appearances_can_deceive_fs_hay group

Appearancescan
Aclearerpictureofthewayforward
forthefinancialservicesindustry
deceive
The image projected by leading firms in the financial services industry is still one of a profitable
sector led by effective leaders. However Hay Group research highlights that this does not fully
reflect reality. Many organisations have yet to adapt to the post-crisis environment, and therein
lies a real opportunity for sustainable renewal and improved performance >>

1
Contents
Foreword: a distorted perception 3
1 Context: a pause for reflection 4
2 The nature and impact of leadership 6
3 Breaking the cycle 13
4 Ahead of the curve 17
Conclusion 19
About this metastudy 20

Appearances can deceive2
©2013 Hay Group. All rights reserved
Five years on from the crisis,
we find many financial firms
working in ways that are
out of step with the new
competitive landscape.

3
Foreword: a distorted perception
The common message emanating from leading firms within
the financial services industry is one of change. Barclays,
Citibank and HSBC have all heralded major cultural, structural
or remunerative changes during the early part of 2013.
We know financial services firms realise that
the strategies of the past will no longer
generate the prolonged success they enjoyed
prior to the global collapse. In the post-
crisis landscape, they are facing poor share
performance, squeezed margins, tightening
regulation and growing competition from
emerging markets, start-ups and new entrants
from outside the sector.
In a market where consumer behavior is
rapidly changing and the choice of alternatives
multiplying, the perception of value is shifting.
Value will soon be – if it is not already –
determined by simplicity, transparency and trust,
rather than by product features and number of
branches. Author Brett King summarised the
nature of the new game with the memorable
phrase:‘Banking is no longer somewhere that
you go, it’s something that you do.’1
In the face of this, financial services institutions
sense they must adapt if they are to preserve
profitability, protect their competitive position
and reinvigorate performance.
Drawing on over sixty years’experience of
working with global financial organisations,
Hay Group sets out to examine how firms are
addressing the need for change. Five years on
from the crisis, our analysis finds an industry –
and its leaders – yet to adapt to the new
competitive landscape. Many firms are locked
in once-successful, pre-recession business
models and ways of working, which are now
out of step with the current climate.
But our ambition is not to heap further criticism
on an already beleaguered sector. Our research
suggests that there is real opportunity
for renewal and outstanding performance
for those institutions ready to address the
embedded cultures and practices that are
preventing change.
To make this fundamental transition, financial
services organisations need to cast their eyes
to the top of the tree. It is the most senior
leaders who must drive the necessary change,
starting with an honest look in the mirror.
Financial services executives must be ready
to acknowledge leadership challenges
in order to set their organisations on a path
to sustainable renewal.
Welcome to Appearances Can Deceive.
This report, based on a review of dozens
of cases and the systematic analysis of a
wealth of hard data, explores how financial
services can resume growth and improve
profitability, and use transformational
leadership to leave crisis behind.
1
‘Bank 3.0. Why banking is no longer somewhere you go, but something you do.’
Graeme Yell
Director
UK financial services
Jean-Marc Laouchez
Managing director
Global financial services

Profits are under siege as financial firms
are confronted with a perfect storm of low
interest rates, disruptive technologies and
high capital adequacy requirements, as well
as restrictions – self-inflicted or regulatory –
on proprietary trading.
The balance of power has shifted inexorably
towards clients and customers, whose
expectations – and options – have never been
higher. Retail customers demand greater choice,
transparent prices and a more personalised,
multichannel service experience. Corporate
clients want tailored, cost effective advice
and solutions. And when things do not go
their way, they are increasingly quick to air
their grievances very publicly over social media,
or shift to other providers.
Customer trust in the industry has been severely
damaged by behaviors uncovered by the
financial crisis and ensuing high-profile‘scandals’,
from Libor and Peregrine, to the London Whale.
Weak banking systems, from Belgium to Cyprus,
have also taken their toll on public confidence.
What worked yesterday no longer works today,
and as a result, the financial industry – in contrast
to other sectors – is struggling to recover from
the 2008-2009 crisis.
Since spring 2011, The KBW Bank and Dow Jones
US Select Insurance and US Asset Managers
Indices have all consistently underperformed
the Dow Jones Index by up to 40 percent.
And, for the first time, the sector did not feature
in Hay Group’s last top 20 Best Companies
for Leadership, global research which ranks
organisations against dimensions such as ability
to meet customer needs, agility, collaboration
and innovation.
In response to the public clamor for retribution,
politicians have taken an increasingly vociferous
stance against the industry, prompting waves
of new regulation and more power to regulatory
bodies. As the European Central Bank, for
instance, readies to become the eurozone’s
single banking watchdog, EU leaders sent shock
waves across the industry with the recent
proposals for bonus caps.2
But, all too often, new regulation has been
a knee-jerk response to popular concerns over
media-friendly topics such as executive pay,
rather than a considered, collaborative attempt
to reduce the systemic risk of future institutional
or market failures. As a result, financial services
boards and leaders are left navigating a
confusing patchwork of codes, guidance and
regulations at national and regional levels, which
often overlap and even contradict each other.
The reputational fallout from the financial crisis
has also affected the sector’s ability to attract
the very best young talent – a potential ticking
timebomb for future success. The best and
brightest graduates are now more attracted to
the progressive and egalitarian climate offered
by the technology giants, or by highly lucrative
hedge funds.
1 Context: a pause for reflection
Times have changed in financial services.
The post-recession environment is at best uncertain and,
at worst, hostile for financial institutions, which face
a fierce battle to attract and retain profitable customers
in an increasingly competitive climate.
2
This measure indicates that regulators are not yet satisfied with the industry learning from and response to the crisis.
However, Hay Group does not support a cap on bonuses for bankers or fund managers, because it could restrain
financial services firms from making positive contributions to the economy in the future. Indeed it may cement the
way they reward their people, rather than encouraging them to explore approaches that fit the new environment.

