Financial services sector underperforming as leaders struggle to adapt to new environment

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1 Under embargo until Tuesday 14 May 2013 Financial services sector underperforming as leaders struggle to adapt to new environment Financial services organisations significantly outperformed by peers in other industries Coercive FS leaders struggle to create energised, customer-centric teams Recruitment and reward practices lock in cycle of underperformance Over-confidence in FS leaders holding back transformation New research calls for captains of financial industry to recognise their own strengths and weaknesses in order to adapt to the new business landscape Financial services firms are struggling to adapt to their new environment, as prevailing leadership, reward and recruitment practices hold back performance, according to new research from global management consultancy, Hay Group. Financial services (FS) firms have been at the centre of a deep economic and confidence crisis since recession. And, according to Hay Group s report, Appearances Can Deceive, recent times have been marked by comparative underperformance in both quantitative and qualitative measures. Comparing financial firms performance to other industries reveals a gap of up to 40 per cent since Spring 2011 in market capitalization (KBW banks Index 1 and S&P insurance Index versus S&P 500). And for the first time, the sector no longer features in Hay Group s latest top 20 Best Companies for Leadership (BCL): global research which ranks organisations against dimensions such as ability to meet customer needs, agility, collaboration and innovation. The core of the challenge According to Hay Group s research, leaders in financial services heavily rely on the coercive leadership style 2, asking their employees for narrow actions and results, rather than engaging, enabling and nurturing their peers and team members. The coercive style is dominant in approaching half (43 per cent) of FS leaders, and while it is effective in a crisis, over-use erodes the innovative capabilities of a workforce and can lead to rebelliousness amongst employees. This style also creates a stifling environment where initiative, innovation and even whistleblowing are strongly suppressed. FS firms also typically attract and recruit individuals with high IQs and achievement drive but relatively low emotional intelligence. This has created an incoming generation of managers more focused on their own achievement than inspiring others, which has been cemented by reward practices that support short-term results. Graeme Yell, director for the financial services sector at Hay Group in the UK, comments: The FS landscape has changed, but organisations in the sector are struggling to adapt to the new environment; the pace and burden of change is such that very few are looking beyond the immediate. The sector s future winners and losers are being defined today and some winners may even come from other industries.

2 As the UK s new regulatory regime demands a shift away from financial high risk, high return strategies, low interest rates continue to erode margins and the benefits of cost cutting become flat, there is a strong opportunity for sector leaders to reassess and refresh their internal practices in order to resume profitable growth. New leadership practices are required to drive productivity and discipline to encourage customer-focused innovation, and real leverage of decreasing transaction costs in a network economy. Care to innovate? However, according to Hay Group s research, prevailing internal practices are contributing to lower levels of innovation and client focus in the financial sector than other sectors. Fewer than two thirds (61 per cent) of FS employees state that their firm offers good quality support to customers 14 per cent lower than seen in high performing firms across all sectors (as ranked in FORTUNE s Worlds Most Admired Companies). And only 72 per cent believe that their organisation seeks to understand the customer s needs, compared to 82 per cent in high performing firms. In addition, just half (53 per cent) of FS firms score well for innovation, compared to almost three quarters (70 per cent) in high performing companies. Graeme Yell comments: With a pervasive lack of authoritative, empathetic and coaching leadership, many FS firms are struggling to reinvent themselves and develop business models for today s customers and competitive landscape 3. "Leadership and coaching in FS firms are often seen as secondary to technical excellence. Consequently, development is consistently neglected or treated as a skill-building sticking plaster rather than a source of competitive advantage. A look in the mirror The Hay Group report calls upon FS leaders to reflect on, identify and address the traits holding their organisations back, in order to break the cycle of underperformance. Unfortunately, Hay Group s research identifies an endemic over-confidence among FS leaders, which makes it difficult for them to recognise the need for transformation. Managers in the sector consistently score themselves higher than their colleagues rate them in all of the 12 competencies that constitute emotional and social intelligence. 3 Graeme Yell comments: Success in this new market will come to those who are able to rebuild trust with customers, employees and society at large. To do this, leaders in financial services must take a long, hard look in the mirror and examine their own leadership, reward and recruitment practices. However uncomfortable and challenging this may be, it will allow them and their organisation to adopt fresh practices and perspectives. Looking outside at their clients needs is also necessary in order to develop value for them in radically new ways. Tried and tested risk management, discipline and financial innovation have served them well for many years. It is now time to add new leadership capabilities to the mix in order to thrive in the new economy. Ends

