Maybe the "dividend of mutuality" doesn't mean much anymore?

Yesterday there was another example of why treating customers fairly pays. The Yorkshire Building Society was fined £4m by the FCA for treating mortgage borrowers unfairly when they were struggling with repayments. In addition the YBS agreed to refund £8.4m to 34,000 customers.Tracey McDermott, the FCA’s director of enforcement and financial crime, said: “Customers in financial difficulty need to be treated fairly and sensitively. Firms must ensure that they are taking into account the particular circumstances affecting customers who find themselves in difficulty.”

Some of the causes of the problems were said to be poor training of staff (when dealing with customers getting into financial difficulties) and poor procedures where management were not aware of the problems.  As a mutual, mortgage customers effectively own the organisation and customer service is seen by the sector as one of their main market differentiators - they don't have to pay dividends to shareholders so they can treat their key stakeholder better investing in service for example. But it looks from this example that the Yorkshire Building Society is struggling to define what its "dividend of mutuality" really means. If it can't up its game in customer service terms, when many of the banks and competitors are doing just this, then it really needs to think hard about its future.

Chris Pilling, Yorkshire’s chief executive, said: “As a mutual organisation owned by our members, the service we give to customers is fundamental to us and we are very sorry for letting them down".  Being sorry is fine and a good start but, as the head of the second largest building society, what is he and his leadership team going to do now to make the defining difference to customer outcomes?. The mutual sector provides an appealing alternative business model to many, but in order for it to provide meaningful competition it needs to address the sector's "strategic drift" and get a grip.

Ethicists on the board as the conscience of the organisation?

“Organisations often face difficulty in managing ethical dilemmas because they are designed as profit-maximisers” states Drs Paul Baines and Howard Viney in an article for Cranfield University alumni. They go on to say that “to overcome this, there needs to be a commitment on the part of organisations towards openness”.

It is worth continuing to quote them directly “Organisations could take the extra step to build confidence by introducing an ‘ethicist on the board’, appointing a non-executive director whose sole responsibility is to offer advice on the ethical aspects of any organisational decisions. The non-executive ethicist would act as the conscience of the organisation, tasked with the responsibility to act as a devil’s advocate, challenging major decisions to ensure they are defensible on ethical grounds and anticipating public responses to actions so that they may be communicated to stakeholders without reputational damage.”

Many/(most?) NEDS have been taken from financial backgrounds reflecting the importance of sound financial decision making in running a business. While two of the key qualities for NEDs are independence and challenge it is becoming clearer, as this blog site has tried to illustrate, that significant sums can be lost if the main NED challenge is focused predominantly on the short-term requirements of one stakeholder, the shareholder. It would be good to see boards, head-hunters and recruiters looking for a new pool of NEDs where evidence of real ethical challenge in decision making is given priority, reflecting the longer-term impact on all stakeholders.  This would surely help to build trust and confidence in business generally.

How ethical is “variable pricing”?

Big data is starting to get interesting or scary depending on how you look at it. Sal Thomas writes in on-line “Marketing” this week about B and Q which is testing electronic price tagging i.e. altering the price of an item based on the profile of the customer.  Basically the system uses data stored from loyalty cards and spending habits then uses chips in customers’ mobile phones to work out a price to be displayed next to the goods on a shelf.  This apparently is being “sold” as a way of rewarding loyal shoppers but the reality is more likely to be “price optimisation” for the retailer. “Smart shelves” are already being trialled (e.g. Tesco) so the question Sal Thomas asks is “when does dynamic pricing risk turning personalisation into discrimination?” 

It is going to be a difficult ethical call for businesses as they compete for, and manipulate, customer data in more complex ways.  These companies could do with taking time out to look at the bigger picture re building sustainable customer trust and keep asking themselves, “just because we can doesn’t mean we should” use the data in these ways. Uber in the US for example showed a lack of ethical judgement when it increased prices dramatically during a snow storm in New York resulting in extensive public criticism (and resulting in official price curbing in emergency situations).  It would be interesting to think about what would have happened in customer loyalty and trust terms if they’d done the exact opposite and showed a genuine interest in customers’ well-being during times of crisis. Until the cultural mind-set of business shifts genuinely towards the customer big data will surely continue to be weighted to exploitation not reward?

Businesses need to take a square out of Green and Black's bar?

Jo Fairley, one of the founders of the chocolate brand Green and Black, spoke at the Kirklees Business conference yesterday about how the business evolved "one square at a time". One of the keys to the company's success was her uncompromising attitude to customer service which involved personally picking up the customer service phone which was on her desk, listening and talking to customers, gaining direct feedback about her products, both good and bad, and then taking the appropriate action.

