For the fi rst time ever, fi nancial services is not represented in the top 20 Best Companies for Leadership – and the industry is split on the best way back.

Goldman Sachs. HSBC. American Express. Citigroup.

JP Morgan Chase.

Over the years, these and other blue-chip fi nancial services companies have earned a place among the top 20 Best Companies for Leadership.

In fact, there has been at least one fi nancial services company among the top 20 every year Hay Group has conducted the study – until this year.

That may not be entirely surprising. Firms are still struggling to engineer their recovery from the most severe fi nancial crisis in a generation. As part of the aftermath, government control and regulation have been substantially strengthened around the world, particularly in Europe and North America. At the same time, virtually all fi rms have tightened their internal risk management processes.

This climate, along with ’deleveraging’ eff orts and restrictions on proprietary trading activities, has lowered business volume throughout the industry. Loans that were once routine are now subject to lengthy reviews, dramatically slowing the velocity of business opportunities. Profi tability has suff ered, and so too have the rich bonuses that the industry once relied on for recruiting and retaining young, talented executives.

Moreover, since the fi nancial crisis was worsened – and, some believe, caused – by the industry’s own practices, there has been a rupture in trust between fi nancial services providers and most of their principal stakeholders: clients, business partners, shareholders and employees.

In the face of these diffi culties, sector leaders and observers are divided as to the best way to navigate through the turbulence, and position fi nancial organizations to take advantage of opportunities when the climate improves.

©2012 Hay Group. All rights reserved

Financial services:

crossroadsindustry at a

©2012 Hay Group. All rights reserved

Financial services: industry at a crossroads

Which way forward?On the one hand, some believe the current situation is an extreme instance of a normal dip in the long-term business cycle. These leaders advocate adapting business-as-usual practices for weathering a downturn: reducing costs by improving operational effi ciencies and trimming staff , while preparing for the upswing by developing new products and relationships based on past successes. Trust will be restored by traditional, solid business success.

Other industry leaders, including the fi nancial services team at Hay Group, believe that both the rules of the game and the game itself have changed fundamentally and irrevocably. In this view, the way forward requires fundamental changes in the way companies do business.

“To emerge from this current cycle in a strong position, fi nancial services fi rms must take care of the basics, cutting costs and updating traditional products,” says Jean-Marc Laouchez,

global managing director for the fi nancial services sector at Hay Group. “But they also must take action to rebuild trust and develop dramatically diff erent – and better – client-centric approaches to the marketplace.”

If that weren’t enough of a challenge, Laouchez notes, the industry must also cope with the sweeping changes aff ecting all businesses – signifi cant realignments driven by powerful, long-term megatrends in demographics, attitudes and technology.

In particular, new technologies have made fi nancial products more transparent to consumers, who now fi nd it easier to compare the costs and returns of similar products off ered by diff erent organizations. This has the eff ect of shifting more buying power to clients – and places a greater premium on both client service and diff erentiation through eff ective product and organizational innovation.

The case for innovationThe Best Companies for Leadership from other sectors have responded to similar challenges by committing to disciplined, long-term initiatives aimed at creating a culture of innovation. They have implemented strategies and practices that invite and support new ideas: focusing on client needs; embracing multiple, diverse perspectives; promoting organizational agility and

empowerment; and emphasizing collaboration to drive cross-fertilization and innovation.

Results of the 2011 Best Companies for Leadership study suggest that the financial services firms are now lagging behind the top companies in all these dimensions:

Client needs:

Employees spend much time discussing customers’ future needs.

Broadening perspectives:

In my company, employees are encouraged to learn outside their area of expertise.

My company has a balanced mix of local and international talent in senior leadership positions.

An appreciation of global issues is a key job requirement in this organization.

Agility and empowerment:

My company evaluates the performance of its leaders based on their agility.

Self-organizing project teams are the main way work is accomplished in this company.

Collaboration:

My company takes clear action when a leader is not collaborating (even if he/she has strong business results).

Supporting innovation:

My company’s leaders regularly celebrate innovation.

My company runs unprofi table projects to try new things.

