In face of coronavirus, bankers apply lessons from natural disasters
Carl Chaney ran Hancock Holding, a regional bank on Mississippi’s Gulf Coast, when Hurricane Katrina hit in 2006.
Leading a bank during of one of history’s most-devastating storms in history was horrifying, he says. But the experience gained from confronting that crisis has proved useful in the face of another: COVID-19.
“I hope never to go through something like Katrina again. But when I’m faced with today’s crisis, boy am I thankful I went through it,” said Chaney, who is now chairman of the $500 million-asset Beach Community Bank in Fort Walton Beach, Fla.
“While the two scenarios are unique and different from each other, there are so many similarities in the required response," he added. "We’re executing many of the same strategies today that we used at Hancock with Katrina.”
Chaney belongs to a special class of bankers: those who have guided institutions through a crisis that left employees shaken and customers in urgent need of help, then leveraged lessons from that experience to sharpen their response to the coronavirus outbreak.
To be sure, navigating through a natural disaster doesn’t guarantee success confronting a pandemic. And not every lesson from the past will apply.
After Katrina took out electricity, Chaney recalls “driving around with a couple million dollars cash in the trunk of my car, delivering it to branches to get people their money.”
His initial instinct with COVID-19 was to similarly flood branches with cash.
“But we don’t have that issue this time,” Chaney said. “Electricity is on and the stores, if they’re open, take cards.”
It can be “very dangerous to extrapolate success in one smaller crisis” to a global pandemic, said Davia Temin, chief executive of crisis management consultant Temin and Company.
Katrina roared in with fury, leaving millions of people homeless and without electricity, then left. Banking was done on card tables with paper IOUs, but at least life still went on elsewhere and the path ahead was somewhat clear. It was, in many ways, a unifying experience.
COVID-19’s descent was more like a slow, rolling wave, creeping in stealthily from a distance. The physical infrastructure is fine, but the sense of uncertainty and isolation from social distancing promises no short-term exit.
"The situations are totally different,” Temin said.
“You might have an idea about how to approach things, but generally God and the devil are in the details, and those details are never the same,” she said. “If you make a misstep, it could be difficult to disentangle yourself from those decisions.”
Bankers with crisis experience say they take such cautions to heart, conceding upfront that mistakes likely will be made.
But they said that having worked through a previous crisis left their leadership teams and organizations more battle tested and mentally equipped to confront COVID-19’s fallout.
For starters, they feel more confident in their ability to set priorities in a chaotic environment.
Their organizational responses and communications protocols have the feel of a well-rehearsed dance, as opposed to something pulled off a planning document. Instead of being afraid to make mistakes, they fully expect to.
“Our storm experience taught us that clarity is more valuable than certainty,” said Shane Loper, chief operating officer at the $30 billion-asset Hancock Whitney in Gulfport, Miss. “You might not get things perfect, but you understand the need to take strong, decisive action and then adjust.”
Perhaps most important, their cultures are resilient.
Everyone understands that as bad as things might get, they eventually will improve. That hopefulness is vital during times of extended hardship.
"Every disaster has its own characteristics. We’ve experienced earthquakes, which are different from hurricanes, which are different from a pandemic,” said Ignacio Alvarez, CEO of Popular, the $52 billion-asset parent of Banco Popular in San Juan, Puerto Rico.
“What’s the same is that we have the ability to mobilize, create groups and react very quickly,” said Alvarez, whose Puerto Rican operations weathered Hurricane Maria in 2017 and several recent earthquakes.
“It’s psychological. Our employees don’t panic easily. They’re a resilient bunch because of what we’ve gone through in the past," he said. "We know we’ve been through tough times before and gotten through them, and eventually we’re going to get through this, too. That’s an invaluable lesson.”
In short, for all the differences between a pandemic and a big natural disaster, the practice gained dealing with other crises has left them better prepared for what is happening this time around — and what’s to come.
Not perfect, but better.
Despite her cautions, Temin said there is value in repetition. She likened the crisis response to a muscle that needs exercise: “The more you go through it, the more strength and capability you build.”
