How big banks can fix their leadership blindspots

By Kate Pugh
October 18, 2011

By Katrina Pugh
The opinions expressed are her own.

In the jitteriness over the stock market’s worst quarter in two years, a racing volatility index, and protests spreading across the nation’s major cities, all bank leadership (and perhaps all corporate leadership) needs to ask a fundamentally new question: “What blindspots are dogging us?”  This hardly seems like a radical question. After all, most arbitrators make their money off of other people’s blindspots by seeing around corners where others can’t.

But often, leaders are unaware of blindspots in their own organizations.  And they are unaware that they are unaware.

At UBS, blindspots led to $2.3 billion in undetected rogue trading losses, and the ouster of CEO Oswald Gruebel. Analysts have widely criticized UBS’s lax accountability, and oblique, easily-gamed bank systems.  Corporate insider Sergio Ermotti brings a strong track record to UBS’s post of interim CEO. Entering this maelstrom, however, will put his leadership to the test.

UBS is far from alone. Many other banks have disclosed the unhappy results of ignoring blindspots, such as Bank of America’s Countrywide loan portfolio, Citibank-Japan’s clumsy disclosure process, and the French banks’ Greek loan portfolios.

We, the investors and consumers need a new cry: “These banks are too big to go stale!” They all need a good air flow. Knowledge flow, that is.

We can learn from UBS’s example.  Regardless of whether Ermotti’s destiny is from interim to permanent CEO, he must start on the pathway toward greater transparency at the bank.  He needs to act like an outsider in an insider’s clothing.  Acting like an insider, he needs to quickly map out how knowledge has failed to reach across the vast network of traders, investment groups, and risk managers.  Acting like an outsider, Ermotti needs to stride across the room and open a window. He needs to seize this moment to launch a knowledge overhaul.

Advice to Ermotti and his CEO peers

UBS’s trading loss escalation is not just a failure of process. It’s a failure of knowing.  Ermotti must take the steps to fundamentally change the knowledge flow of the bank.  To do this, he must shift the attitude about knowledge sharing, and the processes to make that happen. Knowledge bases and data mining tools abound in well-endowed, techno-savvy organizations, but few people actually talk about knowing. Few believe they’ll “get credit” (literally) if they share an insight in public. And even fewer dare to ask questions out loud lest they be considered weak or incompetent.

The place to start is in the corner office.  Ermotti needs to don a second title: “Chief Convener.” A convener is an instigator of conversations. He invites others to join him in probing deep into how bank processes work, such as closing the books, calculating risk-weighted capital, and inventing derivatives.  Such conversations also probe into how people contribute to, and identify with, those processes. Such conversations can be among insiders, or between insiders and top customers and partners – even regulators. Such conversations can evoke a shared vision, fill in gaps in our understanding and promote knowledge-airing throughout the bank.

Here are three primary responsibilities of Ermotti’s new Chief Convener role:

  1. Be a knowledge advocate: Executive transitions are vulnerable to knowledge loss, not only because of departures and closed lips (while people jockey for power), but also because of simple misunderstandings about language.  Executives have blindspots with regard to who knows what, what systems we can trust, and what it all means in today’s gyrating markets.  Your job is to advocate for transparency.  Create a short list of blindspots. Develop specific knowledge-flow priorities, and corral your leadership team around these.
  2. Use dialogue, not interrogation:  Use conversation and dialogue, not just one-way knowledge-exchange, to investigate the root causes of rogue trading and other mysteries. By including a diversity of voices in the conversation – who also ask questions and test ideas – you’ll be expanding total perspectives and hearing things that you didn’t even know you didn’t know.  Make it visual. Flip charts, electronic desktops, and even Lego blocks help. Importantly, you must shift the tone from witch-hunt to fact-finding. Curiosity trumps accusation as a way to build transparency.
  3. Expand your conveners: Build an army of “conveners of conversation.” Look for those who are good at bringing people together, have good networks, and are inherently curious.  Select for those traits in your leadership team, as well.  Support those conveners and other knowledge workers around the organization by redoubling your investment in collaboration tools, social media, and virtual conversations, like town halls and crowd-sourcing.  Promote document-sharing without excessive content silos or lock-downs. Get your compliance lawyers to stop throwing up obstacles to putting insight on your intranet.

The three “Chief Convener” approaches will serve Ermotti well in the CEO role, with focus, process, and a growing capacity to make transparency part of the fabric of the organization.  Chief Convener approaches can also help air out knowledge in other banks that we would consider “too big to stale.” When the leaders show that they regard knowledge-flow as vital to risk management and performance, over and above personal gain, new internal collaborations emerge. The bank works better with the larger banking ecosystem – customers, regulators, investors, and even the press.

Leaders can’t leave the mission of knowledge-flow to the HR professionals and information technologists.  They must take the time to convene conversations, and model the transparency-culture they want to create.  Let their conversations be the first fresh air that breathes through the stale places.

Connect with Katrina Pugh on Twitter and LinkedIn.

2 comments

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While I like the encouragement – I suggest you might have “buried the lead” as they say. In approach #3: “…Look for those who are good at bringing people together, have good networks, and are inherently curious”. I think that CURIOUSITY is the key to airing the house, and gaining transparency. Instead of hoping that CEOs ask “what are the blind spots?”, let’s rally around the curious people and set them to work on asking questions and solving problems… something they’re wired to do. Let’s make curiosity a prerequisite for the c-suite!

Posted by MichelleRansom | Report as abusive

[...] In How Big Banks can Fix Their Leadership Blindspots (disclosure: Kate and I are both faculty members for Columbia University’s M.S. in Information and Knowledge Strategy program), Kate offers good advice to the leaders in the financial community. [...]

I agree with the last comment that “transparency culture is obviously not what banks want to create.” Banks are kicking and screaming (privately), but publicly they are showing some readiness. Do you think these two postures will come into alignment, if they can see transparency as a sign of leadership?

Posted by katepugh | Report as abusive