Co-operative bank members need to better manage employee competence and behaviour

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Written by Mary Clarke on 9 June 2014 in Opinion
Opinion
Assessments that examine employees’ behaviour and likely decision making should be part and parcel of working life, Mary Clarke says
The Co-op bank was once revered for its ethical policies and low risk behaviour, when other banks were in crisis. However, following its near collapse last year, with losses of £2.5bn and the scandal surrounding its former chairman, Reverend Paul Flowers, the bank has been hitting the headlines for all the wrong reasons. 
 
In recent months, two independent reviews investigating the bank’s troubles were published, which highlighted a catalogue of problems. Sir Christopher Kelly, chairman of the Committee on Standards in Public Life released the ‘Kelly Review’ in April, and Lord Myners’ ‘Independent Review of Governance’ followed in May. The Kelly Review found that the bank had been run by unqualified executives, who had an “overly casual” approach to regulators, little grasp of risk and a tendency to turn a blind eye to growing problems despite the financial crisis. The report said that the group’s board failed to ensure that the Co-operative Bank consistently lived up to its ethical principles. 
 
Lord Myners, former Treasury Minister and a former board director at the bank, agreed. He also went one step further labelling the board as "manifestly dysfunctional" and claiming its members lacked business experience. Myners’ proposals for reforms included the need to replace Co-op's 21-strong board of representatives with a slimmed-down structure of professionally trained directors, and the creation of a new 50-strong National Membership committee to provide oversight of the top body.
 
One of the key challenges for the bank going forward is to get the recruitment of the new board members right, something which the bank has failed to do in the past. 
In April 2010, the appointment of Reverend Paul Flowers as chairman of the Co-op bank was widely criticised because of his inexperience in banking. Mr Flowers was a man with limited banking experience and in a previous role as a trustee of the drugs charity Lifeline, he resigned in 2004 after allegedly filing false expenses claims. In May last year, the Co-op bank was found to have a £1.5bn black hole in its finances, which led to Flowers stepping down. 
 
With a dubious track record and limited experience, why was Flowers appointed chairman of the sector’s ‘most ethical’ bank in 2010? Equally, how has it gone unchecked that board members at Co-op bank lacked business experience?
 
Reputation is one of the most prized and most vulnerable of corporate assets. Reputational damage caused by people is something the banking sector as a whole needs to address.  Errant human behaviour contributed to the banking crisis, and it appears that the Co-op succumbed to the same culture that allowed incompetent behaviour to go unchecked for years.
 
Urgent reforms are now needed at the Co-op Bank, but surely a priority must be to overhaul the recruitment process immediately and assess all current employees to ensure they are not just competent and behave in a way that adheres to the ethical standards and policies of the bank. Stamping out risky behaviour and introducing better ways of managing competence from the top down is vital. However, to deliver this kind of change, the bank needs to have a better understanding of the competence, knowledge and experience of its employees, as well as how they actually behave at work. Such insight will also enable the bank to uncover their specific training needs and also expose any risky behaviour and attitudes.
 
Ensuring people demonstrate the right behaviours consistently means investment, but organisations that get this right can reduce their risks. They are able to spot problems ahead of time and clamp down on risky behaviour and decision making. Assessments that examine employees’ behaviour and likely decision making should be part and parcel of working life – allowing managers to identify and address risky behaviour and deal with it ahead of time.  
 
Assessing ‘people risk’ needs to be part of the recruitment process and continuously monitored during employment, if it is to be truly effective. While, Co-op obviously made an error recruiting Paul Flowers, with adequate assessments in place for everyone, including the senior management team, his incompetence would have been uncovered sooner, averting a crisis.
 
To recover from this crisis, the Co-op bank clearly has a long road ahead but upholding its values is crucial and this can only be achieved if its people are competent and behave in the right way. 
People risk is an area that so far has received relatively little attention. Yet people represent the biggest cause of operational risk and the Co-op needs to know which employees are unlikely to follow the organisation’s procedures, practices and/or rules. They can mitigate ‘people risk’ if they adopt a more holistic view to addressing it. They just need to ensure that their risk culture aligns their overall mindset and expectations with the individual competencies, attitudes and motivation of their employees.
 
About the author

Mary Clarke is CEO of Cognisco

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