Battling complacency: An increasing imperative for banks

By Elizabeth Judd

On Jan. 28, 1986, the space shuttle Challenger broke apart just 73 seconds after launch, killing the seven astronauts on board. In analyzing the disaster, experts realized “that too many warning signs were ignored” and “information was not being shared,” said Ron Kullman, chief risk officer for Toyota Financial Savings Bank, as part of a recent American Bankers Association webinar.

Complacency at banks can take the form of overconfidence – and a sloppiness with details – or of low engagement from a struggle with work/life balance or even from a decline in a sense of personal well-being. In its 2024 State of the Global Workplace report, Gallup estimates that low engagement costs the global economy $8.9 trillion a year, or 9 percent of global GDP.

When bank employees grow complacent, serious consequences can arise. Kullman said he was recently struck by the greater regulatory attention being paid to this issue. One example is the OCC’s calling out complacency by name in its risk perspective report for the spring of 2024. As a way to guard against complacency, the OCC endorses “continuous risk management improvement.”

Even with the best of intentions, getting a handle on complacency can be a monumental task.

In moderating the webinar, Ryan Rasske, SVP, risk and customer markets for ABA, described complacency as threatening risk management programs at banks. Rasske added that even when complacency does not contribute to catastrophic results, complacency can prevent risk management efforts from evolving at a pace necessary to cope with today’s bad actors and external threats.

A culture of empowerment

At Toyota, a powerful metaphor for desired employee behaviors is the pulling of the Andon cord.

“A worker on a Toyota production line who sees something wrong has the right, the opportunity and the obligation to pull the Andon cord so that leaders can determine the root cause of what went wrong, and fix it,” explained Kullman. He said that “Andon,” which is Japanese for “signal,” serves as a visual reminder to employees of their own empowerment.

Kullman has implemented the same concept at Toyota FSB. “How do we get folks to raise their hand and say, ‘This isn’t right’?,” he asked. The goal is to get “folks comfortable bringing you issues and opportunities because you can help fix them.”

Lisa Cuba, EVP and chief risk officer at Forbright Bank, based in Chevy Chase, Maryland, made a similar point during her remarks in the webinar. She makes it a practice to praise employees for self-identifying and fixing issues.

Another of Cuba’s solutions is a roadmap of goals.

This blueprint, which she turns into a PowerPoint, lists key objectives for each of the upcoming three years. Say the goal is to “create a risk-aware culture.” Cuba outlines new trainings and roles so her team can see the path ahead.

Communicating a roadmap like this is vital, and so Cuba writes up an executive summary that can then be shared more broadly with other employees. She also meets with her entire team every six months to look at the roadmap and gauge progress to date. While getting the plan down on paper is critical, flexibility and modifying plans, when needed, is important, too, she noted.

Monitoring the right systems

Some signs of complacency are evident simply by evaluating the numbers.

An excellent starting point is complaint tracking. Kullman digs deeply into all aspects of the tracking process from who is reviewing complaints to whether front-line personnel know how to take, track and log a complaint. Similar questions must be asked of third-party vendors to get a full picture of whether trouble might be brewing.

Cuba suggested delving more deeply any time issues start showing up, making sure to conduct a root-cause analysis. She also identifies the age of issues as key warning signals. If it’s taking several months to close an issue, managers need to probe.

Another place to look for possible signs of complacency is the reports written by the risk team, she said. She maintained that whenever reports being submitted look nearly identical from one period to the next, she begins to question. What she would prefer to see are reports that are “living, breathing documents that you’re building onto –- and taking away from –- over time.”

Cuba noted that a lack of audit findings may be yet another red flag, signaling increasing complacency. She is never reassured by reports that may look perfect. Instead, she pushes teams to dig deeper and try to identify any potential low-risk findings because this indicates a thoroughness that a flawless report might not.

She also recommended adding “risk appetite” to any new product checklist. Doing this means that questions about risk are seamlessly built into all processes.

“Don’t discount your gut feelings” is Cuba’s overarching advice for financial leaders trying to foster a banking culture that identifies and roots out complacency before problems can grow. She noted that that gut feeling usually comes when she does not fully understand a product. In instances like this, her response is to ask questions and diligently follow up until she’s more comfortable.

Celebrate the victories

Kullman was keen on “programmed refreshes,” or opportunities to gauge a team’s progress and whether everyone is on track to meet objectives.

These refreshes are easier to accomplish at small banks, and so large organizations need a more deliberate process, he said. Here, too, he cited a Japanese term “Nemawashi,” which is the vetting of ideas and laying the groundwork to reach consensus, a type of “meeting before the meeting.” The concept of Nemawashi lends itself particularly well to a risk specialist’s relationship with examiners and auditors.

Kullman spoke of a chief risk officer that he knows who – during good times — meets semi-annually with his regulators to explain priorities and draw attention to areas of focus. At moments when the bank was sideways with the regulators, the CRO meets with examiners far more often. “Having an open line of communication with regulators, making sure they’re plugged into what you’re doing, is very critical,” he said.

Finally, when it comes to avoiding the pitfalls of complacency, Cuba urged bankers to reflect on what they’re doing right, in addition to all that can go wrong — and to share any wins with examiners. Accomplishments may include anything from an issue being successfully closed to enhanced reporting or training specifically designed to keep complacency at bay.

Celebrating achievements in the day-to-day battle against complacency is especially critical when it comes to helping maintain a team’s enthusiasm and energy over time. Cuba said she is convinced that focusing on points of pride can make an enormous difference. “I’m always keeping an inventory of all the good things our organization has done,” she said.

Elizabeth Judd is a frequent contributor to ABA Banking Journal.