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Breakingviews

Breakingviews - Weak bank CEO benches will be hard to strengthen

The Canary Wharf financial district is seen in east London November 12, 2014.

LONDON (Reuters Breakingviews) - It’s well-known that banks have failed to recruit enough women and people of colour to the upper echelons of management. Less talked about, however, is the worryingly narrow experience of the industry’s pool of future chief executives. Boards will have a tough time making the bench more technology savvy.

A study released on Thursday by Heidrick & Struggles illustrates the point. The recruitment firm found that just two-in-five members of big UK banks’ executive committees - who usually report to the CEO - had experience running a full-blown business unit with its own profit and loss account. Four in five have only ever worked in financial services, accounting or consulting.

Banks can solve the first problem by reshuffling responsibilities. Barclays recently put executives Paul Compton and C.S. Venkatakrishnan in charge of one-half of the investment bank each. That will give the board a better idea of their suitability to replace Jes Staley at the top of the $30 billion bank.

The preponderance of career bankers, however, is more problematic, as lenders’ businesses become increasingly digital. Banks readily admit that the big task facing the industry is how to make getting a mortgage or placing a trade as easy as buying something on Amazon.com. Yet recent CEO picks seem decidedly old-school. Citigroup, HSBC, and Goldman Sachs in recent years went for safe insiders in Jane Fraser, Noel Quinn and David Solomon, respectively, as did Credit Suisse and Deutsche Bank with Thomas Gottstein and Christian Sewing. That would be fine if the next rung was stuffed with talented technologists. Most aren’t.

Filling the software-talent vacuum will be tricky. Start with pay. Banks admittedly shell out high salaries by the standards of other sectors, but they can’t compete with tech giants’ equity awards. Which stock would you rather own - Alphabet or Deutsche Bank? And joining a century-old financial institution, with regulators and compliance staff breathing down your neck, still sounds a lot less fun than working in Silicon Valley - despite increased scrutiny there.

That may be why non-bankers entering the money business opt for fintechs instead. The Heidrick study found that half of executive committee members at “neobanks” - think branchless digital lenders like Monzo and Starling Bank - came from outside finance, accounting or consulting. That’s more than double the proportion at traditional lenders. It’s hard to see old-school banks closing that gap.

Breakingviews

Reuters Breakingviews is the world's leading source of agenda-setting financial insight. As the Reuters brand for financial commentary, we dissect the big business and economic stories as they break around the world every day. A global team of about 30 correspondents in New York, London, Hong Kong and other major cities provides expert analysis in real time.


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