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Banks’ leadership teams are fatally flawed

I was chairing a conference with various speakers, when Gartner Group stood up and talked about their annual bank survey.  They found that of the senior bankers surveyed, 76% don’t believe that digitalisation will affect their business model.

 

I can tell you that 76% of banking respondents are wrong.  Of course digitalisation is affecting the business model, and if you don’t think it is then you just need to read this blog’s many entries about platformification; back office overhaul through cloud and machine learning; the blockchain impact of shared databases; the rapid cycle change of microservices organisations; the rise of innovation economies in Africa and growth economies of China; and more.

In fact, I would be amazed if anyone who reads my blog could honestly say that digitalisation doesn’t change their business model.  After all, the business model of banks was built for face-to-face interactions backed up by paper documentation; the business model of digital banks is for device-to-device interactions backed up by data.  The two are completely different.

It doesn’t worry me that bankers think their banks business models don’t need to change – after all, banks are run by bankers and it’s their problem – but it does worry me that people in charge of such systemically important aspects of our lives could be so dumb.  I think it just reflects the lack of insight into how digital transformation is impacting the world, and the lack of balance in the banks boardrooms.

This was evidenced by the Accenture analysis of the boardrooms of the 100 biggest banks in the world:

Accenture research, analysing professional technology experience in boardrooms of more than 100 of the largest banks around the world, shows that:

  • Only 6% of board members have professional technology backgrounds.
  • Only 3% of these banks have CEOs with professional technology backgrounds.
  • 43% of the banks analysed don’t have any board members with professional technology backgrounds.
  • 30% of these banks have only one board member with a professional technology background.
  • In North American banks, 12.1% of board members have professional technology experience, compared with 5.1% in European banks and 5% in Asian banks.
  • Though boards of banks in the United States and the United Kingdom have higher percentages of directors with professional technology experience than others, the numbers are still low—at 16% in the US and 14% in the UK.

Banks are led by bankers even though banks are FinTech firms.   That is the fatal flaw here, as FinTech firms are led by technologists and bankers.  Most FinTech firms I meet have a healthy balance of young, bright technology experts and seasoned financial people.

That is why it’s interesting to see that the biggest banks are gradually reconstructing their boardrooms for more balance, or so this year’s trends predicted.  When I think of a bank’s boardroom, I tend to have a picture in my head like this.

Lots of old men in suits (and the numbers prove this).  In fact, I use this picture in my presentations now and, when this appears in a public forum, it actually gets applause.  I guess it is because I am making a point about both leadership and diversity.  If a bank’s leadership team is a bunch of old men in suits, how can they understand the needs of millennials and women?  If they have no leadership that has technology vision, how can they compete with FinTech’s who have far more balance?  If a bank’s top team does not know the difference between a blockchain and a distributed ledger, how do they know thy are investing in the right things?

I sometimes feel sorry when I use these slides in internal meetings, but only sorry for the executive leadership who have been enjoying my banter up until this point.  Their youthful underlings are normally snickering at this point, whilst the CEO is giving me the evil eye.  I just don’t care though as a bank will be led over the cliff if it does not have a balanced boardroom that is half tech and half finance.  That is what FinTech’s leadership teams demonstrate.  When I think of a FinTech Boardroom, I think it’s more like this:

It’s an awesome room of young, diverse people who are excited and visionary.  It does have some old hands on board, but it’s balanced.  And the vibe in the room is one of change the world rather than stop the world.  So what I really expect in the next decade is to see a bank boardroom become just a little bit more awesome.

Still a bit grey, but also a little younger, more diverse and a healthy mix and balance of financial acumen and technology vision.  Please.

 

This article was originally published on FinXTech.

About Chris M Skinner

Chris M Skinner
Chris Skinner is best known as an independent commentator on the financial markets through his blog, the Finanser.com, as author of the bestselling book Digital Bank, and Chair of the European networking forum the Financial Services Club. He has been voted one of the most influential people in banking by The Financial Brand (as well as one of the best blogs), a FinTech Titan (Next Bank), one of the Fintech Leaders you need to follow (City AM, Deluxe and Jax Finance), as well as one of the Top 40 most influential people in financial technology by the Wall Street Journal’s Financial News. To learn more click here...

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  • Lee Thorpe

    I couldn’t agree more with this article. Banks need to become technology companies, without proper representation on the board strategy will be set based on an outdated view of capability. You could argue that technology should drive strategy based on the art of the possible, but until a Fintech breaks the monopoly I unfortunately don’t see change and in that regard the old guard are probably right.

  • harshv

    Chris, definitely agree that leaders in banks need to be much more technologically aware than they possibly were in the past. This lack of technical awareness contributes to organisational siloes that create an additional drag on the bank’s ability to compete in a fast moving and evolving landscape.

    Disturbingly, I’m seeing a real trend even within the bank IT leadership towards more control, very low tolerance for failures and effectively a culture that does not promote the kind of free spirited enthusiasm you see in the FinTech boardrooms. There are token ‘innovation festivals’, specified windows of time during which teams are supposed to innovate and come up with ideas to challenge FinTechs, but this is unlikely to result in any real change till such time as the culture itself moves to resemble that of a nimble FinTech firm.

    Real cultural change is needed across all elements of bank organisations if they are to remain as relevant as they are today.

  • Ian O’Neill

    There are many peaceful, first rate people in banking, and boardrooms, also boardrooms are changing to reflect new demographics but regardless, it will always be a case of follow the money – who owns the lions share? who controls the interest rates? Despite fintech it will always be about centralization. Don’t believe me? Stick around for another 20 years.

  • Roman Bourquin

    so true… as always…