The banking crisis is over and the recession has bottomed but financial services companies are still struggling. Why the malaise?

Leadership is the problem – and the solution.

Since spring 2011, the KBW index shows, financial company stocks have performed up to 40% worse than other industries. In addition, job cuts are up 103% from 2012, CEO turnover is on the rise and 45% of sector employees say they intend to quit in the next two years.

Companies are still under siege from regulators, upstart competitors and consistently difficult market conditions, still characterized by low interest rates.

But there are deeper cultural issues at play. Addressed in the right way, these could also be part of the solution.

The problem is that, while the market has changed beyond recognition, leadership has not. Many companies still use leadership styles and practices better suited to the boom years. For example, we found that nearly half the leaders in financial companies rely on a "directive or coercive" leadership style, compared to just one-third of leaders across all sectors.

The coercive style can be summed up in three words: "Just do it!" While this approach has its uses, research has repeatedly shown that the coercive style is best used as part of a balanced blend of at least five other leadership styles: "visionary" or "authoritative," "affiliative," "democratic," "pacesetting" and "coaching." In general, we do not see this blend among financial services companies.

When financial organizations need, as they do today, to be developing new ideas and taking a different attitude towards risk, this paternalistic style is a problem. No one is going to put a hand up with a radical new business model or push back on dangerous suggestions if they fear ridicule – or worse.

Coercive leadership is also proven to have a negative effect on motivation, which strongly influences performance.

My firm's research showed that 45% of U.S. financial services leaders created de-motivating climates. As a result, only 38% of their employees are performing at or near their best.

We also discovered that financial sector leaders rank themselves notably higher than others in their firm rate them for emotional and social intelligence. This suggests a degree of overconfidence that is limiting their ability to embrace change.

Leadership is potentially the key to the whole sector's transformation, because it sets the direction and culture from which everything else flows. Barclays CEO Antony Jenkins set such a course earlier this year, announcing a new, customer-focused purpose for the global bank: "Helping people achieve their ambitions – in the right way." Citigroup CEO Michael Corbat also recently advocated for a new company path rooted in "more discipline and targeting" and a "balanced view across markets, clients, and products."

As well as acting as role models for the change they want to see, senior leaders also need to make sure it's reflected in management throughout the organization. This means listening and coaching in a way that gets their teams to open up to new ideas and want to improve. When firms identify which new ideas and leadership behaviors work best, they can spread these best practices throughout the firm. 

With nothing more than a change in management mindset, financial companies can create profound change. Their leaders are the start of a process that will result in better-motivated employees, refreshed relations with clients and regulators and the skill sets companies will need to take on new challenges.

Jean-Marc Laouchez is managing director of financial services at Hay Group, a management consulting firm.