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1© Retail Banking Academy, 2014

RETAIL BANKINGACADEMY

301.Leadership in Retail Banking

Course Code 301 - Leadership in Retail Banking

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Course Code 301 Leadership in Retail Banking

Introduction

Leadership is commonly defined as the process and skills used by an individual to influence group members towards the achievement of a common vision. When applied to retail banking, this definition requires leaders to create a common vision founded on customer-centricity enabled by professional bank staff and an ethical bank culture. This implies that retail banking leaders must understand that long-term customer-bank relationships are the source of value creation, and that all stakeholders and bank staff that are engaged, ethical and educated create the bank’s competitive advantage.

The academic and professional literature has proposed theories that include transactional leadership, transformational leadership, situational leadership, servant leadership, authentic leadership and this list is not exhaustive. While all these leadership theories are relevant in different organisational settings, the question is which leadership style is most appropriate for retail banking, a business that is customer-focused and based on customer trust. Furthermore, retail banking, as opposed to investment banking which is deal-oriented, is built on long-term relationships with customers.

In order to create long-term value for all stakeholders, leaders in retail banking must have a sensitivity and awareness of customers’ lifetime needs. This view expressed by John Reed, previously chairman and CEO of Citigroup, is aligned with Stefan Kaminsky’s philosophy, espoused in a Lafferty publication entitled Real Banks for Real People. Kaminsky believes that if a retail bank adopts a Maslow-type approach in its dealings with customers, it would make a serious mistake, in that customers would probably end up with suboptimal savings accumulation over the long term. Rather, customers (as consumers) have a singular overarching objective – the optimisation of long-term income over the person’s lifecycle. The time horizon is even longer if one considers that people also make inter-generational decisions that include those related to the creation of trusts and wills.

It is noteworthy that the Kaminsky retail banking philosophy has a built-in assumption about the manner in which consumers make financial decisions. It implicitly assumes that people look to the future, anchor a spot where they would like to be, and then formulate a plan to get there. This is an interesting perspective on how people make decisions. It is not that the past guides the future. Rather, it is the future that guides the present!


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In the Kaminsky view, the retail bank must help each customer formulate a long-term wealth-creation plan and enhance the likelihood of customer success. In return, the bank gains customer fidelity and consequently, long-term profits. This is the only successful business strategy for a retail bank.

The remainder of this module is organised as follows: Chapter 1 defines principled leaders in retail banking as those who are authentic (true to oneself ), ethical (doing what is right for the customer) and transformational (creating enthusiasm and engagement). Chapter 2 presents methods by which the leader can influence stakeholders towards achieving the bank’s common vision. Chapter 3 presents some factors to consider when selecting a principled leader in retail banking. The module concludes with a summary and multiple choice questions.


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Chapter 1: Principled Leadership in Retail Banking

Principled leaders in retail banking reflect characteristics that are aligned with the bank’s long-term view of value creation that is based on consistently positive customer experience. By definition:*

Principled Leadership* = Transformational leadership enabled by the leader’s ethical stance and authenticity.

Transformational Leadership†

Transformational leaders create a bank culture that fosters and enhances employee engagement. Employee engagement, which is correlated with positive customer experience, is determined by leaders developing a shared vision with a common direction, focusing on setting responsibilities rather than tasks and adopting an HR programme of performance evaluation rather than just appraisal. In line with this definition, John Reed describes transformational leaders as mentors to their followers by encouraging learning, achievement and individual development.

What are the characteristics of a transformational leader?

Avolio, Waldman and Yammarino (1991)‡ proposed four factors commonly referred to as the “Four I’s” that are characteristic of transformational leadership. These are as follows:

Idealised influence: i.e. followers idealise and emulate the behaviour of their trusted leader.

* The leadership literature labels this concept as ‘Value-based Leadership’.† J.M. Burns in his book, Leadership, (New York: Harper & Row, 1978) introduced transformational and transactional theories of leadership. Transactional leaders set targets for and reward employees if targets are met and punish them for failure. This type of leadership is not conductive for creating employee engagement, which is necessary for customer intimacy. For this reason, transactional leadership is not appropriate for retail banking since it appeals to employee self-interest. As indicated in Module 101 (Ethics and Compliance), by seeking to maximise his/her self-interest, the employee may be tempted into ethical violations.‡ B. Avolio, D. Waldman, and F. Yammarino, “Leading in the 1990s: The four I’s of transformational leadership”, Journal of European Industrial Training, 15(4), pp. 9–16, (1991).


