That’s one of the principal conclusions from The Situation Room, an industry discussion group facilitated by Gulland Padfield, strategy consultants to the wealth and private banking sector.
The Situation Room gathers a panel of current and former senior executives, COOs, CMOs, General Counsel and other function heads to consider current issues in the sector.
In its latest session held in London, the Situation Room panel considered the crisis management strategies of Private Banks and Wealth firms. Participants shared their direct experience and perspectives of how institutions manage crises and how firms could prepare more thoroughly for future events. To catalyse the discussions, the panel also considered a fictional crisis scenario, prepared by Gulland Padfield.
There were three key conclusions from the discussion.
- In an increasingly transparent, interconnected and digital world, banks and wealth firms will regularly face significant operational and reputational challenges which require extremely effective and flexible crisis management.
- Despite having some processes in place, many institutions, by virtue of size and complexity, are still inadequately prepared to navigate these types of crises – and in particular to respond at the speed Regulators expect.
- The unique nature of today’s crises in Private Banking requires institutions to test and prepare their leadership approach to crisis management much more rigorously than they currently do in order to resolve a crisis successfully.
James Edsberg, Managing Director at Gulland Padfield, summarises ten observations and recommendations for banking leadership teams from the Situation Room’s deliberations.
1. Pick the right leadership to manage the bank’s response. It’s not always the CEO The nature of today’s crises in Private Banking typically and increasingly requires management by a team with highly sophisticated operational and technological know-how. “While CEOs obviously retain ultimate management responsibility, they can’t always extract and process the right information”, said one panel participant. “Instead a bank needs to identify a person or small cross-functional team that is knowledgeable enough and empowered to ask the correct technical questions. The crisis leadership team will need to make difficult decisions and recommendations which cut-through vested interests and the internal obfuscation that usually accompany these events.”
2. Manage the communications as a separate process In the first hours of a crisis, decisions about what to say, to whom, when and how, typically dominate management’s attention. The need to respond to enquiries from the media, clients and regulators, can be overwhelming. However, one former General Counsel commented, “We had too many people in the same room with strong views on how to manage the media. Everyone seemed to think there were professionally qualified to do that. It would have been better to trust our comms colleagues to report direct to the CEO on the PR aspects (or to one person with oversight of all the crisis response workstreams) and to develop the bank’s PR response in tandem but separately from the group resolving the operational and client issues that were the root cause of the problem."
3. Expect a leadership vacuum at some point during the crisis Many institutions have protocols in place to convene a team or committee in the event of a crisis – and, depending on its seriousness, steps to escalate the decision-making up the executive chain of command. Our group concluded that too often, these procedures fail in the face of a real event. “We found that important members of the exec team with essential information, were on holiday and uncontactable at the time of the crisis. As a result, we had to improvise far sooner and much more than we expected – including delegating lower than we had anticipated. The rule book went out the window pretty fast.”
4. Prepare to make decisions with asymmetric information From the onset of an event, decision-makers will receive confusing, partial and usually misleading information. Many crisis management processes over-estimate the capabilities of the bank’s people and systems to share what they know and provide reliable and timely data to a decision process that needs it. Our participants’ conclusion? That the picture will rarely be clear when the biggest calls have to be taken. “The problem we thought we were dealing with in the first hour, turned out to be utterly different from the problem we in fact had,” said one executive. “The true depth of that issue only materialized much later. After the event, we resolved to respond at each phase of future crises in a way that anticipates how much the fact pattern may change.”
5. Find a way to create genuine transparency in discussions “When something goes wrong, it’s often someone’s fault. And that person may be in the room. It could even be the CEO,” observed one executive. The Situation Room’s panel noted that there’s no shortage of people willing to ‘work the problem’ in a crisis to think about a way forward. But the essential process of looking back to the past to identify what and why something has happened, contributes a very different dynamic to crisis discussion. “People can be less than forthcoming about what has happened” said one COO, “I find that you have to use both carrot and stick to get the full picture.” Another added, “Blame biases people’s reactions. Specifically unspoken blame and the fact that a team will avoid talking about accountability. I’ve seen that undermine the effectiveness of the response. The knock-on impact can be that the right solution is not discussed fully at the right time. After one incident, we concluded that it would have been better to have two teams working in parallel: one investigating what went wrong and another focused on responding to the incident.”