5
…all too often,
new regulation
has been a knee-jerk
response to popular
concerns over a
media-friendly
topic…This competitive landscape requires financial
services firms to develop a new combination
of skills and capabilities. They must:
n reinforce discipline to avoid risks they
do not fully understand and continue
to increase productivity and efficiency.
n make clients their priority and learn
new ways to partner, innovate and
develop solutions and business models
to serve them.
n excel at leading change in a volatile
environment.
This changing climate has laid bare the need
for financial institutions to renew.
The market has changed, but the leaders
and institutions have not.Yet.
Our research uncovers widespread use
of outdated leadership styles and practices,
inappropriate to the current competitive
context. Rapid change and increasing complexity
are placing sector leaders under unprecedented
pressures. In short, they are feeling the heat
like never before, but many are clinging to the
strategies and behaviors bred in the‘good old
days’of financial services boom.
So what common leadership styles and practices
are holding back organisations within the
financial sector?

Fig1.1‘Justdoit’leadership
Difference in average scores of leadership styles between financial services sector leaders and leaders from other
sectors. Like their peers from other industries, financial services used a broad range of styles. However, significantly
more financial service leaders rely on the coercive style. Source: Hay Group’s leadership climate and styles data.
-3.9%
0.4%
1.0%1.1%
3.8%
8.9%
Coercive Coaching Visionary Affiliative Participative
Pacesetting
‘Just do it’ leadership
To succeed in a more competitive and volatile
climate, leaders in financial firms will need
a highly engaged workforce, capable of
successfully executing rapid change.
However, our research shows that leaders tend
to heavily rely on a‘coercive’style, demanding
specific actions, rather than enabling and
nurturing their peers and team members. Nearly
half (43 percent) of financial services leaders
adopt the coercive style as their dominant
approach, compared to only a third (34 percent)
of leaders across all sectors. This indicates a
‘paternalistic’style of leadership, which is not
conducive to building the capabilities required
to win and sustain performance in the new
competitive context. Such capabilities
include responsible risk taking, partnering
and customer-focused innovation.
Perhaps not surprisingly then, 55 percent
of leaders in financial services are creating
demotivating climates for their teams, and
less than a third (31 percent) of their employees
are likely to be performing at or near their best.
In a reversal of what is commonly observed,
where employees report engagement but
are frustrated in their ability to deliver through
organisational barriers; the biggest gap for
financial services firms is engagement.
2The nature and impact of leadership
Many of the barriers to renewal that we have identified
stem from the prevailing leadership profile in the sector.
Formulas suited to pre-crisis times is now out of step
with current requirements.

Fig1.3Theimpactofleadership
High performing companies
All industries average
Job provides
challenging and
interesting work
Financial services firms
0 20 40 60 80 100
Job conditions
allow productivity
0 20 40 60 80 100
Company
motivates me
0 20 40 60 80 100
Intention to stay
0 20 40 60 80 100
Enablement – to what extent the workforce feels ‘enabled’ to perform
0 20 40 60 80 100
Engagement – to what extent the workforce feels ‘engaged’ to perform
0 20 40 60 80 100
A comparison of financial services and general industry employee opinion data. In a reversal of what is commonly
observed when employees report engagement but are frustrated in their ability to deliver through organizational
barriers; the biggest gap for financial services firms is engagement. Source: Hay Group’s Insight database.
A comparison of financial services and general industry employee opinion data. Feedback highlights the fact that there
is a lack of pride or belief in their job or firm. Source: Hay Group’s Insight database.
Job provides
challenging and
interesting work
0 20 40 60 80 100
Job conditions
allow productivity
0 20 40 60 80 100
Company
motivates me
0 20 40 60 80 100
Intention to stay
0 20 40 60 80 100
Enablement – to what extent the workforce feels ‘enabled’ to perform
0 20 40 60 80 100
Engagement – to what extent the workforce feels ‘engaged’ to perform
0 20 40 60 80 100
A comparison of financial services and general industry employee opinion data. In a reversal of what is commonly
observed when employees report engagement but are frustrated in their ability to deliver through organizational
barriers; the biggest gap for financial services firms is engagement. Source: Hay Group’s Insight database.
A comparison of financial services and general industry employee opinion data. Feedback highlights the fact that there
is a lack of pride or belief in their job or firm. Source: Hay Group’s Insight database.
7