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Simply put, the leader walks the talk.

There is no ambiguity between what the leader says and what he/she does. There should be absolute coherence between expectations and actions. This point was emphasised at the 2010 World Economic Forum by the CEO and chairman of Infosys, who stated “every company must define a framework for values, a framework for ethics, a framework for behaviour of its leaders. Leaders must walk the talk, leaders must lead by example”.

Inspirational motivation: i.e., followers are motivated by attainment of a common goal.

The leader inspires bank employees to move from the mundane lower levels of the Maslow pyramid of needs to higher levels of self-esteem and self-actualisation.

Intellectual stimulation: i.e., followers are encouraged to break away from old ways of thinking and are encouraged to question their values, beliefs and expectations. The leader invests in employees’ training and development, encourages critical thinking and builds a learning organisation.

Individualised consideration: i.e., followers’ needs are addressed both individually and equitably.

In a research paper by Van Knippenberg et al (2006), titled “Leadership and Fairness: The State of the Art”, it is concluded that “leaders that are more fair build better relationships with their followers (e.g., trust), engender more positive attitudes (e.g., job satisfaction, commitment) and emotions, and seem able to engender more desirable and less undesirable behaviour.”

The leader ensures that the right person with the right attitude is in the right job. This approach to talent management encourages employee engagement and innovation.

We now consider the other two (related) components of principled leadership: ethical stance and authenticity.

Ethical Stance and Authenticity

Module 101 considers in part ethics and compliance in retail banking. There it is emphasised that leaders set the tone for all followers. As summarised by Philippa Foster-Back*, there is a “need for companies and their executives to go beyond formal compliance and to develop an ethical culture within the firm and its decision-making. Without guidance, good people can and do make bad decisions. It is up to the leadership of the firm to create the culture ensuring employees ‘do the right thing, because it is the right thing to do”. It requires that senior management set the example and relentlessly communicate with all employees the values of the bank. There is a bottom-line payoff for the bank. As demonstrated by De Hoogh and Den Hartog (2008)†, ethical lapses can have costly consequences for the bank: they advise that retail banks should make all efforts to select leaders and managers who show integrity and act in an ethical manner. De Hoogh and Den Hartog consider ‘fairness’ as a key dimension of ethical leadership. Fair leaders treat others with respect and make decisions based on facts and without bias.

The concept of authenticity implies that one is ‘true to oneself’. A trusting relationship between authentic leaders and followers in a bank is developed over time and requires commitment from both leaders and followers‡. Such a relationship will endure if leaders are seen by followers as credible and trustworthy, in which case followers reciprocate by being engaged and innovative. This is the basis of the ‘social exchange theory’ that is described in Module 210. The literature has provided some advice for developing authentic leadership. Two key factors are self-awareness

* Journal of Business Compliance, Volume 2, No.5 (February 2013).† A. De Hoogh and D. Den Hartog, “Ethical and despotic leadership, relationships with leader’s social responsibility, top management team effectiveness and subordinates’ optimism: A multi-method study”, The Leadership Quarterly, 19(3), 297-311, 2008.‡ It is interesting that, similarly, a robust customer-bank relationship requires commitment from both the bank staff and customer.


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(“align actions with values”) and self-regulation (“act within ethical boundaries”). These concepts are discussed in Chapter 3 in relation to emotional intelligence.*

LessonAuthentic leaders are motivated by positive values and concern for others (and not by self-interest) [Brown and Trevino (2006)*]

Copeland† provided a useful diagrammatic representation of principled leadership (values-based leadership in her paper) in relation to expected bank performance. We adopt a similar diagram for retail banking.

Ethical Bank Culture;

Suboptimal Bank Performance

Suboptimal Bank Performance;

Ethical Lapses;


Optimal Bank Performance


Optimal Bank Performance

High

Low

Low HighTransformational

301.1: Leadership in retail banking

This diagram shows that the preferred position is a high level of transformational leadership enabled with a high level of ethics and authenticity. This position is consistent with long-term value creation. Chapter 3 presents an analogous approach to evaluate leadership potential.

