Emotional Rescue

A traditional tenet of banking philosophy has long been ‘my word is my bond’; bankers like to believe that honour and respect are sturdy planks in their relationships with customers. Yet recent research reveals the reality as substantially – and from the banking sector’s perspective, disturbingly – different.

Fact is, small and medium business clients feel exactly the opposite. According to the 100 small to medium enterprise (SME) finance executives who formed the core of this research, 58 per cent are dissatisfied with their banks and nearly 60 per cent don’t trust them.

And the news only gets worse. Research carried out by banking consultants East and Partners also sounds a warning knell: 43 per cent of SMEs are looking to walk to a competitor within the next year due to borrower dissatisfaction. Paradoxically, these SMEs will probably go to new banks infected with the same malaise of non-mutuality and afflicted by similar levels of distrust and lack of loyalty. The net result is economic loss all round.

But if bankers were to apply emotional intelligence (EI) in their dealings with SMEs, they could dramatically rebuild borrower trust, boost SME loan satisfaction levels and quell banker borrower ‘churn’. EI is no management pipedream; it’s alive and well in many different kinds of organisations. Interest in EI started to accelerate in 1995, after Daniel Goleman published Emotional Intelligence, which was on The New York Times bestseller list for 18 months, courtesy of more than five million copies in print worldwide. It interested managers who could see the potential to boost productivity through its methods. Now the US and Israeli defence forces, and virtually all Fortune 500 companies, employ scores of EI consultants.

Central to EI is the theory that emotions, properly managed, can drive trust, loyalty and commitment. Many great productivity gains, innovations and accomplishments of individuals, teams and organisations are EI driven. Victoria Police EI programs, for instance, reduced the resignation rate from nine to two per cent, and the ANZ Bank EI Breakout Program massively boosted staff satisfaction from 49 to 85 per cent.

‘Emotions’ have become the new arena for workplace productivity improvement. Daniel Goleman’s finding that EI was superior to IQ in achieving life success caused a shift in orientation of recruiting and training from IQ to EQ, therefore focusing on emotional competence.

Business leaders agree that success is strongly influenced by personal qualities, including perseverance, self-control and amiability. Technically brilliant executives who fail to get on with people, or who cannot handle stress, make leaders realise how valuable are emotionally intelligent employees. Capacity to develop trusting relationships is the central indelible feature of EI competence.

Emotional manipulation

The destructive effects of miserable morale, intimidated workers, arrogant bosses or any of the dozens of other emotional deficiencies that go largely unnoticed by those outside are enormous. They are reflected in decreased productivity, an increase in missed deadlines and mistakes and the exodus of employees to more congenial settings. There is inevitably a cost to the bottom line from low levels of emotional intelligence on the job. In the extreme, companies can crash and burn – Enron and HIH are recent examples of businesses derailed by unconscionability: arguably, the very antithesis of EI.

In fact, when EI is used to dominate or control organisations, it has important economic and personal consequences. Noted EI theorist Stephen Fineman comments: ‘Emotions are in the texture of organisations; they are intrinsic to social order and disorder, working structures, conflict, influence, conformity, posturing, gender, sexuality and politics. They are products of socialisation and manipulation; they work mistily within the human psyche as well as in the ephemera of organisational life.’

Building trust

The quality of an organisation’s work life is based largely on trust and loyalty. Trust has a palpable quality – it makes you feel good and respected whereas distrust leaves one uneasy and doubted, filled with feelings of guilt and self-doubt. If one feels good, self actualisation is high. An organisation’s profitability is linked to the quality of its work life and to the way employees feel about their jobs.

Emotional intelligence in the workplace contributes to listening and oral skills, and stress tolerance and adaptability. It helps deal with conflict and builds healthy, trusting relationships with clients and colleagues. It makes teamwork more effective and negotiating skills are improved. Simply summarised, nice people are nice to do business with, and productivity is higher.

Grameen Bank

The Grameen Bank in Bangladesh was founded on central EI keystones of empathy, trust and mutuality. It’s story began in 1976 in a Bangladeshi village, when a poverty-stricken woman approached economics professor Mohammad Yunus for a 20 cent loan to help her purchase raw material for her bamboo stool-making business.

Yunus then went around the village with one of his students and found 40 other such people. He was shocked that the funds required amounted to only $27, and felt ashamed of being part of a society that could not provide even this paltry amount to hard-working, skilled human beings. Yunus told borrowers that he didn’t expect repayment until they were in a position to do so. He received every penny back.

The bank was born out of this accident. It reversed conventional banking practice by removing the need for collateral, creating a bank based upon mutual trust, accountability, participation and creativity – the essentials of emotional intelligence. Grameen today lends more than US$500 million a year, without security, to thousands of individuals, mainly women, in thousands of poor Bangladeshi villages. The average loan is about US$200.

But in 1998, disaster struck. A flood hit Bangladesh, the second within two years, and submerged half the country for 10 weeks. Most borrowers lost their homes, and their employment and businesses were confronted with the imperative of rehabilitating their lives. Borrowers were simply overwhelmed with unachievable loan repayments, seriously threatening the veracity of Yunus’ maxim: ‘the poor always repay’. Courageously, Yunus issued fresh loans to the borrowers who had lost their homes, an ingenious move that helped borrowers in the double task of flood rehabilitation and recommencing income-generating activities.