Feedback from financial employees highlights
the fact that their‘heart isn’t in the job’and
that that there is a lack of pride or belief in their
role or firm.
Fewer than 63 percent of employees in the
sector feel engaged and able to do their job,
compared to 71 percent in the best-performing
organisations across all sectors.
That’s a lot of talent and discretionary effort left
on the table by high value knowledge workers.
So as a result the prevailing leadership profile
in the sector is fostering a lack of engagement
and pride. It’s also leading to an insufficient
focus on clients and customers, self-serving
innovation, limited diversity and an inability
to look beyond the short-term.
a) Lack of external and client focus
As the balance of power shifts in favor of
the customer in financial services, customer-
orientation will be critical to future success.
And yet employee opinion data from our
Insight database indicates that just two thirds
of financial services employees (67 percent)
describe their organisation as customer-focused,
compared to 79 percent of the world’s best
performing companies. See fig 1.4.
Financial services employees rate their own
listening abilities lower than those in other
sectors. And while an encouraging 72 percent
of employees agree that their firm attempts
to understand and meet customers’needs,
this is lower than the 82 percent among
high-performing organisations. See fig 1.5.
Similarly, fewer financial services employees
have faith in the quality of their firm’s customer
support compared to top performing companies
(61 versus 75 percent).
Leaders in financial services firms appear more
removed from the field and their clients than
in other industries, making it difficult to react
to new trends with the speed needed.
Leadership styles
n Coercive
A coercive style demands compliance
and can contaminate everyone’s mood
and drive talent away. To be used
sparingly and for a short time – in a crisis
or to kick-start an urgent turnaround.
n Visionary
Inspires and is able to explain how and
why people’s efforts contribute to the
‘vision’. Moves people towards shared
outcomes through empathy and clarity.
n Affiliative
Creates harmony that boosts morale and
solves conflict – a useful style for healing
rifts in a team or for motivating during
stressful times.
n Participative
This style is manifested in those leaders
who are effective listeners, team workers,
collaborators and influencers. They value
people’s input and get commitment
through participation.
n Pacesetting
This style is used by those who have
a strong drive to achieve through their
own efforts and have high personal
standards and initiative. They may be
impatient, prone to micromanaging
and only lead through example.
n Coaching
This style involves listening and helping
people identify their own strengths
and weaknesses. Coaching leaders
encourage, provide feedback and improve
performance by building their people’s
long term capabilities.

Fig1.5Productsovercustomers
Fig1.4Productsovercustomers
Quality of customer support, responsiveness, flexibility, turnaround produced by the company
0 20 40 60 80 100
Focus on the quality of the products and the services produced by the company
0 20 40 60 80 100
Being customer focused seeking to understand and meet customers’ needs and requirements
0 20 40 60 80 100
Long Term Horizon
Values
Ethics
FS Firms lag in customer focus and innovation
Social ResponsibilityInnovation
Quality
Operational Efficiency
Customer Focus
Focus on Competitors
90
80
70
60
50
High performing companies All industries average Financial services firms
Employee opinion data from our Insight database indicates that just two thirds of financial services employees
(67 percent) describe their organisation as customer-focused, compared to 79 percent of the world’s best
performing companies. Source: Hay Group’s Insight database (2007-2011).
Source: Hay Group’s Insight database.
9