* M. Brown and L. Treviño, “Ethical leadership: A review and future directions”, The Leadership Quarterly, 17(3), 595-616, (2006).† May Kay Copeland, “The Emerging Significance of Values Based Leadership: A Literature Review”, Interntional Journal of Leadership Studies, Vol. 8 Issue 2, (2014).


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Chapter 2:The Science of Persuasion

Based on the definition of leadership that is presented above, it is noted that a leader must influence followers towards achieving a common vision. According to Yukl (1994, page 223)*, “influence is the essence of leadership”. An article in the Harvard Business Review (October, 2001) by Robert Cialdini considers the ‘science of persuasion’, and creates interesting principles for a leader to be cognisant of. These are shown in the box below. The idea is that the leader, in seeking to persuade others to join in the common vision and invest their time and effort, may apply one or more of the principles of persuasion.

For example, the retail bank leader may appeal to the principle of authority by demonstrating credibility arising from expertise in retail banking; similarly he/she can apply the principle of liking by creating an emotional connection with the follower. Cialdini summarises the main point as follows: “psychological research suggests that there are six basic laws of winning friends and influencing people”. But Cialdini believes persuasion is a science and presents factors that explain why a person would say yes to another person.

Principles of Persuasion

Principle of Liking: similarity and praise

Principle of Reciprocity: give to receive

Principle of Social Proof: peer power

Principle of Consistency: public commitment

Principle of Authority: expose expertise

Principle of Scarcity: exclusive information/unique benefits

The principle of liking states that people like those who are like them. The leader will try to detect similarities in his followers and use genuine and directed praise and not a general statement of appreciation to influence them to invest in the common vision. Look for similarities and not differences. It is not possible to influence others by highlighting their differences.

* Yukl, G. Leadership in Organisations, 3rd ed, (Upper Saddle River, NJ: Prentice-Hall, 1994)


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The principle of reciprocity is based on the assertion that people repay in kind. One of the key elements of leadership that is identified by Kouzes and Posner* is that leaders must model the way and lead from values and example. They should also spend time with people and offer support and guidance. The principle of reciprocity states that this positive behaviour will be duly noted and replicated by the employees. This will strengthen the bond between the leader and follower and establish greater similarity.

The principle of social proof is based on the phenomenon that people look to others (i.e., the leader) for validation when they are faced with lack of information or ambiguity about how to act. The leader can influence others by being that ‘sounding board’. There is a danger here. The leader must be careful not to inadvertently create herd behaviour.

The principle of consistency recognises that effective leaders must appreciate that after people have made a choice, there are pressures on them to stand by that choice. Simply put, people like to be consistent and honour their commitments. This is interesting since if people are committed to the shared vision created by the leader, they can normally be counted on to remain loyal to it.

From a persuasion perspective, followers will be willing to accept requests from the leader if they are consistent with prior commitments made by the followers. The leader must also realise that when the environment changes, there might be a need to revise strategic objectives. This must be done with sensitivity since people may be committed to prior objectives, and so persuasion may be difficult.

The principle of authority states that followers will more likely invest time and energy in the shared vision if they perceive the leader as being authoritative – being an expert. As Cialdini states, “People want to defer to a legitimate authority. I don’t know about you, but when I’m sitting in a doctor’s waiting room, I’m looking at the diplomas and certifications on the wall. We need that shortcut to feel trust.“

Where there is a high level of information ambiguity, people defer to experts. This is likely why leadership theories recognise knowledge and competence as a key element of leadership.

Finally, the principle of scarcity is similar to a concept in economics. It states that scarcity has higher value. People react more positively to opportunities that are scarce and different. The idea is that leaders may be able to influence people more easily if they are asked to contribute to the success of a scarce opportunity.

At this point in the module, we have considered the key elements of leadership and the six factors that underlie the science of persuasion. But there is one missing piece. This is the shared vision in which followers must invest their time and energy to achieve.

Shared vision

For retail banking, the key issue is the creation of a vision that followers will willingly share. Indeed, leaders in retail banking must have a vision, and the ability to influence others to invest in that vision – that is, create a commitment to action. The requirement for a clearly articulated vision is emphasised by Kouzes and Posner:

“There is nothing more demoralising than a leader who cannot articulate why we’re doing what we’re doing.”

–James Kouzes, Barry Posner

This leadership function is different from just being a manager whose job centres around achieving operational efficiency, something that is necessary but not sufficient for long-term profitability. Arguably, operational efficiency, the domain of managers, is rendered irrelevant when is there is no visionary leadership in the bank.