We asked bankers who have been there to share how some of the lessons learned from past catastrophes could benefit them here.
Employees and customers first
A defining characteristic of COVID-19 is the fear and uncertainty it inspires. As with a hurricane or tornado, everyone is living in their own personal crisis, whether for reasons of health, safety, economics or a combination of all three.
The pandemic changed life dramatically for just about everyone. Some spouses have lost their jobs and kids are no longer leaving for school, all causing anxiety on the home front. Employees deemed “essential” across health care and financial services are at risk, and need to mitigate the impact that might have on their loved ones.
Janet Garufis, chairman and CEO of the $1.7 billion-asset Montecito Bank & Trust in Santa Barbara, Calif., told of a call center employee who, in the very early days of the pandemic, could not get comfortable working in her usual space.
“When it started spreading, people got really nervous,” Garufis said. “You can’t touch people. You wonder if six feet is really enough. That affects their ability to work.”
No leader wants employees feeling threatened or uncertain. Striking the right balance between easing those fears and the need to continue doing business is difficult.
At Beach Community, employees were briefed on the bank’s capital strength and long-term staying power. “We learned from Katrina that taking the stress off your employees parlays into how they communicate with customers,” Chaney said.
“It’s crucial to portray a sense of confidence: We’re safe and we’re going to do everything we can to keep you safe,” he said. “You have to exude that, but you also have to mean it. It can’t be an act. You need to create goodwill and a strong mental state” among employees.
Whatever stress employees are feeling in a crisis, customers are likely feeling the same — or worse — and need assistance. Deferring payments on mortgage, student or small-business loans, and doing it quickly, can help a lot.
During Hurricane Maria, Popular’s operations were overwhelmed by the need to grant payment deferrals to hard-hit clients. It stumbled. This time around, the bank moved quickly.
“When you get something like this, you need to give clients payments relief,” Alvarez said. “That’s something we learned and have gotten very good at. We’ve done debt relief on a massive scale, which is something most banks aren’t accustomed to doing.”
Chaney also emphasized the importance of reaching out rather than waiting on calls for help. Like many banks, Beach Community began contacting restaurant and hotel borrowers within days of closings, offering additional working capital to make up for lost cash flows.
“We learned in past crises that if you stick your head in the sand and aren’t proactive, customers start to worry that you’re going to pull the plug on them,” Chaney said.
“That creates undue stress and inspires bad decisions,” he added. “If you get out in front before the issues get bigger, you’ll have healthier customers.”
Take decisive action
In the frenzied first weeks of what promises to be a long journey, Garufis’s team at Montecito hustled to ensure remote access for employees.
It’s a response that came directly from dealing with the 2017 Thomas Fire, a devastating wildfire that set off mudslides, destroyed more than 1,000 structures and caused 23 deaths and $2.2 billion in damage in the bank's market.
“We talk about it all the time: What did we learn last time?” Garufis said.
In the face of that fire, Montecito gave crucial employees remote access, but scrambled, often unsuccessfully, to find alternative locations for others to work. The bank kept operating, but nowhere near capacity.
“We could run the business … with only our key associates, but to run it well over the long haul, we needed the entire team,” Garufis said.
“Underestimating the criticality of remote-work access was the single biggest learning” — and a misstep she didn’t want to repeat. This time, her team began lining up laptops and remote-access tokens for most of its workforce in February, weeks ahead of California’s stay-at-home orders.
“There have been times when we were hesitant to pull the trigger and waited to see what other organizations were doing,” Garufis said.
But this time, they made decisions swiftly. “We knew there might be some pushback, but we were prepared to defend our decisions because we knew they were right,” Garufis said.
Adjust on the fly
When COVID-19 hit, most financial institutions ostensibly started in about the same place, dusting off pandemic plans — required by federal regulators since 2007 — that were thrown together in calmer times and with little knowledge or enthusiasm, and certainly no real-life practice.
Montecito’s 14-page document looks, in some ways, eerily prescient. One section envisions implementing “social distancing and work from home to minimize the spread and impact of the virus."