c)Lackofdiversity–asmallgenepool
The financial services industry tends to
recruit in its own image. Candidates currently
attracted to, and sought by, the industry
typically have very high IQs and display strong
logical and numerical reasoning.They also
tend to be goal-oriented, resilient individuals.
These bright, driven and articulate employees
were perfectly suited to generating immediate
value in the fast-growth, sales and deal-driven
environment of yesteryear. However, the new
environment calls for more‘disciplined listeners’
with the skills to drive performance and effective
risk-taking through responsible empowerment
and leadership of others.
d) Rewarding short-term,
company-oriented outcomes
Since the onset of the financial crisis,
the sector’s and in particular banks’incentive
structures for the sector – and for banks in
particular – have been under intense scrutiny.
Media, politicians, shareholders and regulators
have been quick to criticise a culture that
they view as rewarding short-term results
at the expense of longer term success and
value creation.
Our analysis suggests that the industry’s pay
and reward practices are providing leaders with
little imperative to focus on the long, or even
medium term.
Until recently, bonus potential was discretionary,
and what the sector considered long-term
incentives were, in fact, backward looking and
mainly determined by annual performance.
In contrast to practice in other sectors, pay and
bonuses were also pegged to market rate rather
than sized to job.
While various regulations have been created to
address this, the resultant changes to incentives
have merely painted over the cracks. What needs
to be dealt with is what is incentivised. What
is the strategy? And what are the behaviors
required to support it?
b) Self-serving innovation
To meet rapidly evolving customer demands,
financial services leaders will need to
encourage creativity and innovation that
delivers significant value to their markets.
We have seen handfuls of institutions and
senior executives being extremely creative
in developing new products, from derivatives
to securitisation. They have also found new
ways to go to market with financial engineering,
or developed innovative business models –
Berkshire Hathaway’s GEICO direct-to-consumer
auto insurance sales and advertising model
is one such example.
Where such firms lead, others will follow.
However innovation is often focused on
delivering immediate returns to the institution,
without offering systematically longer-term
client value. It thereby fails to generate loyalty.
Our research shows that financial leaders are
not always equipped to foster a culture of
innovation for a wider group of stakeholders.
This requires leadership and vision. It also
requires commitment to support collaboration
and give employees the space and opportunity
to try radically new ways of doing things,
within the parameters of acceptable risk.
But, as we have seen, financial leaders currently
depend heavily on the‘coercive’leadership
style. This has worked well in a context of high
margins or in the dark days of the crisis, but it
is counter-productive when used continuously
and over the long term. Excessive use of this
approach erodes the adaptive capabilities
of a workforce.
Not surprisingly, therefore, financial services
employees lack confidence in their firm’s
capabilities to innovate. Just over half
(53 percent) believe that their company
is able to develop better products and
services than competitors for customers,
compared to 70 percent of high performing
cross-industry companies.

Fig1.5Financialservicesleaders‘moreoverconfident’
Emotionalandsocialcompetencyinventory(ESCI).Gapsbetweenself-assessmentandothers'assessment.
Financialservicesleadersandleadersfromotherindustries,2011-2012.
** Significant
Financial services firm managers and leaders
Other industry managers and leaders
Adaptability
Conflictm
anagm
ent
Coaching,m
entoring
Em
pathy
Em
otionalselfaw
areness
Em
otionalselfcontrol**
Inspiring
leader
Influence
Organisationalaw
areness
Positiveoutlook
Team
w
ork
Achievem
ent**
Working with leaders over the decades, Hay Group has found that managers typically rate their abilities across the
12 areas of emotional intelligence higher than their colleagues and their reports rate them.Within financial services
however, the gap between leadership perception and reality is even wider. Source: Hay Group’s emotional and social
competency inventory.
0.15
0.10
0.05
-0.05
-0.10
-0.15
-0.20
0
11
A long look in the mirror
As we will outline in the next section, leaders
will need to be agents for renewal if their
firms are to succeed amid the shifting sands
of global financial services.
Self-awareness will be a critical success factor
in achieving renewal. But, when asked to rate
their own emotional and social intelligence –
the ability to bring out the best in themselves
and their employees – financial services
managers consistently score themselves
higher than others rate them in each of the
twelve competencies that make up emotional
and social intelligence.
This is particularly true of achievement,
emotional self control and positive outlook.
Rather than promoting renewal, these significant
gaps indicate a high level of overconfidence,
which is limiting leaders’ability to acknowledge
the need for change and to embrace it.

13
Transformation strategies in this naturally
conservative sector have typically involved
bringing in fresh blood, shifting teams around,
outsourcing operations or investing in new
technologies. But the key driver of renewal
should be leadership itself.
Leaders have the power to improve performance
by fostering customer-focus and inspiring new
models of innovation. But it will need a profound
change in mindset and behavior.
Creating innovation capability requires a
drive from the top. It demands a commitment
to establish an engaging vision and a new
definition of risk and risk-taking. It also involves
the encouragement of real collaboration across
units and functions.
In a time of increased uncertainty and volatility,
we all need a compass: a simple and compelling
sense of direction, which informs the right
trade-offs and decisions as we go. Only a few
financial firms’leaders provide this clear purpose.
Citigroup CEO Michael Corbat recently provided
just such direction:“Without the appropriate
discipline and targeting, our resources can
be spread too thinly or too evenly across
the portfolio, under-investing in our best
opportunities and opening ourselves to
mission creep in less attractive areas.”
“And having just spent four years selling off
assets that came on to our balance sheet as
a consequence of mission creep, I believe the
right framework needs to be more granular
today than in the past, with a balanced view
across markets, clients, and products. We also
need to make sure we measure our progress
in real-time so we can make mid-course
corrections as necessary and respond to the
operating environment.”
When leaders commit employees and
stakeholders to a shared direction and explain
the nature and extent of the transformation,
it arms the firm against uncertainty, engages
clients and stakeholders and provides
clarity about the nature and the extent
of change required.
In addition, the notion of risk, at the centre
of the business of banking, insurance and
asset management will have to be revised.
The challenge will be for leaders to develop
controlling processes and disciplined mindsets
that limit inappropriate financial risk, while
encouraging the experimentation that
supports new, differentiated business models
and solutions.
It is possible. New entrants such as PayPal
are gaining ground in the payments market
by redefining the risk-trust relationship
between customer and provider, dispensing
with traditional paper methods and sharing
the cost benefits with their users.
Fundamentally, institutions will need the
kind of leadership that not only creates
value for the company and its shareholders,
but more crucially, its customers.
Leaders will therefore have to take a longer-term
view, as future success will depend on generating
more sustainable returns – which could be
nonetheless considerable – over a longer period
of time.
So the renewal of financial institutions starts with
the renewal of their leaders. This can be achieved
in three simple, yet meaningful steps.
3 Breaking the cycle
Renewal starts at the top and requires courage.