* James Kouzes and Barry Posner, The Leadership Challenge, 3rd Edition. (San Francisco: Jossey-Bass, 2002.)


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The following quotes highlight the fact that leadership is about passion, pride and vision. It summarises a common purpose that answers the question: why are we in business?

“What really drives performance is not metrics, it is passion and pride.”–James Kouzes, Barry Posner

“A leader is a dealer in hope.”–Napoleon

“Always promising to make the numbers means they’ll one day make up the numbers.”–Warren Buffet

Do not lead by metrics. Metrics are outcomes. Leadership creates outcomes.

Here are some examples of purpose statements, which answer the seminal question ‘why are we in business’?

• Walt Disney: to make people happy

• Cargill: to improve the standard of living around the world

• ING Direct: to create value for customers by making banking simple

• RBA: to improve people’s lives by making retail banking more professional and client-oriented

Open Question #1

A mission statement defines the reason for being. A vision statement shows where we want to go.

Consider the three purpose statements presented above. Do they communicate passion and the reason for being?


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Chapter 3:Choosing a Principled Leader

The previous two chapters demonstrated that a principled leader reflects an ethical and authentic disposition and is able to inspire others to follow a common vision. This chapter considers the practical steps that the board of directors and senior management can take to identify a principled leader at all levels of the retail bank. These factors include emotional intelligence and cultural sensitivity.

Emotional Intelligence – A Key Ingredient of Principled LeadershipEmotional intelligence has been defined as an array of personal, emotional and social abilities and skills that determines how well the individual functions in his or her given environment*.

In his article, “What Makes a Leader” †, Daniel Goleman identifies the role of emotional intelligence as underpinning effective leadership. While credibility and trust, creation of purpose, creation of a vision, creation of an ethical corporate culture and communication are key elements of effective leadership, a high technical and even banking level of knowledge and competence will not suffice. There is a more important factor at work – emotional intelligence – that may be titled, ‘people skills’.

Goleman found that emotional intelligence is an important factor in achieving financial goals. He states that “when I analysed all this data, I found dramatic results. To be sure, intellect was a driver of outstanding performance. Cognitive skills such as big-picture thinking and long-term vision were particularly important. But when I calculated the ratio of technical skills, IQ and emotional intelligence as ingredients of excellent performance, emotional intelligence proved to be twice as important as the others for jobs at all levels”.

The key factors of emotional intelligence that Goleman identified are as follows:

Self-awareness – which is the ability of a leader to recognise his/her own mood, emotions and drives and their effect on others.

Self-regulation – which is the ability of a leader to manage disruptive impulses and not judge hastily. Rather a leader should listen intently before making any judgement.

* Bar-On, Emotional Quotient Inventory Technical Manual, Multi-Health Systems, Toronto,1997, p1.† Harvard Business Review, November-December 1998, pages 93-102.


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Self-awareness and self-regulation are two key factors that establish leadership authenticity.

Motivation – which is the passion to achieve goals that go beyond money or status. This is reflected in persistence and determination but in an environment of optimism and pride.

Empathy – which is the ability of the leader to treat others according to their own emotional reactions. This is a key people-skill. Indeed, the next section that deals with cultural sensitivities for effective leadership is another dimension of empathy - albeit a complex issue.

Social skill – which is the ability of a leader to build rapport with followers by finding common ground. Clearly, empathy is one way for a leader to gain common ground with followers.

4E + P Model In some sense, Jack Welch’s 4Es model bears the hallmarks of both expertise and knowledge (IQ) and emotional factors (EQ). This model, now with another variable, passion, proposes that effective leadership is based on:

Energy or positive energy means that the leader must be incredibly enthusiastic and show a deep affinity for work and challenge. This energy is reflected in visible passion and pride.

Energise means that the leader is able to energise others. Of course, this goes hand in hand with the first E which states that leaders must display a high level of enthusiasm themselves. Leaders should seek to energise others to raise the bar and take on what looks like the impossible. Indeed, Fons Trompenaars and Charles Hampden-Turner* found that one of their seven fundamental dimensions of culture that are important for effective leadership is ‘relationships with people’.

Edge refers to creating a competitive edge and a will to win. Coupled with this ability, a leader must make tough decisions – be decisive and be fair.