"It was pretty interesting how much we had considered,” Garufis said.
The main problem with most pandemic plans: While they did an adequate job outlining health and safety steps, few really considered the severe economic shock that would accompany those actions.
Loper at Hancock Whitney said the list of economic and health unknowns that accompany COVID-19 in the coming months will put a premium on banks’ ability to adapt.
In early April, many banks found themselves suddenly on the front lines of distributing money from the Small Business Administration’s $349 billion Paycheck Protection Program.
“It went live before it was really built,” Loper said. “We’re all learning as we go.”
Loper said he's confident his team will make the right adjustments because he’s seen it happen before. In the aftermath of Katrina, most of his bank’s offices in Gulfport were shuttered amid a clutter of damaged facilities and downed power and data lines. The whole city was a mess.
The management team would meet in a parking lot late each night to plot course adjustments. One night, the brainstorming session generated the idea of renting buses from the far northern part of Mississippi and transporting hundreds of employees daily to a functioning processing center near Baton Rouge, La.
“We had two or three big buses filled with people,” Loper recalled.
"Every morning they’d get on the buses, drive two hours to Baton Rouge, get the daily processing work done and then bus back,” he added. “The operative word is to be nimble. You need to think creatively and then act.”
Set up a war room
If nimbleness is a common theme for bankers trying to stay ahead of the pandemic’s challenges, leadership structures are the enabler. Many compare the effort to an army adjusting to an enemy’s moves.
“Your response plan is like a war plan: something that’s good to have,” Alvarez said. “But once the first shot is fired, you need to adjust rapidly.”
No wonder then that when trouble starts, most larger banks — and many small ones — activate multidisciplinary “war rooms” (though few actually call them that) to plan the response. It’s where the big decisions are made and coordinated.
Every time a tornado strikes its markets, the $42 billion-asset BOK Financial in Tulsa, Okla., kicks its “emergency operations center” into gear.
The 15-person group, which includes representatives from business lines, human resources, risk management, legal, technology and other operating units, is seasoned at confronting disruptions and is bringing its experience to bear during the recent outbreak.
“We’ve learned the value of having a centralized area as a one-stop shop for information to help us make decisions across the company,” said Steve Bradshaw, BOK's president and CEO.
While many might envision some NORAD-like bunker, most such “rooms” today are by necessity virtual.
On Feb. 25, Garufis activated the same “incident management team,” or IMT, that oversaw the wildfire response three years earlier. Back then, the group met in the same room when possible. This time around, it was all virtual.
In short order, the group — which assembled twice a day for several weeks — had authorized laptop purchases and “emergency relief pay” increases for some employees, and began plotting and prioritizing which employees would have access to what information while working at home.
By mid-March, the group was reviewing three scenarios for the bank’s operations, opting first for “scenario A,” the least dramatic, which kept bank lobbies open. Two days later, the IMT changed course, jumping straight to “scenario C,” the worst case, which included closing lobbies and making operations as virtual as possible.
It also decided as a group to cancel the bank’s big 45th-anniversary fundraiser, scheduled for March 17.
Had the event taken place, it would have happened just two days before Gov. Gavin Newsom issued a stay-at-home order for all of California.
War rooms also help drive communications. During a crisis, employees and customers alike are confused and looking for answers from bank management.
In the Katrina aftermath, Chaney recalled, employees were constantly seeking out information — about the bank, fellow employees, personal services. Customers, likewise, wanted far more out of Hancock than account balances. They would ask employees about everything from Federal Emergency Management Agency aid to where to get fresh water.
Banks that have been through such situations take it as a compliment — a sign that they’re trusted — and they embrace it by proactively collecting and disseminating information to employees and customers.
Building strong, intentional communications, to keep employees on the same page and to help customers, is a skill that develops with practice.
During the wildfire, Montecito’s leaders “would make good decisions for the right reasons, but not take the time to communicate the decision or explain the reasoning,” Garufis said. “Without appropriate information, it’s tough for middle managers to lead their teams or for our front lines to provide high-level service to our customers.”
The communication this time around comes in the form of broad pronouncements and daily updates via email, conference calls or other internal channels.
