UK
Why is it that banks have been so badly run? It comes down to one simple thing: those that are promoted into management positions are typically promoted because they’ve been fantastic producers, not because they’re great managers. And in banking, being a great producer and being a great manager are frequently inversely correlated.
On the markets side at least, being a great producer doesn’t involve much management skill at all. If you’re a mid-level trader, you quote prices and you manage the positions in your book. You may have a couple of juniors to run some analytics and support you generally but, without trivialising what can be a very skilled and complex technical role, there is not that much more to it than that.
Your performance will be all about P&L. The learning curve is all about deep but very narrow technical expertise, not a broad management skill-set.
Contrast this with a similar mid-level employee in a software company. The software guy might be working on a particular software package. He will need project and people management skills as a matter of course in his role. He will need to deal with multiple streams of work and multiple constituents from programmers to marketers, to distribution, to legal. He will come out with a much broader, and more transferable, set of management skills.
What should banks do about this state of affairs? The obvious, if naive, conclusion is to put general managers into management positions not producers.
However, there are issues with this. General managers lack the hard earned understanding of financial markets, clients and risk that only comes from spending real time in the trenches. They also lack the credibility and respect of those they would manage.
Bankers are not exactly the easiest people to manage in the first instance. If you earn high six figures, even seven figures and can up root and go to another shop, your sense of obligation to your boss, or anyone for that matter, is minimal.
Evidently, however there is a way of managing these high earners. Traditionally, it’s been all about controlling the bonus purse strings. This will remain the case in future, but with a difference. As bonus systems emphasise long run profitability, managers will need to do more than merely harness their charges to maximise P&L in a single year.
In turn, this will call for more holistic management skills. And this will put more emphasis on non-producers in place of producer roles. Banks need to start paying for management skills, not just for the ability to immediately impact P&L.
this is a very interesting issue… frankly i think the idea of bringing in managers from a non-financial background is laughable (as pointed out in the article), they (literally perhaps) wouldn’t last the week. i think it’s more about bringing on the right people within the bank to management roles (let’s not forget that there ARE some good managers working in IBs) … this may mean having to “compensate” your good producers who WANT to be managers, but are deemed unsuitable in other ways!
Have you seen what’s happened in the NHS? It is exactly the reason why the organisation is so inefficient because of lots of managers who don’t have producer skills
I am a manager but also a Pythagoras Head. I wouldn’t say that the two are necessarily mutually exclusive but it certainly hasn’t helped me.
The article raises relevant points. “Inversely correlated” is too strong, but I would almost say independence is perhaps the right description as to being able to produce versus being able to manage. It is true that there are lots of horrid managers in place. But I think the magnitude of this crisis suggests there is something more fundamental that is wrong: i.e. the idea that markets can keep expanding on easy credit and that property inflation is not inflation. Poor managers merely contribute by making stupid responses.
Producing and managing skills have been inversely correlated for several years. However, the fundamental shift that is coming in i-banking will mean that those same managerial skills (client orientation, balanced abilities, 3-dimensional personalities) will come to the forefront in production roles too. As such, the managerial vacuum will become easier to fill with homegrown talent in the long-term. In the short to medium-term, there is no alternative but to bring in managers from other industries – the dark secret is that i-banking as industry is no more complex or “special” than any other industry with an overweight sales function (pharmaceuticals, agency recruitment, IT services). It is the banks who bring in those managers who will find the efficiencies to come out of the recession alive, reshaping the industry in the process.