Tuesday, 21 March 2023

“Leaders no longer have the luxury to react to crisis”

5 min read

By Foo Boon Ping

Gordian Gaeta, chairman of The Asian Banker Leadership Achievement programme questioned the responsibility of leadership towards society in a dialogue with 2022 lifetime achievement recipient, Abdul Farid Alias, former group CEO of Maybank, and CEO leadership achievement honorees for Cambodia and Thailand, Raymond Sia, CEO of Canadia Bank and Chartsiri Sophonpanich, president of Bangkok Bank

In times of crisis, there is a tendency to conflate leadership with crisis, change or transition management. However, this is not the core mission or responsibility of leadership argued Gordian Gaeta, chairman of The Asian Banker Leadership Achievement Awards programme. “Dealing with a crisis is not necessarily leadership, it is crisis management. It does include some leadership requirements, but it’s essentially not leadership,” he opined. The bigger issue is, “What is leadership today in financial services?”. This may invariably include the word “responsibility”. What is the responsibility of financial institutions towards society? He asked Abdul Farid Alias, former group CEO of Maybank, Raymond Sia, CEO of Canadia Bank and Chartsiri Sophonpanich, president of Bangkok Bank in a dialogue on leadership in the future of finance.

For many decades, financial institutions did not carry a lot of responsibilities towards society. They were more concerned about meeting the expectations of their immediate stakeholders, primarily investors, followed by management, customers and staff. “If you look at the world, in the old days, leadership in financial services, was having a vision, rallying your resources around that, and trying to execute it in the best possible way. That today is transition management. But transition management also is only one element of leadership. What are the biggest challenges? What have we learned from that? How do we see us moving into the future?” posited Gaeta.

But this is changing with increased attention to a whole range of issues on managing and mitigating risks that threaten the sustainability, even existence, of Earth and life on it because of changing human activities that have led to global warming. “I think we should also think about the nature of leadership that has changed because the world around us has changed. People have changed, hundreds of millions of people have new aspirations and different expectations than were before. We have migration patterns we have not seen since the Middle Ages, and it could get worse. We have climate change that will ensure that none of us in the next 15 to 20 years will live in the same way that we live today, or actually have the same benefits of our environment the same way. Institutions won’t be the same. And in this framework, we are having the poor organisation of big capital against small capital, and the polarisation of bricks and mortar and all things digital, which include people against technology,” he said.

Gaeta asserted that leadership cannot be everything to everybody. The interesting part about this on-going leadership dialogue is that it will extend into the future when leaders will no longer have the luxury simply to react to crisis. By the time leaders start to react to a climate change crisis, it will be over. They have to do something in advance. So, one of the things that leaders should also discuss is their new role in the future. Leaders have to take more responsibility towards society, not only stakeholders in the financial institutions, but towards a wider remit. It will make for a more progressive and interesting discussion, as opposed to talking about transformation management.

A different kind of crisis

Bangkok Bank’s president Chartsiri commented that the current COVID crisis is different from previous crises, such as the Asian Financial Crisis in 1997 and Global Financial Crisis in 2008, which primarily tested the capital and liquidity strength and resilience of institutions and the industry. In contrast, COVID is a global human health and existential crisis that has sharpened the focus on the role of financial institutions as responsible participants in the economy, to protect lives and preserve livelihood, through financial intervention, relief and support. Whereas poorly supervised and managed banks and financial institutions were the culprits, or root of the problem of previous crisis, they have become part of the rescue team and solution in the current. “Unlike the previous two crises in 1997, and 2008. This wasn’t a financial or liquidity crisis, but a public health and economic one. Thai banks were in a reasonably strong position to solve the impact. And we’re supporting customers with relief measures, which has helped reduce the damage to the economy,” said Chartsiri.