At Hancock Whitney, President and CEO John Hairston has published five priorities for the company to follow during the pandemic that includes basics such as “keep the bank running” and “take care of each other,” Loper said.
Meanwhile, Loper attends regular “all-hands calls” with various operating units, during which he offers encouragement, provides operating updates and takes questions. “With everyone working remotely, it’s important for them to hear our voice,” he said.
Listening is equally important. Alvarez has been a regular at Popular's retail manager meetings, cutting out the middleman to gather insights on potential moves top brass is contemplating in areas like branch hours and staffing. Often, those ideas get shot down.
“It might sound great on the drawing board, but when you’re in that meeting, the branch managers will say, ‘That’s not going to work for this reason,’ ” Alvarez said. “You don’t have time to wait for the normal information flows in a crisis.”
Bankers say they are confident their institutions have enough capital to ride out the crisis, but no one really knows for sure, or has wanted to give much thought to a future with widespread business failures and job losses.
In the pandemic’s early days, attention was focused on urgent matters — employees, customers and day-to-day operations — rather than the longer term.
But to confront this crisis effectively, from the spread of the virus to the economic fallout to come, the consulting firm McKinsey recommends forming a “plan-ahead” team.
While those participating in the existing war room address the daily tactical needs created by constantly changing conditions, the plan-ahead team should focus on what might happen in the next stage of a crisis.
Anticipate a rapid escalation of problems, McKinsey advised in an April report on the coronavirus crisis. Have this team, led by a senior executive, gather forward-looking data, develop variable scenarios and identify actions that would be needed across multiple time horizons — days, weeks, quarters, years.
“Speed is of the essence, and waiting for perfect answers can be counterproductive,” the report said. “You need to deal with uncertainty, not let it bottleneck your decision making.”
McKinsey said military organizations employ these principles to help leaders tackle complex sets of issues that are evolving quickly.
Manage the technology
Most disasters are accompanied by technology challenges. When a tornado hit Tulsa one Sunday morning in 2017, resulting in a power outage that affected BOK’s data center, it took about an hour for the facilities staff to get generators to the site.
The problem was that the data lines were down. A debate ensued over whether to cut to a second data site. Ultimately, bank executives’ concerns about service degradation were moot. By late Sunday, the main center was back online.
“That was a big learning experience,” Bradshaw said. “We discovered some blind spots that hadn’t been identified in our testing process. If it had been a Tuesday afternoon, the disruption might have put some of our customer relationships at risk.”
Those holes have since been filled, and the real-life lessons — the need for a stronger tech backbone and better redundancies that were embraced after that experience — have made the company’s shift to work-from-home arrangements much more efficient.
By the end of March, most of BOK’s 5,000-person workforce was out of the office. Because of its tornado experience, “we have the technology to support a work-from-home strategy to avoid service degradation,” Bradshaw said.
Technology will likely play a huge role as the country and industry recover, and with so many employees doing their jobs remotely, cybersecurity will get even more emphasis than before. Staying on top of the latest developments and having top-flight tech support will be vital.
Sometimes, the most valuable lessons involve going against instinct.
The great temptation for leaders in any crisis is to throw all they’ve got into the task. During Katrina, Chaney was a constant presence at the office and in the field, rallying the team. There’s always a danger of burnout and, with COVID-19, a substantial health risk that increases with time and travel.
Several weeks into this crisis, Chaney pulled aside Beach Community President and CEO Chip Reeves — who had been “traveling all over” the area served by the bank’s nine branches — and counseled him to go home.
"I said, ‘Look, Chip, I love what you’re doing, but I don’t want you to be a hero. Be a role model and go home. Set the example of working remotely,’ ” Chaney said.
The advice was not easy to give, because “my natural instincts from Katrina come out,” Chaney said. “It was so important then to be visible to the public. It’s a different dynamic that I’ve had to adjust to.”
COVID-19 is new territory for everyone, and the resiliency of bank leadership teams and cultures will surely be tested in the months ahead. Everyone will be developing major crisis experience in real time.