is the United Nations special envoy on climate action and finance.

(Reporting by Kanishka Singh in Bengaluru; Editing by William Mallard)

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The potential of Open Finance and the digitisation of tax records

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The potential of Open Finance and the digitisation of tax records 4

By Sudesh Sud, Founder of APARI 

The world is undergoing huge changes at the moment. Between coronavirus pushing the economy to the limit and a group of Redditors challenging the financial market hegemony, people are questioning the role of established institutions. If finance doesn’t work to enable the economy, businesses or individuals, then who is it for?

Before the digital revolution, financial experts were seen as a necessity. They knew how things worked, what everything meant, could provide good advice and were employed to sit at the heart of the action. Now, trading can be done by anyone online through established platforms, with a wealth of information available to hand.

Yet, as the 2008 financial crisis proved, established financial institutions have made themselves too big to fail. Simply tearing down the existing financial system would leave many ordinary people, along with businesses and government treasuries, in ruin.

However, as legendary futurologist, Buckminster Fuller, once said: “You never change things by fighting the existing reality. To change something, build a new model that makes the existing model obsolete.”

Traditional banking models are already being upended by technology. Through Open Banking, challenger banks are able to connect services digitally, cutting inefficiencies and costs while speeding up transactions. Now, Open Finance is seeking to build on this model to connect financial services via technology, potentially making the existing financial model obsolete.

Just as Open Banking led to greater democratisation of money, Open Finance has the potential to transfer power back to individuals. Not only would this benefit society as a whole, but it would help minimise the boom-bust cycles that cripple entire economies. No individual would be too big to fail, and bailing people out would cost far less, having minimal impact on the economy overall.

With more information available to them, Open Finance businesses will be able to use technology to make better decisions instantly. Many people struggle to get onto the housing ladder due to a poor credit score, for example, yet they have been paying rent every month of their adult lives. Why, then, can they not access mortgages? A company called Credit Ladder is addressing this through Open Banking, reporting rent payments via challenger banks like Starling to credit agencies, helping good renters to access mortgages.

While it is still very early days for Open Finance, there seems to be an endless raft of possibilities to benefit individuals, businesses and national economies. Faster, more secure, and less risky access to credit can help grow the economy, transforming finance from something that benefits a few wealthy capitalists to something that enables growth in the real economy.

So how else could Open Finance benefit society?

Using Tax Information

Every working adult pays income tax. Some of us via self-assessment while others are enrolled in PAYE. Regardless, we all have tax records with a wealth of financial information that has been verified, at least in part, by HMRC.

This centralised repository of financial information could be put to better use, such as allowing credit reference agencies to better understand an individual’s risk profile or helping to prove income as part of a mortgage application. Unfortunately, HMRC is a black hole of information ‒ its sheer size and power sucks information in, but nothing comes back out again.

However, by Making Tax Digital (MTD), HMRC are effectively allowing individuals to keep validated tax records on the software of their choice. Software providers may then be able to use this information to enable certain aspects of Open Finance. The information doesn’t need to be protected by HMRC, it is the individual’s choice and responsibility over how to use their own information.

As MTD software develops, we will see it connected to Open Banking, allowing self-assessed taxpayers to connect their business account directly to the software, effectively getting their tax return completed for them by an AI program. They would simply check the details, add any adjustments, and click submit. HMRC would then validate the records, providing assurance for any financial institutions using that financial information.

More Growth, Lower Risk

With access to complete and validated financial information, lenders would be able to more quickly and accurately assess individual risk when considering a loan or mortgage application. This would greatly speed up the process of applying for a loan, whether for a business venture or property purchase, for example.

Take residential landlords, for example. They may own a few properties already, with equity coming out of their ears. If that landlord wants to obtain another property, they would need to get their accountant to assemble their financial information, complete a SA302, and send everything off to their mortgage advisors who would then validate the information before submitting the mortgage application.

The application can then take months to approve, slowing down the process and potentially leading to missed opportunities. Since property sales usually occur in a chain (the owner of the property you are purchasing is usually purchasing another property, and so on), these inefficiencies slow the process down for everyone and can have major impacts.

If, however, mortgage applicants could simply share validated financial/tax records, mortgage providers could use that information to make quick decisions with reduced risk. What’s more, applicants could share only relevant, high-level information, rather than expose their entire financial history.

Individual Risk Management

Currently, individuals can manage their credit score/risk profile via third party providers like Experian, Equifax and TransUnion. These credit reporting agencies use limited information, such as credit cards, store cards and loans to assess risk. Individuals need to understand what factors each agency uses in order to ‘game’ the system.

For example, someone who has always been careful with their money, kept to a strict budget and never taken out a loan or credit card will have a far worse credit rating than someone who regularly uses debt to finance their lifestyle. So, even though they may have amassed a good deal of savings, they cannot get a good deal on a loan or mortgage.

With Open Finance, these individuals would be able to quickly prove their earnings, spending, and savings, decreasing their risk profile in line with reality. Rather than crude measures of creditworthiness, financial institutions would be able to use accurate and validated information to make quick decisions based on realistic risk. This both transfers more power to individuals and contributes to faster growth while reducing overall risk.

As a centralised repository for validated financial information, MTD providers will be in a unique position to develop a two-sided marketplace for finance, allowing credit providers to match products to individuals’ risk profiles. When a customer needs a loan, credit card or mortgage, they can simply browse products for which they have already been approved, applying and receiving finance instantly.

Empowering PAYE Taxpayers

Currently, PAYE taxpayers have little, if any, visibility or control over their tax contributions. They will see the amount paid in tax and national insurance, but to claim any allowances requires them to submit a self-assessment tax return. For most PAYE taxpayers, this simply doesn’t seem worthwhile.

Yet, self-employed taxpayers can claim for things like travel to their place of work, a proportion of living expenses when working from home, even their lunch. These things are necessary for productive work yet, for PAYE taxpayers, come out of their already taxed income. Meanwhile, businesses tend to make use of every tax allowance available to them.

This imbalance could be rectified with Open Finance connected to tax software. As MTD becomes a validated system for self-assessed taxpayers, a new version could be developed for PAYE taxpayers, putting them in control of their tax and finances. Not only would they be able to benefit from Open Finance in the same way as self-assessed taxpayers, but they will also be able to claim for reasonable allowances. What’s more, HMRC/the Treasury/the government would be able to hold employers accountable for pay disparities and unreasonable tax avoidance.

Open Finance, then, has the power to speed up and reduce the cost of obtaining and providing finance. It would make the finance system fairer and most transparent while distributing financial power, and help to avoid the creation of too big to fail financial institutions and the boom-bust cycle that has become unfortunate features of modern capitalism.

Ultimately, Open Finance has the potential to help the UK and other nations recover from the seemingly unending series of crises that have plagued the early 21st century by allowing people to access finance quicker in order to grow their business and personal finances while reducing risk, inefficiencies, and costs.

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