0 20 40 60 80 100

Top 20 Best Companies for Leadership Financial Services Firms

Given that money, in one form or another, is the principle product of these fi rms, the choice of short-term profi tability over client-service and innovation may be predictable. But with the magnitude of the challenges facing the sector,

Hay Group believes the greater risk lies in not trying new things. Experience shows that, in practice, harnessing the power of talent and innovation quickly and positively impacts near-term profi tability.

Historically, organizations in fi nancial services have rewarded managers who have delivered superior returns through fi nely honed commercial, technical, analytical or other specialist skills, rather than those who have exhibited strong leadership capabilities.

The job of refocusing a large, global or matrix organization, however, is not a job for a technician,

no matter how gifted; it requires extraordinary leadership skills. Hay Group believes that fi nancial services organizations should display innovative, collaborative and other leadership skills in their managerial ranks today. But measured against the best companies, those in fi nancial services once again fall short regarding practices that develop and nurture leadership talent.

Trust and the leadership challengeTrust is more fundamental to success in fi nancial services than in any other industry. Clients and employees remain associated with banks, insurance companies, assets managers and other fi nancial services organization when they believe they can rely on them. Yet as a result of the fi nancial crisis and the revelations that it triggered, trust in the sector is unfortunately in short supply. Regaining it will require a

committed eff ort across the industry, particularly from its leading organizations.

These eff orts must begin within each organization, by re-engaging and re-energizing employees, and re-aligning their interests with those of shareholders and clients. However, when it comes to rebuilding trust, the results of the Best Companies for Leadership study suggest that the industry has work to do.

Leaders in my company have the ability to generate personal and organizational loyalty.

My company evaluates and rewards our leaders based on their ability to build excellent relationships with their peers.

0 20 40 60 80 100

Top 20 Best Companies for Leadership Financial Services Firms

This organization actively manages a pool of successors for mission critical roles.

In this company, everyone at every level has the opportunity to develop and practice the capabilities needed to lead others.

Leaders in my organization create a work climate that motivates employees to do their best.

Leaders in this organization demonstrate self-awareness.

0 20 40 60 80 100

Top 20 Best Companies for Leadership Financial Services Firms

There is some good news, however: in their leadership development practices, fi nancial services organizations do rank higher than the survey average. For example, fi nancial services companies rank signifi cantly higher than all companies in the survey in actively managing a pool of successors for mission-critical roles, and in giving people at every level the opportunity to develop leadership capabilities. These practices create a foundation that resourceful leaders can build on.

They will need that foundation, because to survive and succeed in the changing business landscape, fi nancial services fi rms must overcome signifi cant hurdles, including:

reducing costs without cutting human and relationship potential

rethinking operating models to provide meaningful client experiences, improve transparency, and renew trust

keeping people engaged in a new environment of ‘responsible reward,’ while striking the right balance between growth and risk in both systems and peoples’ mindsets

developing the ‘third generation’ of leaders to address these challenges and drive the transition to a better performing model.

“For all the challenges they face, I am confi dent that forward-looking fi rms will be able to chart a new direction for themselves,” Laouchez concludes, “combining world-class effi ciency with product and organizational innovations that will strengthen their client relationships and ultimately rebuild trust and lift profi tability.”

These are the fi rms that will be best positioned to prosper when economic climates return to more positive and uniform growth – and undoubtedly the organizations that will lead the industry back into the ranks of the Best Companies for Leadership.

About Hay Group’s Best Companies for Leadership studyHay Group has researched the Best Companies for Leadership since 2005. This year’s survey includes responses from nearly 7,000 individuals at more than 2,300 organizations worldwide. The survey was based on the organization’s response to an online questionnaire and peer nominations. Respondents that completed the survey were from 103 countries, with 11 percent from North America, 35 percent from Europe, two percent from the Middle East, 21 percent from Asia/Pacifi c/Africa and 31 percent from Latin America.

©2012 Hay Group. All rights reserved

About Hay GroupHay Group is a global management consulting fi rm that works with leaders to transform strategy into reality. We develop talent, organize people to be more eff ective and motivate them to perform at their best. Our focus is on making change happen and helping people and organizations realize their potential. We have over 2600 employees working in 85 offi ces in 48 countries. For more information please contact your local offi ce through www.haygroup.com

Forward looking companies will be able to chart a new direction

Financial services: industry at a crossroads