Within today's fast moving and frenetic business world, leaders surely need to give priority to listening to their key stakeholders to get the feedback that can help shape the future success of their companies. As Jo Fairley said, leadership is about communication, listening has a key part to play as well as "conjuring up a vision as to how your product makes the world a better place".

This suggests that direct contact with stakeholders provides valuable opportunities to both hear and inspire and should possibly be higher up the leadership bar?

You could have a lot to lose: the importance of treating employees fairly

A study produced by the ACE Group showed that c75% of senior risk executives in the luxury goods industry stated that reputation is their company's greatest asset and 80% agreed that reputational risk is the most difficult individual risk category to manage.

These luxury goods companies, along with those operating in the mass market, are likely to be busy managing cyber and environmental risks for example but the main risk to their reputations is much, much closer to home: their employees. The greatest damage to these companies can come from employees behaviour either simple human error or negligence or deliberate misconduct.  For example an employee at Morrisons stole payroll data of almost 100,000 employees and posted it on a website. It is therefore vital for all organisations, if they want to engender trust and ethical behaviours in their employees that they start by treating them fairly. This approach includes diversity of  opportunity, on-going learning and development, fair terms and conditions etc etc. If reputational risk is now going up the corporate agenda then this surely has to be good news for employees and other stakeholders?

Putting more women in charge is the key to a better future for business?

"Can women fix capitalism?" is the title of Joanna Bush's article in September's Mckinsey Insights. She imagines a future where women " replace capitalism's relentless push for ever-increasing short-term profits with long-term value for all stakeholders". But this isn't a sexist view because she aspires to something better "where men and women lead as equals delivering meaningful impact over the long-term".

However, she is propounding that the feminine archetypes of leadership could be the answer and in her research looks at women leaders who both love working at the top and have a life outside to help shape a new leadership approach that actually values feminine qualities. She calls this "centred leadership" and this it is what "centred leaders "do:

• lead from a core meaning by tapping into strengths and building shared purpose, with a long-term vision for positive impact
• reframe challenges as learning opportunities by shifting underlying mind-sets to replace reactive behaviour patterns
• leverage trust to create relationships, community and a strong sense of purpose
• mobilise others through hope,countering fears to take risks and act boldly on opportunities
• infuse positive energy and renewal through deliberate practice to sustain high performance.

 The research showed that these were the minimum factors for a distinctive leader and that the qualities resonated with men, The suggestion is that if centred leadership was embraced by both men and women it could be a game changer transforming business into more "conscious capitalism" with long term value and sustainability key. A new way of engendering ethical behaviours, fair treatment and trust.

Wonga's loan write-off shows treating customers badly doesn't pay

The FCA has recently taken over responsibility for payday lenders and yesterday forced Wonga to write-off loans and interest to 375,000 customers who should never have been targeted. Andy Haste, the new CEO said Wonga had been "more concerned about the loan outcome than the customer outcome" as money had been lent to people who could never afford to repay. It is another clear example that short-term, unethical behaviour and unfair customer treatment is not sustainable long-term

This is going to be a major wake-up call for the payday lenders as the FCA imposes its "treating customer fairly" (TCF) policy where, among other things, making sure that products and services are appropriately targeted and understood by customers has to be proven. The focus on "customer outcomes" rather than just financial return is a big ask for many in financial services and the payday sector is going to need a major mind-set change to get even close to the requirements of its new regulator. Let's hope the new CEO can make haste with the changes.

New Governance Code Encourages Focus on Long-term Value Creation

A new version of the UK Corporate Governance Code comes into force today for listed companies with accounting periods beginning on or after 1st October.

A noticeable and encouraging emphasis within the code is about Boards managing for the longer term and the sustainability of value creation.  Remuneration for Board members will reinforce this longer term commitment by aligning rewards with sustained value creation, important aspects bearing in mind the increasing number of shareholders voting against their board remuneration policies this year.

In addition, Board directors will be expected to lead by example encouraging good behaviours across their organisations, the so called " tone from the top," (something that might already be expected of leadership).Hopefully, as the FRC (Financial Reporting Council) behind the new code also emphasises the need for more constructive and challenging debate aided by greater board diversity (including gender, race, approach and experience) a new breed of more varied, enlightened and ethical individuals will start to lead our major companies helping to rebuild public and consumer trust in big business.