Wikipedia defines the term “the elephant in the room” as referring “to a question, problem, solution, or controversial issue which is obvious to everyone who knows about the situation, but which is deliberately ignored because to do otherwise would cause great embarrassment, or trigger arguments or is simply taboo. The idiom can imply a value judgment that the issue ought to be discussed openly, or it can simply be an acknowledgement that the issue is there and not going to go away by itself.”
At many banks, people continue to be the elephant that needs to be addressed, but is not. Related to some current client work, we interviewed two business heads, one of whom was relatively recent in his position while another had long tenure. Each mentioned the critical importance of dealing with the people issue. The recently hired leader reviewed his staff and saw that while most teams were performing well, in many cases one or two members of those teams were not, thereby, pulling down overall results. Since arriving at that bank he has replaced about 25% of his sales staff. In the case of the veteran manager, during the downturn he faced addressing the need for bank-wide cost reductions. Perhaps with some initial reluctance, he eliminated poor performers. Subsequently, he realized that these employees not only failed to contribute but also destroyed productivity beyond sales, bringing in inappropriate deals that clogged up the pipeline and wasted the credit group’s time. In both cases, these managers found that they could achieve more with fewer employees, so long as the fewer employees possessed the right strengths.
The people issue pops up in almost every project we conduct. Personnel issues include the:
- Manager who is incapable or unwilling to make decisions
- Manager who makes the wrong decisions
- Long-term employee who seems to have tenure despite his failure to perform
- Willingness of management to move a poorly performing employee to another area, burdening the receiving group with the poor performer rather than exiting the employee from the bank
- Unwillingness of management to go outside to attract the best employee for a new position. Oftentimes, mediocre current employees are moved to a new position rather than bringing in fresh blood with greater experience. This step is taken in the name of culture, but the culture it is supporting may in fact need to change
Banks do not need outside consultants to recognize these problems; these are ELEPHANTS after all. So, why do many banks, often the ones who can least afford to do so, allow these situations to continue? Basic human psychology seems to cause the problem: the desire to avoid conflicts; long standing personal relationships; concern that a new hire may be worse than the old (“the devil you know…); concern about lawsuits; poor leadership skills; and, sometimes, good old fashioned cowardice. In some cases banks have complicated the situation by failing to create an accurate performance record. We have seen many cases in which abysmal performers are ranked average or above on their reviews, making a near-term exit difficult to achieve.
Unfortunately, poor employees also cause good employees to leave. We know of one recent case in which a strong employee cited the poor leadership of an already controversial manager in his decision to go to a rival bank. This represents a double whammy for a bank, as the good employee leaves and the poor one stays.
Now, more than ever, banks need to attract and retain good people. While bank earnings are up, for many revenues are sluggish and future growth paths are uncertain. Strong, innovative, well motivated, and well-compensated employees will take banks where they need to go. That all sounds great, but how do you get bankers to act rather than avoid? Up to now many have been happy to ignore these types of fundamental decisions by hoping a new training program or compensation policy will turn dross to gold, usually resulting in frustration.
How do you get management to act on these issues? In the past we have seen the following circumstances result in management improving personnel:
- New leadership, whether of a bank or business line. New leadership brings with it a new attitude and a willingness to confront issues that need to be addressed
- An obvious economic crisis. Certainly the recent downturn resulted in the elimination of some subpar personnel and business lines. Remarkably, virtually all the banks we know continue to have the opportunity to reduce or upgrade personnel
- Recognizing that a less obvious economic crisis exists. That is the situation today. Banks are no longer bleeding, with many making impressive profits. However, relatively few are operating with a sustainable growth model, for example, one that demonstrates an ability to build wallet share consistently
What steps should management take? First, they need to ensure that their HR review process is honest and rigorous, in other words, toughen up the grading. They need to establish an “up or out” policy for employees. They should consider Jack Welch’s approach of exiting the bottom ten percent of employees each year. Management needs to have the courage to make decisions that they would often rather not make but which serve the best interests of their stakeholders. If they are unable or unwilling to do so, then, perhaps, they are the elephant.
Charles Wendel is speaking at the American Banker Small Business Banking Conference to be held in New Orleans on October 28-30. By using the following link and entering SME into the Code box, attendees will receive a $100 reduction in their registration fee.