Building a business on trust, sustainability and an instinctive stakeholder view
Handelsbanken is a mid-sized retail bank by European measure, with networks of local branches throughout the Nordic region, the Netherlands and the UK. Here in Britain, we provide banking and wealth management support to households and businesses in around 200 communities, from Inverness in the North East to Truro in the South West – both digitally and locally, ‘in the flesh’.
Despite this footprint, we are far from being a UK household name, even in our own sector. You could put this down to the fact that we do not run any central advertising or marketing campaigns, preferring to grow locally through word of mouth. Those who have heard of us probably know us best as the conservative Swedish bank that came through the last financial crisis unscathed, and not for the first time. Or as the decentralised bank, which places local branches at the heart of its business approach.
Handelsbanken has been around for 150 years and has maintained essentially the same business model for the last half century. I should perhaps point out that this is not because we are oblivious to change or lacking in imagination. It is because our business model is rooted in fundamental, timeless values, enabling us to adapt naturally to change. And because this model has delivered for the bank, our customers, investors, employees and the wider communities we serve, every year since it was established.
Recently, I was flattered to be approached by the Chartered Banker Institute and the Social Market Foundation to write about how I run a stakeholder company. Flattered, not only because in many ways our strongly decentralised organisation manages to run itself day to day. But also because this was the first time I had heard this particular label attached to our bank, yet on the face of it, it felt like a reasonable description.
I should confess that I have not spent time studying the latest literature on stakeholder capitalism or the stakeholder economy, which I am aware has proliferated in recent years. No doubt if I did, much of the language used, and the academic theory cited, would be new to me.
Instead, the idea of a ‘stakeholder company’ resonated because Handelsbanken has always been motivated by powerful feelings of responsibility to the customers and communities we serve, as well as to our employees, shareholders, public authorities and others who have a stake in the outcomes our bank creates through its activities. It is a central theme of our book of operating principles, Our Way – a book first shared with colleagues nearly half a century ago, and still in everyday use throughout the bank today, as my own rather dog-eared copy serves to show.
Throughout the numerous economic cycles, social advances and industry upheavals since Our Way was first printed, this sense of obligation has remained a driving force in how we steer and operate our business. It does not find its source at the level of cultural programmes, industry initiatives or contemporary business ideas championed by academics and policymakers. It springs from a place rather deeper than that: from our foundational values of trust in the individual, and of taking a long-term, sustainable view in everything we do.
In Handelsbanken, we trust that our employees instinctively want and are able to do worthwhile work well. This humanistic instinct has led us to devolve decision making responsibility all over the bank, believing that the person closest to the particular question should decide the answer. It has also given us the confidence to decentralise our organisation, empowering each of our branches to develop their local business – within the bank’s common framework of operating principles – in whichever ways create the best outcomes for local customers, and therefore the bank.
Unsurprisingly to us, we have found that people respond positively to being given real responsibility. Quite simply, they rise to the trust and respect they are given, fully owning their actions and the outcomes these produce, and thereby reaching better decisions than anyone else in our bank could.
A Handelsbanken manager aims to nurture the best conditions for this natural process to occur, conditions including a common goal and operating framework, access to relevant resources, a collaborative culture, and – above all – the mandate to decide. With this last point, a manager must be willing at times to sit on their hands, ignoring how they themselves might have set about solving a problem. It helps to recognise that, in reaching a good solution, seniority is no substitute for detailed, frontline knowledge and a burning sense of accountability.
"We have found that people respond positively to being given real responsibility. Quite simply, they rise to the trust and respect they are given, fully owning their actions and the outcomes these produce."
As well as making better decisions, we have found that empowered employees also engage, vigorously and with pride, in the development of their business, and of their wider community – leading and participating in local initiatives, giving of their knowledge and time, unprompted.
Building on this, our other core value of long-term thinking steers us to consider our stakeholder impacts well beyond the isolated banking transaction or operational decision. Instead, we prefer to focus on forging strong and lasting relationships with our stakeholders, relationships which – returning to our first core value – rely entirely on maintaining their trust through consistently responsible behaviour, both at the individual and societal level. Within this context, we think of our stakeholders as all those groups whose endorsement we need in order to build our business on solid foundations over the very long term. Of course this includes our customers, employees and shareholders. But it includes many more groups besides – from our suppliers and professional networks, to regulators and representative groups.
In spite of our own sense of broader responsibility, financial institutions have until fairly recently been viewed simply in terms of their economic value to society – deploying capital to the real economy, managing risk, creating shareholder value, and contributing to the economy through jobs and taxes. Over more recent years, this narrow view of banks’ value has widened to consider social goods, such as financial inclusion, gender equality, environmental footprint, and combatting financial crime.
Over the last year in particular, banks the world over have been able to emphasise their social value by helping customers deal with the extraordinary personal and economic challenges presented by the coronavirus pandemic. In our case, this crisis has been characterised by two things: an even closer dialogue between our branches and their local customers, showing individual flexibility where it can ease an already difficult situation, and a careful focus on the mental and physical wellbeing of our employees, working together to create the right support, both large and small.
It now feels to me that we are on the cusp of the next substantial (and equally welcome) widening of this compass of value, as banks - including ours - take up the challenge of supporting their customers to recognise, mitigate and adapt to the physical risks of climate change, and to pivot their business models to prosper in a net zero economy. By fulfilling this vital role in the world’s collective response to climate change, I believe that banks can demonstrate a whole new level of stakeholder value, far beyond the narrow economic focus that has characterised the sector historically.
Nevertheless, in their latest book Humanocracy, the renowned management thinkers Gary Hamel and Michele Zanini highlight some trade-offs still commonly seen as being impossible for banks to avoid. Trade-offs such as achieving consistently strong growth versus maintaining low risk, or delivering personal customer service versus maintaining cost control.
Hamel and Zanini go on to describe Handelsbanken as one example of a bank that has overcome “the curse of either/or thinking”, creating a model that delivers value to its shareholders precisely because it delivers value to its customers, employees and various other stakeholders. The key, they argue, lies as much in those industry-standard features we choose not to adopt – for instance absolute goals, top down targets, or financial incentives – as in the values and operating principles I have just summarised.
All I can say is that, having worked almost my whole career in Handelsbanken, across different countries and parts of the bank, the kind of either/or thinking Humanocracy highlights is indeed anathema to us. Time and again, we find no paradox in striving for high levels of customer and employee satisfaction, controlling costs, keeping risks low, playing an active, responsible role in our communities, and achieving a healthy financial performance. Quite the contrary, these outcomes serve to reinforce each other in various quite natural ways.
To sum up, although we have long been steered by a sense of responsibility to those we can impact through our operations, I cannot say for sure whether we are, or are not, a ‘stakeholder company’ by any firm definition. Instead, those more expert in this field can perhaps reach their own conclusions, either based on this brief description of our model, or – far better – on first-hand experience of being a Handelsbanken stakeholder one way or another.
To read the full 'Banking on building back better' joint essay series with the Social Market Foundation, click here.