Execute refers to the ability of the leader to get the job done while recognising that there will be unexpected obstacles and challenges. Results matter.

Passion is about the heart – emotional intelligence. Leaders care about people and their desires and needs. This is one of the central planks of what is called ‘authentic leadership.’

We summarise the main points of the 4E + P model.

1E = Leaders are enthusiastic and show positive energy 2E = Leaders are able to energise others and create and nurture a positive work place 3E = Leaders have an edge to make tough decisions – decisive and determined 4E = Leaders execute and get the job done in spite of unexpected hurdles P = Leaders display a passion from the heart

A word of advice: When evaluating a potential leader based on the 4E+P model, the process should involve other decision-makers so as to avoid personal preference and add objectivity.

We now consider the role of cultural sensitivity on effective leadership – a topic that has gained renewed significance with the impact of globalisation and immigration policies. Cross-cultural Sensitivity and Leadership

In the later 1960s, Geert Hofstede, who at the time founded and managed a personnel research department of IBM Europe, surveyed 116,000 IBM employees in 40 countries and found that cultures across countries differed on four main dimensions with another added later. These were:

Power Distance refers to the extent followers in an organisation expect and accept that power is distributed unequally. This may be the simple case of a family or a universal bank or a global * Fons Trompenaars and Charles Hampden-Turner, Riding the Waves of Culture: Understanding Cultural Diversity in Global Business (2nd edition). New York


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corporation. Scheinder and Barsoux* find that a high power distance in an organisation is more likely associated with more hierarchy, more supervision (a narrow bank of control or extensive micromanaging),more centralised decision making with leadership motivated by power and status.

Uncertainty Avoidance refers to the manner in which an organisation (or leadership) deals with uncertainty and ambiguity. Schneider and Barsoux state that an organisation that has a high degree of uncertainty avoidance reflects the following characteristics:

• moreformalisationwithwrittenrulesandregulations;

• ahighdegreeofriskavoidance;

• motivatedbyahighdegreeofsecurityandstability;

• leadersplan,coordinateandcontrol.

Open Question #2

Is there a difference between ‘risk avoidance’ and ‘discomfort in unstructured situations’ (e.g., crossing a busy street where there are no traffic signs)?

Open Question #3

Hofstede found that there is a positive correlation between organisations that have a high power distance and a high degree of uncertainty avoidance.

a) Provide a rational argument in support of Hofstede’s finding.

b) Do you believe that a retail bank’s organisation that reflects a high power distance is also consistent with a strategic objective of customer centricity? Explain in detail.

c) Provide an insight into which type of organisations can exist in which type of situations – high or low power distance and high or low uncertainty avoidance.

The third dimension in Hofstede’s model is individualism versus collectivism. This dimension underlines the clash between going it alone and independence – no sharing of rules or rewards for shared outcomes – with a group approach of joint accountability and responsibility. It is a battle between the piecemeal approach that drives ‘silo thinking’ and the group approach, which can also be overbearing and complex. Silo thinking, incidentally, is a metaphor drawn from the large grain silos that one sees throughout the US midwest. It is a term of derision that suggests that each department on an organisation chart is a silo and that its stands alone, not interacting with any of the other departmental silos.

Open Question #4

Do you think that silo thinking is the outcome of organisational structure or culture? Do you believe that these two concepts are related? Explain.

The fourth dimension is gender – masculine versus feminine. The assumption is that an organisation (or society in general) should maximise gender role differentiation for better results.

Scheidner and Barsoux find that a high masculine culture is task-oriented and sees less value in building relationships; is motivated by money and material things and not by quality of life. In addition, leaders in such a culture are driven to meet bottom-line targets.

* Schneider, Susan and Barsoux, Jean-Louis. Managing Across Cultures (2nd edition). Essex, England: Pearson Education Limited, 2003, pages 87-95


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A high feminine culture, on the other hand, is also driven by results but strives for employee well-being and is concerned with social responsibility.

Open Question #5

Does the Hofstede gender dimension imply that women would make better leaders in a retail bank?

The final dimension (added much later) is the long-term view. This view is consistent with the statement made earlier about serving customer needs – the future guides the present. The short-term view is reflected in the demand by capital markets for continuous quarterly increases in earnings per share. This culture of short termism promotes an undue influence on numbers and metrics and less on passion and pride.

