Bankers often ask me, "How can you teach banking when you never worked in a bank?"
I answer, "I can't."
All I can teach is (1) a lot of enthusiasm for the industry; (2) a little vocabulary and environment; and (3) that there is truth and wisdom on both sides of every issue. No one has all the answers.
This comes to mind when one asks what the goal of a bank really is. Is it serve the shareholders or is it to serve the stakeholders? How do they differ?
Shareholders are, of course, the investors in the bank who expect dividends and/or a rising value of their investment.
Stakeholders are the others whose lives are affected by the bank, notably the employees, the people who borrow money from it, and the community the bank serves.
What brings this difference to the limelight is the large number of banks that are downsizing and reducing staff and services to become more competitive in today's difficult environment.
Does the bank have the right to let people go who have been with it for many years in its effort to serve shareholders who have put in money but not their lives to promote the institution?
We have seen this question come to the fore even more poignantly in the buyouts of the late 1980s. After paying huge sums to win a company, the new owners have tried to justify their investment by laying off vast numbers of employees, selling divisions, and otherwise showing that owners were the only concern of management -- not employees or customers.
To the public, the dismissal of people with decades of service to satisfy the egos of the financiers who bid for the companies certainly did not sit well.
But shareholders have not always been served in a manner worthy of their investment, either. All too often companies are run to benefit only the top managers.
Indicative of this is the story T. Boone Pickens tells of asking Fred Hartley, the head of Unocal at the time, why they paid out such meager dividends despite high earnings.
Hartley's answer was reported to be: "Young man, you don't seem to realize we do not like to pass out corporate assets to total strangers."
So some companies have been likened to the captain who sails to the New World and finds treasure for his investors. In days past the captain would come home, be paid off, and then the investors would share the profits. But today, the captain would decide what everyone else gets and keep the rest himself.
There is also the question of whether the community and the employees really deserve to be considered.
As the head of an S&L that went under put it, "When S&L's served the community by taking risks, and then failed, no one cried for them. As long as other banks were available, no one cared that some had died trying to serve the marketplace. If they had it to do again, certainly they would serve the shareholders first."
And some bankers who have been responsible for most layoffs explain that this is part of the change in bank technology. People in certain fields just are not needed anymore.
"Whereas in the past we would need special programmers for certain jobs," they explain, "now we just go to the computer store and buy a software package for a hundred dollars or so to do the same job.
"To keep people whose skills are outmoded and who do not have the ability or personality to learn new ones or otherwise retool would damage or even kill the entire organization -- throwing everyone out of job, not just the unneeded ones."
If you have read this far, you can see why all I can do as a professor is to give both sides of the story. But maybe a fair compromise would be this: Over time, an organization must reward its shareholders or it will fail and serve no one. But it must also take into consideration a time horizon.
To push for immediate profits to satisfy Wall Street analysts or local market makers at the expense of employees, the community, and the customer is paying for longterm financial difficulties.
To ignore the small borrower who is dependent upon the bank in order to serve the more profitable one who can go elsewhere if the bank fails is robbing the bank of its seed capital of a customer base.
And to ignore the stockholder and run the bank for the benefit of management is to invite unfriendly takeovers and more unfriendly lawyers to enter the picture.
As I said, every story has two or more sides. But the one point a commentator can make today on the shareholder-versusstakeholder issue is that bankers and business people should sit down and develop a policy that carries water on as many shoulders as possible to benefit all three -- their shareholders, their employees, and their communities.
