Karen Peetz has tough advice for bankers struggling to adapt to the harsher regulatory environment.

"People really need to get it through their thick heads that it is here to stay. You have to adjust your operating model and get on with it, versus fighting, fighting, fighting."

That's vintage Peetz, who has honed the art of managing-and leading- through times of change.

After the 2008 financial crisis, she played a key role in helping the government execute its Troubled Asset Relief Program. Then she guided her alma mater, Pennsylvania State University, through a devastating period, taking over as chairman of the board of trustees during the Jerry Sandusky sex abuse scandal. And now Peetz is helping reform the controversial tri-party repo market.

This year, Peetz was promoted to president of BNY Mellon, overseeing global client management and regional management for Europe, the Middle East and Africa, Asia and Latin America. She also has responsibility for human resources and BNY Mellon's treasury services business, two areas in which she has particular expertise, having been personally involved in both over the course of her career.

Peetz, who has been in banking for three decades and at BNY Mellon for the past 15 years, was the company's first female vice chairman and has sat on its executive committee since July 2007. She spent four consecutive years on our list of the 25 Most Powerful Women in Banking, including a turn at No. 1 in 2011, and with her promotion this year she shoots straight to the top of our list of 25 Women to Watch, which recognizes senior executives who have taken on new roles within the past year, along with talented up-and-comers and others whose infuence is growing.

Peetz, who led BNY Mellon's financial markets and treasury services group before her promotion in January, says big problems require new thinking and a good-sized serving of humble pie.

"It really took our industry a long time to realize that the game had changed," Peetz says. "We need humility as leaders, because we haven't done everything right. Many of our actions precipitated the financial crisis, collectively, and we have to take responsibility."

Here she sees parallels to her most significant takeaway from her time chairing Penn State's board.

"We didn't know" about Sandusky's crimes beforehand, she says, "but we were the highest body of the university. Somebody had to step up and say we accept responsibility to make changes.

"I think the banking industry missed its chance to do that, and now I think that's a big part of why trust and confidence" is lacking.

When crisis hits, Peetz says, it's important to "challenge your thinking, your actions, your leadership."

Analyze the problem and possible solutions, then choose a course and move forward, she says. "You need to figure out where you want to go. Trust your instincts. You're not perfect and it's not going to be perfect. But you accept responsibility, and you have to move on.

"In the midst of controversy, leadership really is figuring out what's the plan and then getting people aligned to actually do the work."

BNY Mellon's plan for moving forward involves returning to its risk-management roots and investing in its staff.

"Culture is at the core of the industry's future," Peetz says. "When I think of how I was trained ... that's what we do: risk management. But we, as an industry, got away from training people properly as they come in the door. If you don't build that culture of risk, this is the kind of thing that happens."

To that end, BNY Mellon is creating a virtual university with six separate areas of learning, from sales and client service to risk and compliance to professional development. Peetz says the idea for the university-dubbed BKU, the firm's ticker symbol-came from Chairman and CEO Gerald Hassell, who asked her to spearhead it.

"It gets back to the components required to establish a more common culture," Peetz says. "Big banks got away from training programs and consistent training because it costs a lot of money. We're going the opposite way. We are establishing a much more common way for employees at all levels to get introduced to banking and risk management and what kind of a company you work for and where do you fit in that."

BNY Mellon has hired a chief learning officer, and each of the six disciplines will have its own "dean." The "students" will be BNY Mellon's 9,000 middle managers.

"You definitely get the cultural lift and benefit from investing in people, but also for having a more consistent approach to these functions," Peetz says. "We're telling employees: 'Your role is absolutely critical to our success.'"

The firm is focusing on middle managers in part because, while most banks now are active recruiters of women and minorities, many fail at promoting them beyond middle management.

"We are putting a very coordinated and concerted effort ... to look right at that population to say we need more women and multicultural people in those roles." The aim, she says, is "diversity in the roles that matter for the real management and leadership of the company."

A diverse senior management team is essential to success, Peetz says. "Those are the demographics of the country and the world. At a macro-level, you are not going to be competitive if you are not tapping the diverse talent."

She notes that research shows companies with diverse leadership are more profitable, and that diversity of thought-going at problems with more and different perspectives-produces better results.