At this point in our journey, we provide some practical advice for leadership to develop a corporate culture that leads to employee engagement and customer satisfaction.

First, make the right trade-off between results (i.e., sales) and ethics. Here is an example. An employee has exceeded sales expectations but there are customer complaints about being sold products that are not suitable for the customer’s long-term needs. Here is a star performer who has revealed a lack of customer focus and ethical clarity. What managerial action is required?

This is a difficult problem but when the leader ‘walks the talk’ and sets an example for an ethical and customer-focused corporate culture, the employee must go. Otherwise, there will be internal erosion of corporate values and the leader will lose credibility.

Worse, customers are likely to leave as soon as they can, leading to long-run brand value damage. On the other hand, if the employee falls short of the key performance indicators (KPI) but has impeccable ethical dealing with the customer, appropriate training may be warranted. The key point is that it is harder to turn around unethical behaviour than it is to train an employee to be more productive.

Second, create an inclusive corporate culture. The following key points should be kept in mind.

Ensure that the right people are in the right positions. There is evidence that when this is achieved, employees are more engaged, and engaged employees are more productive.

Leaders create a vision and choose people to deliver. This means that leaders must trust employees and empower them to achieve success. This is one of the Es in the Jack Welch leadership model.

Empower people, and reward and praise success. Be genuine in your praise but do not hold back. Along the journey provide feedback that is helpful to achieving success. This is the hallmark of a learning organisation. At all times, display an emotional bond with employees.

Third, create a culture where, in dealing with customers, customer satisfaction is paramount and, in this vein, certain principles are NEVER violated.

These include a ‘one and done’ principle in serving customer needs. This is best for the customer and for the bank as well.

Never try to outsmart the customer even if the bank employee has more information about the transaction or product. There is no upside to such an attitude and potentially significant downside in the long run.

Keeps things as simple as possible. Retail Banking, from a customer perspective, is not a complicated business. Stay focused and serve customer needs in a consistent and simple manner. Remember that trust, the only customer value that matters, follows from consistent and professional dealing with the customer. All else that is positive for the bank will follow.

Get the direction right: it is from the customer to the bank – not the bank to the customer.


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It is noteworthy that employee engagement is necessary for customer satisfaction. Apart from empowering employees, it is also important that leaders implement policies that create a learning organisation. Such policies include being outward looking. Job rotation or temporary assignments in other areas of the bank give the employee a broad view of banking in an effort to better serve the customer.

The formation of functional councils and/or multidisciplinary project teams all serve to give employees a holistic view of banking and enhance positive and enthusiastic employee behaviour. Indeed, research has shown that knowledge management is a driver of employee engagement.

In the end, execution is key to customer long-run satisfaction and loyalty. Leaders must assure that timely execution is likely by noting the following key points. The common maxim – what you measure is what you get – is still valid and leaders should use the Net Promoter score (see Retail Banking II for its definition and calculation) to ensure that customers have enjoyed their interaction with the bank.

As always, Human Resource Management (HRM) has a role in ensuring that the right people are in the right jobs, and jobs are described in terms of responsibilities rather than tasks.

Finally, as already emphasised, leaders must be courageous and deal appropriately with consistent poor performers – otherwise, the productivity and engagement of other employees may be adversely affected.

An important aspect of getting the right people in the right place is to ensure that people are evaluated properly on a regular basis, which also provides important input for new appointments. The following is a tested evaluation matrix used by Jack Welch.

Performance Ethics Managerial action

Yes Yes Cherish and promote

Yes No Most difficult but must go

No Yes Give another chance

No No Must leave urgently

SummaryWhile principled leadership is applicable to all firms, it is especially important for retail banking where customer-centricity is paramount. Building trusting relationships with all stakeholders is crucial for successful leadership in retail banking. Retail banking leaders have a most difficult challenge since there is a complex web of inter-relationships between stakeholders that is unique to retail banks. This makes sound corporate governance especially important; indeed there are numerous reports indicating that corporate governance failings and the resulting ethical violations have contributed to the recent financial crisis. This module presents several models of leadership and proposes that principled leadership is most appropriate for leadership in retail banking.