At the same time as the flood, borrower dissatisfaction with the bank’s unyielding terms was simmering. These two events created the momentum for change. Heeding the many criticisms from his bank’s 12,000 sceptical staff, Yunus abolished the whole problematic bank management and loan system that he introduced 25 years earlier, applying principles of transparency and fairness. In less than 24 months he had radically transformed the bank.

Enlightened policy changes reversed predetermined repayment schedules, the view being that they were senseless in the face of uncontrollable events. Yunus focused on the fundamental question: what would it matter if loans were repaid months or even years later; it was better to eventually have the loan repaid. Grameen Bank II was an outstanding success. Old borrowers signed on again and paid back both old and new loans, including past interest. In unison staff responded with ‘electrifying enthusiasm’.

The Grameen case is cited here not as a lesson in bank credit management but as an early, unwitting precedent of applied banking emotional intelligence.

EI and bankers

Understanding the banker actions that are most significant to SMEs will empower progressive banks to differentiate their offerings to attract preferred market segments. My research found bankers’ actions generated various levels of SME loan satisfaction. Bankers who visit their borrowers registered the highest SME bank loan satisfaction levels (63.4 per cent). The two next highest rated banker actions were openness and collaboration. Holistic banker customer awareness generated 60.6 per cent satisfaction, as borrowers consider higher levels of banker awareness to be of paramount concern. Better banker explanations rated at 59 per cent. Banker empathy, demonstration and advice rated 58 per cent SME satisfaction.

Demographically, the most satisfied borrowers were those borrowing between $5M and $10M, together with those with less than 10 years of industry experience (see table). Each group had overall bank loan satisfaction of 63 per cent. Financial decision makers with 50 employees or more, and those with revenue levels in excess of $20m a year, shared the next highest level of loan satisfaction at 62 per cent. The lowest level of loan satisfaction was experienced by those SMEs who owned equity levels of between zero and 50 per cent of their entities.

To reap the benefits of EI, the bank culture needs to be ‘EI friendly’. Ideally, EI should be adopted as a core business value championed at the highest corporate level, as it is at the ANZ Bank by CEO John McFarlane (whose advertising tag, ‘The bank with the human face’, reflects perfectly its core EI values). It serves as a reminder to all stakeholders, bank employees, borrowers, the media and the public of what to expect, allowing little latitude for bank employees not to respect EI philosophy.

Ethics, secrecy and fairness

To gain acceptance of EI throughout an organisation, explanation and reason is needed and this requires the highest ethical standards from the boardroom down. It means openness and transparency, a genuine concern for others, and abandoning the unnecessary bank culture of secrecy.

While banks still need to be strictly controlled, detailed internal bank procedures and processes can be reviewed and softened without prejudicing safety.

Grameen II found this out. Faced with parlous circumstances and risk of extinction, the bank needed to resurrect itself with an urgent ‘change or die’ makeover. Grameen’s future success was ensured by its total embrace of human emotional understanding and the buy-in of its 12,000 employees. Borrowers loved the new atmosphere and fully supported the bank.

With the goal of greater SME loan satisfaction and mutual profitability, Australian banks should progressively discard secretive loan procedures and transparently share with SMEs the loan application, credit acceptance, loan monitoring and loan management processes. It is fallacious to claim loss of competitive advantage between banks when they all use the same (Moody’s) credit risk rating tools and software. No suggestion is made that traditional empirical bank credit management algorithms should be abandoned. Rather, banks should undertake an enlightened and progressive review of their procedures to enable EI competent bankers to earn the trust of borrowers; in turn, this will reduce bank loan losses by creating early awareness of loan distress.

They should work collaboratively and supportively with borrowers even in difficult credit circumstances, without generating a climate of fear. The ability to manage other people’s emotions – and one’s own – without fear, is directly linked to good EI business outcomes.

For better credit protection and safer borrower/lender outcomes, banks should offer a higher grade mentoring service to SMEs for a greater fee (without legal recourse against the banks in respect to financial results). This service may incorporate periodical Moody’s credit risk analyses, as well as providing remedial or instructive reports. Such are presently offered by private banking consultants.

What is EI?

Emotional Intelligence drives actions through feelings, unlike IQ (sometimes referred to as general intelligence), which works through cognition. EI and IQ are closely associated, but are largely independent of each other.

EI is a psychological construct of five components:

1. Cognitive appraisal
2. Physiological activation (arousal)
3. Motor expression
4. Motivation, including behavioural intentions or behavioural readiness
5. Subjective feeling.

For those trained to respond intuitively, emotions provide us with extremely profitable information every minute of the day. EI is the wellspring of intuitive wisdom.

Hierarchy of banker action words

The table below represents the hierarchy of importance of banker EI related actions to SMEs (most important first).

Further information

• view a table of the demographic hierachy of importance of banker actions
  

Reference: September 2006, volume 76:08, p. 36-41

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