Peetz also is focused on innovation these days. BNY Mellon has a major innovation project that got its start in one of the units Peetz ran. The pilot produced pretax income of $165 million, and its cross-business referrals generated $56.2 million in new revenue.

To roll it out firm wide, BNY Mellon staged a contest asking for ideas that could save $15 million within three years. Roughly 950 employees participated, and a group of volunteers chose nine finalists. Each team had five minutes to present its idea, and the pitches could be watched on a live stream. All employees were invited to cast a vote, and 2,100 of them did. Two teams tied for first and split the $125,000 in prize money.

"Sitting there watching these people pitching their ideas, with their passion, their poise, I thought, 'This is what this company can become,'" Peetz recalls.

"If you create an environment where people can step up, if you create an innovative and honest culture, chances are somebody is going to raise their hand if something that is not right is being done."

Though her culture efforts are geared toward all employees, Peetz has long had a special interest in developing female talent at the firm. She is the founder of the bank's very active women's network, and was talking about "leaning in" before it was popular, urging women to live life on their toes, poised to act.

"There is so much coming at women today. ... You have to trust your instincts. You have to turn that into action," she says. "You can't be ready, shoot, aim, but at the same time you have to be definitive and decisive. That's why people follow you."

Women too often are paralyzed by the fear of failure, she says.

"You are going to make mistakes. Accept responsibility for your mistakes, learn from them, but don't beat yourself up too much. I really do think the perfectionist thing is a problem for women. It's an outsized guilt mechanism that can then be debilitating.

"You have to pick yourself up and keep going."

"Keep going" has to be a mantra for anyone who, like Peetz, is working on tri-party repo reform, a project that has dragged on for years.

BNY Mellon and JPMorgan Chase are at the center of the massive market that broker-dealers use to finance their inventories of securities. Federal regulators got serious about tightening up the market after the 2008 crisis, and Peetz is heavily involved in the negotiations among regulators, broker-dealers and investors.

The $4 trillion intraday market has been halved, and Peetz says the risk will be reduced to "virtually nothing" by the end of 2014.

Then why do regulators repeatedly contend the market is still too risky?

"I think they are slow to call it a success until we fully implement this 'getting to zero' goal," she says. "I think you'll get a distinctly different bead on this by the end of the year."

In terms of satisfaction, Peetz says her tri-party repo work outstrips her work on TARP. (BNY Mellon's global corporate trust division, which Peetz used to run, beat 70 others firms and won the contract to administer the $700 billion government program.)

"I used to think TARP was cool, but this is so much more fundamental in terms of the risk management of the U.S. financial system, if not the global financial system," she says of tri-party repo. "The point being: The regulators were not wrong. ... Everybody came to the table kicking and screaming. We're making it happen. And you know what? It's going to be better for everybody."

Peetz also saw a fair amount of kicking and screaming when she took over as chairman of Penn State in 2011. She had joined the board the previous year, after allegations had surfaced that a former assistant football coach had sexually molested children on university property.

When the chairman of the board of trustees resigned mid-scandal, Peetz stepped up and led the board during its most difficult year. An independent investigation commissioned by the board and led by former FBI Director Louis Freeh found that key officials at the school had known for years about allegations of child abuse by Sandusky, failed to disclose them and "empowered" the coach to continue his crimes. The NCAA handed down some of the most severe penalties it has ever imposed.

"That year was so intense, it felt like a decade," says Peetz, a 1977 Penn State graduate who played field hockey and lacrosse and was one of the school's first recipients of a Title IX athletic scholarship. As chairman, she played to her strengths in corporate governance, overhauling the way the trustee board operated and establishing new committees with broader membership that included faculty, student and alumni representatives. Full board meetings are now public and include open Q&A sessions.

Peetz stepped down as chairman in January because of her promotion at BNY Mellon, which requires more time-sensitive decision-making and significant international travel. But she remains on the board of the university.

Peetz says both Penn State and the financial services industry must look to the future. In a recent speech, she talked about the challenge of coping with "unimaginable change."

"For Penn State, it's probably difficult at this moment to envision a day when the institution will again be defined by its academic standards, rather than its darkest chapter," she said.

"For Wall Street, it's hard to imagine it may one day be defined by its ability to contribute to global prosperity, rather than individual acts of greed."

Her conclusion: "It will be a long road, but it can be done."

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