Step one: develop self-awareness
Beyond the necessary focus on improving
efficiency, structures and technology, financial
services leaders now face a critical choice.
One option is to go‘back to basics’. Sound
practices in insurance underwriting, lending,
balancing assets and liabilities or investment
will provide many institutions with decent
returns for a foreseeable period of time.
Cost cutting will boost profits for a while.
However it might not be enough to consistently
achieve ROE of over 15 percent, as‘business
as usual’ might accelerate commoditisation.
Alternatively, leaders can decide to position their
firms for a radically different competitive context
and renew their business models, technologies,
partnerships and underlying practices.
If they choose the latter approach, they will
have to embark on an honest appraisal of their
own leadership profile against the capabilities
required to win in the new financial market.
This will ultimately yield sustainable,
long-term success.
Step two: experiment with new
behaviors and lead by example
The leadership approach, styles and practices
that are less relevant in the new financial
services context have been identified.
Leaders must experiment with alternative
behaviors and attitudes, such as coaching rather
than lecturing, listening rather than asking and
engaging rather than tasking. These leadership
behaviors will bring new levels of rigour and
management maturity into the institution,
which will translate into competitive advantage.
Leaders that‘role model’these behaviors and
types of interactions will inspire others to
do the right thing and develop a culture of
accountability and responsible performance.
One COO of a large European lending institution
has acknowledged:“I led an army of specialists
and subject matter experts to turn our firm
around after the financial crisis. I must now
change the profile of my teams and seriously
alter my leadership style if we want to bridge
across silos, collaborate and grow.”
Leaders must experiment with
alternative behaviors and
attitudes, such as coaching rather
than lecturing, listening rather
than asking and engaging rather
than tasking.

15
Step three: learn and multiply
The strongest leaders and organisations
consciously learn from experimentation.
Such learning can occur at the organisation
level: what digital solution draws the best
market response? What new branding or
channel partnership worked, and why? Which
factors really explain high degrees of employee
engagement and could be replicated across
the firm?
Learning should also happen with individuals
and teams. Leaders should reflect on the impact
of their new behaviors on others and on
themselves. Why has coaching worked in one
situation and not in others? Why are peers
and other leaders more open to a given line
of argument?
The most effective behaviors should then
be‘embedded’into explicit leadership models
to inspire others and provide a clear benchmark
for success. The experience of one large
insurance company provides an illustration.
It views its competency model as its main
competitive advantage, together with its brand.
It has made extraordinary efforts to understand
the distinctive leadership behaviors that have
helped increase the volume and profitability
of sound insurance policy underwriting. It has
now rolled these out to thousands of professionals
and has rapidly gained market share.

The coming three to
five years will see a form
of natural selection in
the industry.

