Practical analysis for investment professionals
09 December 2011

Lessons in Leadership: The Case for Servant Leadership in Finance

The financial crisis has its roots not only in bets on risky assets but also in corporate culture. At a basic cultural level, the global credit crisis demonstrates that we have lost have our way and created a toxicity within the financial industry that eroded tangible financials — as well as investor trust. Could the global financial crisis have been averted or perhaps assuaged if more leaders in the financial services industry had personally embraced and cultivated cultures within their organizations that demonstrated values such as stewardship, transparency, trust, and respect?

Perhaps you’ve heard the term “servant leadership” in reference to an organizational management model. If you’re new to the concept, servant leadership can be boiled down at its most basic level as a conscious decision by an individual to lead others based on their intrinsic motivation to serve others. It is strikingly different from the traditional power-based management model in which leadership is centered on accumulating and wielding power.

James Laub found that the key characteristics servant leaders exhibit include:

  • Valuing people through believing in people, by serving others’ needs before his or her own, and through receptive, nonjudgmental listening.
  • Developing people by providing opportunities for learning and growth, by modeling appropriate behavior, and by building up others through encouragement and affirmation.
  • Building community through strong personal relationships, by working collaboratively with others, and by valuing the differences of others.
  • Displaying authenticity by being open and accountable to others, by demonstrating a willingness to learn from others, and by maintaining integrity and trust.
  • Providing leadership by envisioning the future, taking initiative, and clarifying goals.
  • Sharing leadership by facilitating a shared vision, sharing power and releasing control, and sharing status and promoting others.

Of course, it’s impossible to dial back the clock to refashion the leadership styles and organizational cultures that contributed to the global financial crisis, but we can look deeper at the values and cultures that allowed some firms to succeed while others failed. Focus Consulting Group did just that in 2010 by conducting a study of 60 asset management firms to determine whether the cultural values of firms were an important factor in their ability to weather the financial crisis. Although the cultural values studied are not overtly referenced within a servant leadership model, many of them — including trust and respect; open debate/transparency; lack of “sludge” (negative behaviors and attitudes that hinder efficiency); development of talent and creation of owner mentality; communication; and commitment to professional excellence, continuous improvement, ethics, and integrity — align well with the key tenants of servant leadership.

The resulting study identified six firms as “thrivers.” These firms, which scored significantly better in key leadership and culture factors than the industry average, were dubbed the Focus 6. They stood out from other firms in several key metrics:

  • High loyalty factor: The degree to which employees were “raving fans” of their firm.
  • Strong confidence: The degree to which employees placed their firm in the top decile versus competitors.
  • Low “sludge factor”: The degree to which employees perceived/experienced negative behaviors in their firm.
  • Effective decision making: The degree to which employees felt supported by their firm’s culture in their quest to make high-quality, effective decisions.

The Focus 6 firms were found to be “populated with employees who emerged from the crisis feeling loyal to the firm, confident of the firm’s ongoing success, largely free of negative behaviors and attitudes, and supported by the culture in their quest to make high-quality, effective decisions.” These firms didn’t escape the hardships of the global financial crisis – some suffered loss of clients, lower AUM, and some of them did have layoffs. What, then, made the difference for these firms versus the others in the study?

Here are the key takeaways of how the Focus 6 got it right:

  • Blindspot analysis showed that Focus 6 leaders scored higher in emotional intelligence, demonstrating that they are more finely attuned to the reality of their teams. Having a higher level of awareness about yourself and others has been described by Dan Goleman, author of Emotional Intelligence, as “three times more important to success than technical knowledge or experience.”
  • The alignment of the Focus 6 firms’ current and preferred values and behaviors (e.g., client satisfaction, excellence/continuous improvement, professional/ethical integrity, loyalty, etc.) was high compared to the industry average. Leading by example is a technique for maintaining cohesive culture, and leadership teams that embrace and practice behaviors like candor, trust, and accountability also find that their teams do too. The result of working steadily over many years to develop a cohesive culture is that these firms were prepared for adversity when it struck.
  • The cultures of the Focus 6 supported effective decision making. Despite the uncertainty in the markets, efficiency and loyalty remained high, and leaders at the Focus 6 firms were able to help their teams focus on the process (which was under their control) rather than the outcome (which was not under their control). Leaders also communicated with their employees about the financial position of their firms, the results, and the outlook. Not only did this transparency help reduce the level of fear, it also contributed towards a greater sense of camaraderie and engendered a greater sense of loyalty.
  • Firms run more smoothly in an absence of negative behaviors and attitudes. Compared to the industry at large, the Focus 6 created cultures that were less reactive and short-term focused.

Finally, there was also a strong correlation between a low degree of “sludge” and effective decisions. As the levels of “sludge” in a firm’s culture decrease, the quality of decision making increases. It is as important to push hard to get all the relevant information on the table and debate in an open-minded way as it is to be honest and candid — telling the “truth with love”— during the process. Having the right leaders and team members in place, with trust and respect at the root of those relationships, is critical. One of the clearest ways to send a signal that an organization is serious about building and protecting a strong culture is to reduce “sludge” by identifying those people that don’t fit within the culture and better managing them (or ousting them, in some cases).

And, now, a challenge to you, the reader: Does your organization reflect the values demonstrated by these firms that not only weathered but thrived during the financial crisis? Or, do you wish your firm would aspire to these values? Share your story by posting a comment or contacting me directly.

About the Author(s)
Heather Packard

Heather Packard is the director of product development at CFA Institute and serves as the subject matter expert in leadership, management, and communication skills (LMCS). Previously, she was the managing partner at Trilogy Corporation of Virginia, where she was responsible for developing and cultivating a regional territory for telecommunications and network integration sales. Packard also served as the coordinator of collections for the Science and Engineering Libraries at the University of Virginia. She holds an BA in English and Spanish Literature from the University of Tennessee, Knoxville, and an MA in Spanish Literature from the University of Virginia. Topical Expertise: Leadership, Management, and Communication Skills

3 thoughts on “Lessons in Leadership: The Case for Servant Leadership in Finance”

  1. Jim says:

    Heather, really nice blog. captures the essence of our research accurately.

  2. UmaR says:

    A very good article! Every manager should definitely read this. The article shows the level of research behind it! *Thumbs up*

  3. Jim says:

    Heather, I shared your article with my firm and it really captured the attention of the owning partners. I have been commissioned to develop a survey to get genuine feedback from all employees to evaluate these critical leadership dynamics.

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