Most bankers recognize that what you learn in Economics 101 and what really happens in the business world are as different as night and day.
I teach my students that the two most important motives for business decisions are preserving your ego and covering your rump. In the classroom they are skeptical, but when they go out in the so-called real world they learn that this overweight professor is not so crazy.
In banking this disparity between theory and reality goes much further. In community banking it goes to the core issue: What is the real goal of our bank?
Some readers may be offended by this question. "How can he question what our goals are?" they may ask. They believe they are trying to make the maximum profit for the shareholders, because that is the standard definition of any corporation's goals.
But is that really the goal your bank is dedicated to achieving?
I remember having five minutes alone with Don Platten, chief executive officer of Chemical Banking Corp. (now Chase Manhattan Corp.), after I interviewed him in front of his associates and tape-recorded his comments for the bank's annual report.
With the tape recorders running he had to be cautious, because one misquote of a chief executive can lead to lots of trouble for a bank. But alone he said to me, "Paul, this bank has been in business for well over 150 years. My only job is to make sure it is here when I'm gone. "
At many banks this sobering thought flavors every decision on risk management and lending policy. Many banks less consistent in the matter are now history, along with their CEOs.
Digging out the real goal of your bank is usually a lot less dramatic. But for their own sake and the bank's, employees need to understand what it's all about. (Remember: Even though we face money risk, credit risk, covarient risk, and other roadblocks, the main motive for employee decisions is career risk. That mean employees ask themselves if their careers are at stake if they make the wrong decision.)
Let's be specific.
Many banks are run purely and simply for the aggrandizement of the CEO. Anything that can get his name in the media and make him look like a hero is what the outfit is all about.
How often have we seen financial institutions devote their time and energy to civic projects that make the CEO look like a strong community leader while the basic operation is going down the tubes?
Pecking order can also be goal. Students, faculty, and administrators of some top business schools go into mourning when Business Week drops them a place or so in their ratings. Similarly, I have seen bankers become depressed when they have come in only second in footings in their community that year.
"How can I face the competition's officers at the club when they are No. 1?" I've heard bankers moan.
In the 1960s, when I questioned an officer at First National City (now Citibank) about its goals, he actually took me to a chart comparing Citi and Chase in size (they ran neck and neck then) and said, "That's the only goal that matters in these parts."
Another goal that motivates many banks is image. The top officers and the directors feel the bank must have the top stature in the community; everything else is secondary. Woe to the officer who forgets this in his or her decision-making.
And then, sadly to say, there are organizations basically run so the CEO's children will have a business to inherit. Many banks have gone under because the chief put that ahead of shareholders or the community.
Finally, some community banks and thrifts are run as if the main goal were providing a nice, cozy place for people to work. It is as if the world is divided into two groups: us, the insiders working here; and them, the people who own or use the bank.
Most economics and business students would say this column is fiction- that "shareholder value" is what runs the business world and is the highest goal of any executive.
Sure, legally and in theory. But the world is changing. Many now question why our laws and priorities make a one-month stockholder more important than a 40-year employee, even if downsizing can help the bottom line.
So in 1997 it is hard to say categorically that one goal is good and another inappropriate.
But we can say this: The bank that does not analyze its goals is just spinning its wheels. No institution is effective unless it is striving for something.