The importance of emotional intelligence as key to customer-centricity is emphasised. Indeed, as shown in Retail Banking I and II, emotional intelligence and its related concept – empathy – is one of the five factors that drive customer satisfaction: a key for long-term customer-bank relationships and bank profitability. A principled leader must be sensitive to cultural differences, especially when dealing with employees and customers: the Hofstede model provides valuable insights. Finally, an effective leader in retail banking must, without wavering, create an ethical culture that pervades the organisation at all levels. Compliance is not enough. An effective leader in retail banking creates a moral compass for all employees and inspires them to serve customers’ needs and, thereby, to create long-term profitability for the bank.


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Multiple Choice Questions

1. Transformational leadership proposed four factors. Which is not one of the four factors?

a) Idealised influence, where followers idealise and emulate the behaviours of their trustedleaderb) Inspirational motivation, where followers are motivated by attainment of a common goalc) Intellectual stimulation, where followers are encouraged to break away from old ways of thinking and are encouraged to question their values, beliefs and expectationsd) Individualisation, where each person questions their assigned role in the organisation

2. In retail banking, which factor is likely the biggest barrier to leadership effectiveness?

a) Lack of empathy b) Exhibiting a reserved personality c) Lacking visionary charismad) Lacking some functional expertise in retail banking

3. Researchers at Stanford University studied employees from four countries at Citibank. Specifically, they asked a sample of employees from each country this question:

“Are you willing to comply voluntarily with a request from a co-worker for assistance with a task?”

US employees felt obliged to volunteer if they owed the co-worker a favour.

Based on the science of persuasion, the responses by US employees of Citibank are more closely related to which of the following principles?

a) Principle of consistencyb) Principle of authorityc) Principle of reciprocityd) Principle of liking

4. A survey of a representative sample of employees of a retail bank seeks a response to the statement: “My leader encourages me to be innovative and question assumptions. Creativity is encouraged.” In relation to the 4I model of transformational leadership, this statement reflects an assessment of which of the following?

a) Idealised influenceb) Inspirational motivationc) Intellectual stimulationd) Individualised consideration


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5. Maxwell Mbuto is the CEO of an African bank specialising in microfinance. In an interview about his leadership skills it is revealed that Mbuto demonstrates a compelling modesty, shunning public adulation and is never boastful – he always remains true to himself. In relation to the concept of principled leadership, this attribute of Mbuto’s leadership style is best identified with:

a) Ethical stanceb) Authenticityc) Transactional leadership d) Transformational leadership

6. The head of HR of a retail bank launched a new initiative to measure employee engagement throughout the bank. The objective is to identify key drivers of employee engagement so as to create an appropriate strategy to inspire employees to higher levels of innovative thinking and productivity. This action by the head of HR is consistent with which component of the 4E leadership model proposed by Jack Welch?

a) Energyb) Energisec) Edged) Execute

7. A consultant to a global retail bank found that leadership was motivated by a high degree of security and stability; furthermore there was evidence of substantial formalisation with written rules and regulations for all employees to strictly follow. In relation to the Hofstede leadership model, the consultant’s finding refers mostly to which one of the five dimensions?

a) Power distanceb) Genderc) Individualism versus Collectivismd) Uncertainty avoidance

8. At a town hall meeting, the new CEO of a retail bank states: “I would like all managers to set performance targets for all employees. Achieving those targets will result in appropriate rewards. If everyone meets his/her targets, the bank’s bottom line will improve.” This statement is closely linked to what leadership style?

a) Transformationalb) Ethicalc) Authenticd) Transactional

9. Consider the following statement: “Act as mentors to employees by encouraging learning, achievement and individual development”. This statement reflects an attribute that is not consistent with which leadership style?

a) Transactional leadershipb) Transformational leadership c) Culture-based leadership d) Empathy-based leadership


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10. Which is not an attribute of principled leadership in retail banking?

a) Focus on long-term value creationb) Commit to customer-centricityc) Create an ethical bank culture d) Set performance targets

Answers:

1 2 3 4 5 6 7 8 9 10

d a c c b b d d a d


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Appendix 1: Leadership Template

The recent financial crisis has provided retail banking leaders with a unique opportunity to create an environment of all-stakeholder trust. Some experts believe that leaders who are successful in creating trust are themselves credible.

‘Protect your own credibility. One of the highest – and most beneficial – accolades for a leader is the comment: “If he says it, you can bank on it”.

–James L. Hayes (Educator and former president of the American Management Association).

Question 1: What specific characteristics of a leader in retail banking would reflect personal credibility in the eyes of all stakeholders?