The capital reforms that ensued from previous crises and digitalisation of the industry started before COVID have also helped to prepare them for their new roles, and develop new skills. It’s like making elephants dance as banks that used to move slowly had to learn to move faster. Banks have had to develop new skills in project managing change management, digital transformation that hadn’t been important before but are becoming more and more important.

Farid Alias remarked that the 1997 financial crisis has led the industry to where it is better prepared to deal with the challenges of subsequent financial crisis. It helped banks to build up reserves on both liquidity and capital to deal with crises that came after that, even in the worst-case scenario that was expected from COVID 19.

“Because of the digital challenges, we had to reinvent ourselves, we had to relearn and unlearn some of skills that we have, and try to be more agile, try to upskill ourselves,” he added.

One of the most difficult issues facing leaders, said Canadia Bank’s Sia is the engagement with staff with changing attitudes and expectations, amid the crisis. “The aspirations particularly of young people is changing and they expect to be able to do more remote working,” he said.

New challenges with the end of COVID

As the world comes towards the end of the pandemic, and the start of COVID endemic, leaders face new challenges posed by a different and harsher global macro environment, new geo-political tensions and conflicts and it looks like crisis management isn’t quite over yet. But on the horizon, there are new needs as society evolves. The existential reality of climate risk and global warming is having a significant impact on bang leadership. Governments around the world have committed to carbon emission reductio through the Paris Accord and the banking sector is being pulled in to help manage climate, risks, physical and transition risks, from financing green projects to reducing and stopping financial support to carbon emitting industries.

Increasingly financial institutions are being asked to play a role in sustainability and to assume broader responsibility to society. “Sustainable financing is an important agenda for banks and collectively we are on this journey towards sustainability. We are introducing checklists in our own loan application that look at sustainability as one of the important criteria for loan approval,” said Sia

For Farid Alias and Maybank, the journey to become a more responsible institution started in 2010. We rewrote our mission statement to focus on humanising financial services, to be responsible and accountable to our stakeholders, shareholders, employees, customers, and make sure that we do right by them. We did not have key performance indicators (KPI) and processes up until recently, which is a blessing in disguise because it allows us to bring many of those principles and intentions into what is now known as ESG, environmental, social and governance,” he recounted.

“It is a very important question for us to figure out, and it is a very exciting journey ahead. Because at least this generation now is given the responsibility to make a dent on the universe, so to speak, to make to make it right for society going forward. And I’m very happy that financial institutions are taking leadership on this and it should be. Financial institutions are at the centre of everything that is of human activity, and we should be the centre of it. And for financial services to be talking the lingo, to be to be a proponent of this will help in getting every part of the community to subscribe, and also to act accordingly,” he proffered.

Making responsible profits

At Harvard Business School, the objective is to develop leaders who are responsible, and strive to make responsible profits. And I wish that all stakeholders will subscribe to this term, making sustainable benefits for not just the stakeholders, but for the benefit of the society at large, not just now but going forward, forever hopefully. It is a challenge indeed. I noticed a lot of the CEOs of hedge funds are very vocal about ESG. But when it comes to return, they still expect maximisation of profits. When we take maximisation profit as a single objective, then in some instances, the end justifies the means. And that’s not what ESG is about. The means has to justify the end. So again, I think we still have some way to go to get to understand how to agree on this approach,” he concluded.

For Bangkok Bank, it has also started to integrate ESG into its major business lines, Chartsiri explained, “We are committed to responsible, sustainable banking, and have developed a framework for these covering investment banking, project finance, business and personal lending and our supply chains. We have established responsible lending policies providing guiding principles for managing ESG risk and supporting green and sustainable businesses. On risk management, we have integrated ESG factors into our lending decision for both retail and corporate and developing framework and tools to systematically manage climate risk. And then yes, on financing we have developed our sustainable finance strategy to focus on engaging and supporting corporates to help them improve their sustainability performance and achieve their targets. Well for SME, we focus on awareness raising activities to support the smooth transition towards a sustainable future”.  

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