17
The coming three to five years will see a form
of natural selection in the industry.
Those institutions whose leaders quickly evolve
their styles and practices, establish a clear vision
and lead by example in the execution of sound
strategies will thrive.
Firms where executives fail to renew their
leadership may survive or undergo a turbulent
period of change before grasping the
fundamentals of the new landscape. Some
will disappear as many prepare for the
next wave of mergers and acquisitions in
the sector.
In this final section, we describe the common
traits of success which will characterise the
survivors in the new context.
4 Ahead of the curve
To address the on-going crisis, most firms have
embarked on cutting cost and improving effectiveness
and compliance.This is often based on heavy investment
in new competitive technology platforms. But when
it comes to resuming growth in the new competitive
landscape, there are broadly three types of response
according to strategy and leadership approach.
1. Rear view 2.Blurred 3. Clear
Leadership
posture
  “We’re just going through a
slow phase in the financial
business cycle”
  “We must do what we
already know how to do but
better”
  “focus on executing well
what we already know how
to do”
  “The financial sector is
changing”
  “We need to adapt”
  “I expect my bosses, peers and
employees to evolve”
  “I manage our change effort”
  “The world is changing”
  “I listen to clients and employees”
  “I am transforming myself”
  “I help others through their
evolutions”
Strategic and
organizational
focus
‘Back to basics’
  Cost reduction
  Risk management
  Compliance
  Rebuilding of capital base
  Preservation of existing
business franchise e.g.
clients, brand, expertise
‘Back to basics’ plus:
  Explicit strategic intent, but
unclear business and
organizational trade-offs
  Extensive change management
effort, ‘firing on all cylinders’
  Tension between old and new
models
Same as ‘back to basics’ plus:
  Clear aspiration and actionable
strategy
  Entry in new markets
  Engaging transformation strategy
  Co-development of distinctive
business models
  Building new skills capabilities ,
with sufficient critical mass
  Focus on relevant change levers
Benchmark/
reference
  Best historic performance
  Immediate results
  Inward-focus
  Reference are ‘best ‘players in
the financial sector
  Outward-focus
  Reference are new entrants and
best players in financial and other
industries
‘Traditional/ rear view.’
Unaware of gaps
‘Blurred.’Aware but
not accountable
‘Clear.’ Fully aware
and accountable
Leaders’
posture
n “We’re going through a
‘low’in the sector’s cycle”
n “I focus on efficiency
and execution”
n “The financial sector is
changing; we need to adapt”
n “I expect my leaders, peers
and employees to evolve”
n “The world is changing”
n “I learn and transform myself,
and help others to evolve”
Strategic and
organisational
focus
‘Back to basics’
n Cost reduction,
efficiency
n Risk management and
compliance
n Rebuilding capital base
n Preservation of existing
business franchise
(eg. clients, brand,
channels, expertise)
Same as‘back to basics’, plus:
n Explicit strategic intent,
but unclear business and
organisational trade-offs
n Extensive change
management effort‘firing
on all cylinders’
n Tension between old and
new models
Same as‘back to basics’, plus:
n Clear aspiration and
actionable strategy
n Entry into new markets
n Rebuilding internal and
external trust
n Robust transformation
strategy, using relevant
change levers
n Building of new capabilities
and client relations with
sufficient critical mass
Benchmark/
reference
n Best historic
performance
n Immediate results
n Inward-focus
n ‘Best’players in the
financial sector
n Outward-focus
n New entrants,‘best’players
as well as other industries

Successful financial services institutions will:
Focus on the customer
Winning firms will accept the need to serve
customers’needs as much as the interests
of their shareholders and ahead of their own.
As forthcoming regulations, such as the Volcker
Rule in the US will force institutions to limit
proprietary activities, successful firms will
rebalance their organisations towards driving
value for the customer. They will use client
understanding for competitive advantage.
How will banks retain the increasingly
digitally-literate customer who is ready and
able to abandon traditional banking in favor
of a‘mobile wallet’?
It’s a question to which payments disruptors
in retail banking, such as Simple and Square
in the US are already finding the answers.
Square’s‘Square Wallet’enables people to pay
for goods and services via their smart phone.
The same is true for other sectors of the industry,
with the likes of the similarly named Square1
bank founded in 2004 to provide financial
services to entrepreneurs and venture capitalists.
Its stated commitment is to ’add value in an
industry that deserved a more focused approach’
and to‘earn business, not trap it.’
Devolve power and restructure
along customer segments
A central focus on customer value will have
implications for the organisational structure
of the fittest firms.
Survivor institutions will be increasingly
organised along meaningful customer segments.
This is not simply a case of plugging in big data,
but of re-orienting operating models around the
client, to ensure that the organisation is attuned
to their needs.
How do you configure your organisation to
serve a customer who no longer cares (if they
ever did) which section of your business delivers
the service? They just want to get their financial
transaction done, when they want it done.
Power within winning firms will be far less
centralised. Frontline staff will be empowered
and developed to be able to provide a flexible,
intuitive and bespoke customer experience.
The best firms will increase loyalty as a result, and
enjoy lower turnover of client-facing employees.
Foster creativity and encourage
the right risks
In the war for clients, survivors will harness
innovation to develop products and services
aligned to rapidly evolving customer demand.
And with new and nimbler market entrants
from other industries and start-ups born for
the new environment, staying ahead of the
curve will be critical to the future of larger
and incumbent players.
Creativity in the fittest institutions will no
longer be predominantly correlated to product
and transaction profitability. Teams will be
discouraged from chasing alpha without due
consideration to the risks associated with the
returns. Leaders will have a more sophisticated
understanding of risk – encouraging that which
will add value to the customer and therefore
the firm and its shareholders.
Long-termsuccessawaits those leaders
who pause to look in the mirror, and
realign their approach.

A shift in mindset is essential if financial
services executives are to reform current
practices and improve performance.
Leaders will need to ask themselves:
‘Who do I serve?’and place customers
at the centre of their operations.Their own
leadership style will then follow that refreshed
vision, in order to effect rapid transformation into
a customer-focused, innovative organisation.
Some financial institutions leaders are already
indicating their commitment to reform. HSBC’s
Stuart Gulliver justified the biggest changes in
the bank’s history by stating that its structure
was not“fit for purpose for a modern world”.
Barclays’chief executive Antony Jenkins issued
a strong statement of intent to transform the
bank’s culture and internal practices and create a
more customer-centric institution. And Citigroup
announced that bonuses for top executives would
be more closely linked to performance in future.
An excellent opportunity exists for renewal.
Long-term success awaits those leaders who
pause to take a long look in the mirror, and
realign their approach.
Conclusion
19
Reward contribution
The new outside-in, client-centric approach
will reshape compensation in the financial
sector in the future.
Fundamental questions will be increasingly
asked at board level to validate the
compensation of executives. Successful firms
will have made difficult decisions on how much
money they make available for compensation
overall. As is currently the case, compensation
will continue to be linked to the creation of
economic value, but that value will no longer
excuse a lack of effective leadership.
The fittest firms will have evolved the calculation
of reward from a primarily market-based
approach, to one based on a broader view
of the contribution of managers, incorporating
measures of effectiveness and business and
people leadership.
Executives’know-how, the scale of the
problems they solve, their top or bottom line
accountabilities, the complexity of their function
and their ability to influence and lead change
may all be taken into account.
Diversify recruitment
Winning firms will have more segmented
recruiting to attract a more diverse range
of skills and behaviors to their institution.
This will not be a specific recruitment initiative
to improve the diversity of the workforce,
but rather a natural consequence of the new
leadership approach. Recognising they don’t
have the solution to every challenge, evolved
leaders will be less inclined to recruit purely
in their own image.
Having accepted that they want to understand
different customers better, empower their
frontline people, garner creative ideas on
how best to serve their clients and encourage
appropriate risk-taking, the leaders of financial
firms will have identified the need to expand
their gene pool for recruitment.
One innovative approach taken by some leading
banks is to recruit from the Ecole Hôtelière de
Lausanne in Switzerland. They believe that the
world’s oldest and most prestigious college for
the hospitality industry will provide talent that
truly understands the nature of customer service.

n Hay Group’s Best Companies for Leadership study
Hay Group has researched the Best Companies for Leadership since 2005. This, latest, 2011-2012 survey includes
responses from nearly 7,000 individuals at more than 2,300 organisations worldwide. The survey was based
on the organisation’s response to an online questionnaire and peer nominations. Respondents that completed
the survey were from 103 countries, with 11 percent from North America, 35 percent from Europe, two percent
from the Middle East, 21 percent from Asia/Pacific/Africa and 31 percent from Latin America.
n Talent Q database 2012 online, work-focused psychometric tests.
These online work-focused psychometric assessments screen and assess large talent pools, measuring
work-related personality attributes (Dimensions) and numerical, logical and verbal reasoning (Elements).
This study has drawn on the results of 5,018 personality assessments from three types of financial services
organisations (asset management, retail banking and insurance). They have been compared against the
Talent Q global norm of over 30,000 managers, professionals and graduates.
The review has also looked at Elements completions in financial services, specifically 34,648 numerical
assessments, 14,144 logical assessments and 29,046 verbal assessments and these have been compared
against the professional graduate and managerial norm for each of these assessments (170,119 numerical,
65,244 logical and 145,916 verbal).
n ESCI: Hay Group’s emotional and social competency inventory (ESCI)
This is an online survey tool which delivers a 360º assessment of an individual’s behaviours across the
12 competencies that comprise emotional and social intelligence: emotional self-awareness, achievement
orientation, adaptability, emotional self control, positive outlook, empathy, organisational awareness, conflict
management, coaching and mentoring, influence, inspirational leadership and teamwork. This study refers
to data collected during the period 2011-2013 from 1,021 financial services senior executives, benchmarking
them against 12,385 of their peers from a variety of sectors including professional services, pharmaceuticals,
technology, manufacturing, retail, energy, public services and education.
n Motives and values database (2005-2011)
Hay Group’s motive profiling methodology, is one of the most widely researched instruments in the entire field
of psychology and personality assessment. By scoring individuals against the three social motives that collectively
explain the widest range of human social behaviors – this diagnostic tool generates a personalised‘motive profile’
and allows you to explore how this relates to your work and life in general. This study draws on the values data of
6,863 financial services leaders and the motives of 7,303.
n Hay Group’s leadership styles and climate data 2005-2012.
For over 60 years we have conducted research into the links between how leaders learn and change as well
as the types of performance climates they create. The full data file used for this study comprises data from
202,198 leaders from 1,992 organisations. This report looked at 31,000 financial services assessments, from 28,359
financial services managers. Those assessments come from 208 organisations.
n Hay Group’s Insight database analysis (2007-2011).
Hay Group’s Insight database comprises employee opinion data.This study, looked at responses collected from
more than 50 financial services companies around the world and includes data from over 725,000 employees.
It was compared against a general industry norm (GI) and a high performing company norm (HP). GI: 350
companies globally with data from over 5.5 million employees. HP: 35 companies around the world in a wide
variety of industries and comprises data from over 1.4 million employees.
About this metastudy
The data referenced in this report is drawn from in-depth
analysis of Hay Group’s proprietary financial services
organisational data.

In an uncertain and uneven global business environment, everyone agrees that
companies must innovate to survive.The Best Companies for Leadership follow four
business practices that support meaningful innovation and drive market leadership.
Leading companies have recognized that meaningful innovation
requires a long-term commitment to a disciplined approach.
They have focused their efforts on creating a culture of
innovation: an environment throughout their organizations that
invites and supports innovation and allows new ideas to flourish.
The practices followed by the best companies enable and
encourage innovation that matters – and any business can
follow their lead and make innovation easier.
Summary of the
2011 Best Companies
for Leadership study
under the sun
Something
new
According to Hay Group’s Leadership 2030 research
the leaders of the future will need a host of new skills
and competencies if they are to succeed
the new
Building
leaderLeadership challenges
of the future revealed
the path to
success
Lighting
FindoutwhatseparatestheFORTUNE
World’sMostAdmiredCompaniesfromtherest.
Clickheretojoinourwebinar,18April2012
A perfect storm is brewing in the UK’s retail banking sector. Economic, political and
societal clouds hang over the industry, threatening to transform the business of
consumer banking.Yet by aligning their internal assets to these conditions, retail banks
can set a course for a brighter future and meet the needs of tomorrow’s customers
storm
perfect
Protection
from the
The future of UK retail banking
Leadership 2030: Building the new leader
Future leaders will need a host of new skills and competencies to
succeed. Our global study identifies six‘megatrends’that suggest
organisations will fail unless leaders drop much of the thinking
and behaviour that first propelled them to the top.
Best Companies for Leadership study
For a seventh year, Hay Group has identified which organisations
have the best leadership practices and what we can learn from
them. Our most recent survey focuses on four business practices
that support meaningful innovation and drive market leadership.
World’s Most Admired Companies study
Hay Group has partnered with FORTUNE magazine annually since
1997 to conduct theWorld’s Most Admired Companies survey and
uncover the business practices that make these companies both
highly regarded and successful.
The future of UK retail banking
Approaching on the horizon are four new customer-related
trends threatening to add further pressure on the industry.
These conditions present a threat but also a narrow window of
opportunity for the sector to get their responses right.
The stubborn gap
The disparity between the amount of risk employees would like
to take and the amount their employers allow them to take has
remained consistently high for several years, despite leaders’best
efforts to reduce it.
Related Hay Group insights
©2012 Hay Group. All rights reserved 1
Relationship counselling: Realising public-private partnership growth opportunities
This paper presents our latest data on that stubborn gap,
examines its potential consequences, investigates why it persists
and suggests how to address it. Hay Group has worked with many
companies to identify whether they have a problem, discover what
is driving it and work out how to reshape leadership effectiveness,
processes, roles and reward structures to tackle it.
The stubborn gap
During the recent years of recession, companies have made
concerted efforts to reduce the gap between the amount of
risk employees would like to take, and the amount that their
company allows them to take (staff consistently want to take
more risks than leaders or policy allow), yet the gap remains
consistently high. In the five years leading up to 2011, according
to Hay Group data from about 20,000 respondents each year,
it stayed at around 20 per cent (figure 1).
While the results are almost identical among the 2,700
respondents from 50 financial services companies, the
percentage of financial services companies with a gap of more
than 20 per cent is rising (figure 2). And once the gap goes over
20 per cent, there is a significant danger that employees will
behave in a fashion that is inconsistent with the risk appetite
determined by company boards and risk committees.
The disparity between the amount of risk employees would like to take and the amount their
employers allow them to take has remained consistently high for several years, despite leaders’
best efforts to reduce it.
The stubborn gap
Closing the gap between companies’
and employees’tolerance for risk
0
5
10
15
20
25
20112010200920082007
% Average gap between employees’ permitted and ideal level of risk taking 2007-2011
Figure1:Climategapforallcompanies:2007-2011.
DatatakenfromHayGroup’sOrganisationalClimateSurvey.
July 2012

Appearances can deceiveiv
Hay Group is a global management consulting firm that works
with leaders to transform strategy into reality. We develop talent,
organise people to be more effective and motivate them to perform
at their best. Our focus is on making change happen and helping
people and organisations realise their potential.
We have over 2,800 employees working in 86 offices in 48 countries.
Our clients are from the private, public and not-for-profit sectors,
across every major industry. For more information please contact
your local office through www.haygroup.co.uk
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