The globe leadership study identifies universal facilitators of leadership effectiveness. They are:

• Integrity – just, ethical, honest

• Charismatic/visionary – ‘I have a dream’ (Martin Luther King, 1963)

• Charismatic/inspirational – motivational, positive, encouraging

Question 2: Which three characteristics are universal inhibitors of leadership effectiveness in retail banking?

Question 3: What leadership skills are required to create a culture of passion for retail banking?

“A good innovation leader creates an environment where…even sacred traditions can be challenged.” –Elaine Dundon, from The Seeds of Innovation.

Question 4: What leadership skills should a retail banking executive possess in order to create an environment of innovation?

A retail banking leader must embrace change.

“Release the energy, control the emotion, personally manage the process”. –Heike & Ghosha, MIT/Sloan, Fall 2003.

“The job of a leader is to get his people to go from where they are, to where they have not been”. –Henry Kissinger

Question 5: What leadership skills should a retail banking executive possess in order to create positive change?

Kouzes and Posner (2007) in The Leadership Challenge (4th edition) state that the most admired leadership skills are honesty, looking forward, inspiration, competence and determination.

Question 6: Which of these characteristics would you regard as top priority for a leader in retail banking?

Many experts in the leadership literature view ‘managers’ as quite different from ‘leaders’.


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Question 7: What characteristics differentiate managers from leaders in retail banking?

There is a link between leadership and effective strategy implementation.

Question 8: What leadership skills are required for strategy implementation in retail banking when viewed in a context of a ‘back to basics’ strategy in developed markets?

There is a link between leadership and effective strategy implementation.

Question 9: What leadership skills are required for strategy implementation in retail banking when viewed in a context of growth in emerging markets?

The Vickers commission recommendation for ‘ringfencing’ retail banking is catching on in France and probably would find favour in other countries.

Question 10: What unique characteristics of retail banking leadership are required to preserve retail banking autonomy?

Appendix 1: Leadership Template with AnswersAnswers are provided by Dick Harryvan, former CEO, ING Direct.

Question 1: What specific characteristics of a leader in retail banking would reflect personal credibility in the eyes of all stakeholders?

Walk the talk and do what you say.

Be accessible, open and transparent. Be modest and balanced.

Question 2: What three characteristics are universal inhibitors of leadership effectiveness in retail banking?

Answer

Poor communication.

Lack of empathy.

Showing off wealth/bonus.

Question 3: What leadership skills are required to create a culture of passion for retail banking?

Answer

Client focus: such as Apple – retail is detail.

Define the values and create engaged culture.

Create excitement: ‘we’re on a mission’.


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Question 4: What leadership skills should a retail banking executive possess in order to create an environment of innovation?

Answer

External focus and continuous drive to improve.

Get rid of ‘not-invented-here’ syndrome and ‘that’s-how-we’ve-always-done-it’ attitude.

Set stretch objectives, challenge people to be visionary.

Encourage an environment of open discussion/constructive argument.

A retail banking leader must embrace change.

Question 5: What leadership skills should a retail banking executive possess in order to create positive change?

Answer

Create and communicate a compelling vision.

Get the right people in place to execute.

Solicit and get staff engagement.

Question 6: Which of these characteristics would you put as top priority for a leader in retail banking?

Answer

Honesty is a prerequisite. Inspiring executor.

Question 7: What are some characteristics that differentiate managers from leaders in retail banking?

Answer

Those that emphasise plan over vision. Numbers-focus rather than people-focus. Managing rather than inspiring/engaging staff.

Question 8: What leadership skills are required for strategy implementation in retail banking when viewed in a context of a ‘back to basics’ strategy in developed markets?

Answer

Execution is the name of the game.

High staff engagement leads to great service and higher profit.


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Question 9: What leadership skills are required for strategy implementation in retail banking when viewed in a context of growth in emerging markets?

Answer:

Creating an inspiring vision.

Grooming the right people to manage growth.

Defining expected values/behaviour and creating accountability.

The Vickers Commission recommendation for ‘ringfencing’ retail banking is catching on in France and will probably find favour in other countries.

Question 10: What unique characteristics of retail banking leadership are required to preserve retail banking autonomy?

Answer:

Creating an inspiring vision, brand and communication. Focusing on the client and on understanding client needs. Understanding financial markets and risk management. Being risk-averse and execution-oriented.