3 For further information For more information, to view the report or to organise an interview with Graeme Yell please contact Julia Burns or Rebecca Parish on / teamhaygroupuk@manbitesdog.com Notes to Editors Please note: this research should be credited to global management consultancy, Hay Group, and not Hay or Hays, which are separate and unrelated organisations. 1 An economic index consisting of the stocks of 24 banking companies, this index serves as a benchmark of the banking sector. 2 Through many years of research and client work, Hay Group has defined six styles of leadership that a manager can employ: coercive, authoritative, affiliative, democratic, pacesetting and coaching. Please find brief definitions below. Coercive: Coercive leaders tell staff what to do, and expect them to do it. They then check over employees' shoulders, and are more likely to criticise what they are getting wrong rather than praise what they are doing right. Authoritative: The authoritative leader is focused on achieving the long-term direction and vision, and ensuring that everyone is motivated and working towards the big picture. Authoritative leaders win people over, convincing them that they want to do the job. They create a positive climate that elicits the best from the team. Affiliative: The affiliative leader wants everybody to get along. Keen to be seen as just like one of us, he or she strives to create harmony within the team by focusing on people rather than tasks. Affiliative leaders trust that if they treat their employees well, they will be rewarded with loyalty and high performance. Democratic: The democratic leader wants to get the best from their team by sharing decisions and responsibility. Keen to achieve commitment and consensus, democratic leaders involve team members in the decision-making process. They reward good team performance rather than the work of any one individual. Pacesetting: With a motto of my way is always best, the pacesetting leader assumes that the most effective way to accomplish a complex job is to do it him or herself. The pacesetter is highly task oriented, giving detailed instructions to help team members carry out tasks. He or she expects a job to be done to the very highest standard. Coaching: The coaching leader pushes team members to be the best they can be. He or she invests the time to understand individuals strengths and weaknesses, and works with them to achieve their personal development goals. The style focuses on building long-term capability, even at the expense of short-term performance.

4 3 About the study Hay Group has one of the world s largest databases of corporate culture and employee opinion. In addition, the work of its McLelland Center for Research and Innovation provides insights into the assessment, selection and developments of hundreds of thousands of managers and executives globally. The data referenced in this report is drawn from in-depth analysis of Hay Group s proprietary financial services organizational data. It comprises: Hay Group s Best Companies for Leadership study Hay Group has researched the Best Companies for Leadership since This, latest, survey includes responses from nearly 7,000 individuals at more than 2,300 organizations worldwide. The survey was based on the organization s response to an online questionnaire and peer nominations. Respondents that completed the survey were from 103 countries, with 11 percent from North America, 35 percent from Europe, two percent from the Middle East, 21 percent from Asia/Pacific/Africa and 31 percent from Latin America. Talent Q database 2012 online, work-focused psychometric tests These online, work-focused psychometric assessments screen and assess large talent pools, measuring work-related personality attributes (Dimensions) and numerical, logical and verbal reasoning (Elements). This study has drawn on the results of 5,018 personality assessments from

5 three types of financial services organisations (asset management, retail banking and insurance). They have been compared against the Talent Q global norm of over 30,000 managers, professionals and graduates. The review has also looked at Elements completions in financial services, specifically 34,648 numerical assessments, 14,144 logical assessments and 29,046 verbal assessments and these have been compared against the professional graduate and managerial norm for each of these assessments (170,119 numerical, 65,244 logical and 145,916 verbal). Hay Group s Emotional and social competency inventory (ESCI) is an online survey tool which delivers a 360º assessment of an individual s behaviours across the 12 competencies that comprise emotional and social intelligence: emotional self-awareness, achievement orientation, adaptability, emotional self control, positive outlook, empathy, organisational awareness, conflict management, coaching and mentoring, influence, inspirational leadership and teamwork. This study refers to data collected during the period from 1,021 financial services senior executives, benchmarking them against 12,385 of their peers from a variety of sectors including professional services, pharmaceuticals, technology, manufacturing, retail, energy, public services and education. Motives and values database ( ) Hay Group s motive profiling methodology is one of the most widely researched instruments in the entire field of psychology and personality assessment. By scoring individuals against the three social motives that collectively explain the widest range of human social behaviours, this diagnostic tool generates a personalised motive profiles and allows you to explore how this relates to your work and life in general. This study draws on the values data of 6,863 financial services leaders and the motives of 7,303. Hay Group s leadership styles and climate data For over 60 years we have conducted research into the links between how leaders learn and change, and the types of performance climates they create. The full data file used for this study comprises data from 202,198 leaders from 1,992 organisations. The report looked at 31,000 financial services assessments. Those assessments came from 2 8,359 financial services managers, from 208 organisations. Hay Group s Insight database analysis ( ) Hay Group s Insight database comprises employee opinion data. This study looked at responses collected from more than 50 financial services companies around the world and includes data from over 725,000 employees. It was compared against a general industry norm (GI) and a high performing company norm (HP). GI: 350 companies globally with data from over 5.5 million employees. HP: 35 companies around the world in a wide variety of industries and comprises data from over 1.4 million employees. About Hay Group Hay Group is a global consulting firm that works with leaders to turn strategies into reality. We develop talent, organise people to be more effective, and motivate them to perform at their best. With 86 offices in 48 countries, we work with over 7,000 clients across the world. Our clients are from the public and private sector, across every major industry, and represent diverse business challenges. Our focus is on making change happen and helping organisations realise their potential. For more information, please visit: