Financial services focus: How leaders can manage the paradox of fostering customer centricity while ensuring safety

In order to adapt and survive in an uncertain and rapidly changing environment, financial services leaders must find a way to become more agile and innovative—all while maintaining the discipline required of those in a highly regulated industry. A reframing of their leadership style can help this organizational transformation.

Understanding the paradox

Heidrick & Struggles research shows that there is high correlation between positive culture, which is shaped by leaders, and strong company financial performance.¹ Financial institutions with human-centered leaders are most likely to accelerate positive transformation, as well as be able to attract, develop, and retain the talent they need to create value. 

Other recent Heidrick & Struggles analysis² of more than 10,000 assessment results of CEOs and C-level executives across industries has provided insights into how they lead, the impact they have on others, and their level of self-awareness.

It suggests that financial services leaders expertly dive deep into root-cause analyses, are adept at identifying opportunities and threats facing their organizations and balancing long-term and short-term priorities, and have a good attention to detail—all of which are the traits of a knowledge-based leadership style. 

However, perhaps because of this, they are often seen as less often creating a compelling purpose and engaging the workforce through a human-centered style. Financial services leaders often ranked lower than other industries’ leaders in terms of inspiring and engaging their people, learning agility and creating possibilities from new thinking, fostering customer-centricity, and self-awareness. 

It follows that financial services leaders, operating in a highly regulated, knowledge-based industry, have a more command-and-control leadership style; while they skillfully master technical and regulatory requirements, they can end up leading from a place of control rather than engagement, relying on their own intellectual capabilities rather than on collective intelligence. We have been struck by the sentiment we sometimes hear from financial services executives: that they are left with the impression that their leader “thinks he needs to be more clever as an individual than the sum of the brains in the room.” 

We have come to the conclusion that for industry leaders there is a paradox between, on the one hand, being creative, anticipating customer trends, and daring to try new things and, on the other hand, instilling the discipline in your organization to ensure the right controls are in place to meet technical and regulatory requirements. The most effective leaders are those who can manage this paradox skillfully not only for today but also for an uncertain and rapidly changing future.

Managing the paradox: Freedom within a frame

Imagine that the finance and risk functions are two existing pillars upon which an institution is built. These pillars define the frame in which the CEO and other business leaders can operate. In that frame, they can focus on clients and innovation, daring to try new things and sometimes making mistakes. And yet, as long as they stay within the frame, as defined by the finance and control functions, any mistakes can become learning opportunities and their harms mitigated by preexisting protections. 

In some ways, this is similar to any team sport, players play within boundaries and according to a set of rules; a referee may distribute penalties when rules are not respected. However, when playing, players focus on the game—not the rules. It’s all a question of mindset.   

Similarly, financial services leaders may operate a mindset shift by moderating their focus on control so that they can devote their energy to their clients and future growth while being knowledgeable enough in both finance and risk to credibly direct constructive dialogue with the control functions.  

Leaders who succeed have an opportunity to instill a new leadership style into their industry, one that is human-centered, engaging, authentic, and vulnerable (consider how often we see a financial services leader admit mistakes), creating followership, inspiration and engagement among their team members. They create an opportunity to switch from a top-down organizational culture shaped by inaccessible, “know-it-all” leaders toward a people-centered culture based on customer-centricity and innovation—maybe even one of fun.

Strategizing for the future

Since the 2008 crisis, pressure on financial services boards have increased, especially through regulators’ scrutiny. Because of the responsibility of the board, their obvious choice has been to appoint CEOs with significant technical acumen who could provide assurances that the necessary technical, regulatory, and risk bases were covered.

However, consider the sheer speed of change in our current environment. Geopolitical crises are occurring far too frequently, and business parameters are changing faster than ever. The interwoven impacts of Covid-19, Russia’s invasion of Ukraine, the ongoing conflict in Israel and Palestine, and climate change have led to disrupted supply chains, inflation, and rising interest rates, and we have recently seen financial institutions such as SVB and Credit Suisse fail, creating further uncertainty.  Boards and financial services executives alike must recognize that one person alone cannot manage all that complexity. 

Leaders must take the steps needed to empower the collective intelligence of the talent in their organizations in order to lead more effectively and better develop the talent of the next generation. Still, in a few cases, we have observed that boards may be tempted to define the CEO profile as one predominantly focusing on expertise and experience, while the CEO’s leadership style and culture impact regularly comes as an afterthought. We invite boards to reconsider this and set a higher bar on leadership impact. A CEO should be surrounded by experts, and a board chair should be able to say to a CEO diving too far into technical details, “This is not your job.” The great news is that empathy, authenticity, and vulnerability can be developed. The starting point is self-awareness and an understanding of one’s impact on others. 

Today’s financial services leaders are required to create the financial institution of the future, leveraging digital capabilities, innovating, and focusing on customers. The freedom in a frame concept may fit well in a financial institution that currently has it right in terms of finance and risk but needs to focus more on its customers’ journey, innovation, and people agenda. Some other institutions may need to go through a business and financial turnaround, and their leaders will need to be able to exert more traditional control. However, winning leaders will be those showing ability to manage a paradox—thinking safety and customer focus—and to activate a mindset shift in their organization.  

References

¹ See Aligning Culture with the Bottom Line: Putting People First, Heidrick & Struggles; and Rose Gailey, Ian Johnston, and Andrew LeSueur, Aligning Culture with the Bottom Line: How Companies Can Accelerate Progress, Heidrick & Struggles.

² Heidrick & Struggles performed a global data analysis of more than 10,000 assessment results of CEOs and C-level executives across all industries, examining both self-assessments and 360-degree feedback assessments and compared results across industries. The data is from 2019, 2020, and 2021; 61% of the executives assessed are based in Europe and Africa, 26% from the Americas, and 13% from Asia Pacific. For more, see François-Xavier Ragot and Sharon Sands, “Financial services focus: Leadership capabilities for the future,” Heidrick & Struggles.