6. Resignations can significantly disrupt crisis management “These days, people are more willing to walk away from the problem than remain in post to resolve it. It seems to be a trend,” commented one of our participants, “Succession planning and crisis resolution are two elements which need to be better coordinated and led”. The mistake which prompts the crisis may warrant an executive being sacked. But whether they leave voluntarily or not, organisations should anticipate that gaps in key positions as well as faultlines in the bank, may open up at just the moment when decision-making needs to be strongest.
7. Anticipate conflicting internal agendas Some situations bring out sharply opposing priorities across different parts of the same institution. While aspects of these different points are predictable and can be planned for, others require a decision-making process that can quickly arbitrate between legitimate but often conflicting needs inside a business during the crisis. A crisis strategy needs to work across functions, geographies and business divisions. “We spent as much time arguing with our ‘global’ colleagues, as we did thinking about fire-fighting in our own business.”
8. Find the right Compliance and Legal leadership for the crisis In the highly-regulated environment of financial services, almost all decisions have a legal and compliance dimension. The speed at which a crisis develops requires lawyers, regulators and compliance colleagues to provide guidance at a different pace. “During business as usual times, it’s frustrating enough when the answer from a Compliance team is a default ‘No’ – especially if they subsequently change their minds. That approach is wholly inadequate in a dynamic crisis situation which requires a totally different mindset – i.e. a willingness, within the rules, to get to ‘Yes’. We found we needed a different calibre of compliance – sometimes working in collaboration with external counsel who provided additional focus.”
9. Design the response team so that it evolves through the crisis As one former director of global communications observed, “The effectiveness of our response to the crisis I witnessed depended on who was in the room. And we regularly asked ourselves who needed to be present.” The Head of Strategy of one bank concurred. “It was vital to have a flexible approach which enabled people to be brought in and out depending on the evolution of the crisis and its nature.”
10. Managing panic needs practice Institutions, particularly large wealth and private banks, are poorly prepared for the intense time pressure under which operational decisions in a crisis are taken. While standard rehearsal exercises help prepare a team, the panel concluded that they rarely go deep enough to re-create, as closely as possible, the tension and stress that accompanies a real crisis. “Somehow institutions need to think about how to build a better way to test their teams in the heat of the moment. Our crisis rehearsals fail to do that – which left us poorly prepared when a real challenge hit us.”
About Gulland Padfield’s Situation Room on strategic issues in Private Banking & Wealth Management
The recent Situation Room session assembled individuals who occupy or who have held senior executive responsibilities at leading institutions including at Barclays, HSBC, Deutsche Bank, Morgan Stanley, Standard Chartered, ANZ and Amex. The discussions were held under ‘Chatham House’ rules. No details of specific events inside any bank or organisation were shared.
The group considered a fictional crisis scenario prepared by Gulland Padfield and relating to a private bank. The panel also shared insights from crisis management experiences as well as views on rehearsals and exercises in which they have participated in their roles in the past.
If you would like to participate in future Situation Room discussions, contact James Edsberg of Gulland Padfield via firstname.lastname@example.org or +44 (0) 203 051 2295
About Gulland Padfield and Crisis Management Strategy
Gulland Padfield is the specialist management consultancy to the management teams of Wealth Management firms and Private Banks.
Working collaboratively with clients and former executives in the banking sector, Gulland Padfield has designed and offers a series of 'as live', realistic, cross-functional and complex scenarios to enable institutions assess, benchmark and strengthen their crisis management leadership and protocols. The sessions are delivered and facilitated by Gulland Padfield's award-winning team of strategy consultants, complemented with structured participation from former banking executives and ex-general counsel. For more details about how your institution and leadership teams might benefit, contact James Edsberg via Linkedin.
Over the last 14 years, Gulland Padfield’s teams and consultants have worked with 11 of the Top 20 private banks as well as other leading Banking groups, Wealth Management firms, Family Offices, Asset Management institutions and Services firms to provide guidance, practical support and pioneering ideas in the area of Client and Customer strategies.
The firm's teams deliver projects internationally from its offices in New York, London and Bogota.