The importance of the cultural change for Deutsche Bank
An interview with Deutsche Bank Executive Management Board Member Stephan Leithner.
Mr. Leithner, why is cultural change so important?
No banking system can work without trust. That trust was lost during the financial crisis. Now we have to earn it back again. That is the challenge – and we as Deutsche Bank are actively facing it. That is why cultural change is one of the central elements of our Strategy 2015+. What we intend by that is to effect a renewal of our values and principles of conduct through extensive dialogue with all important stakeholders. It is only when that change has reached all of our staff and has been put into practice in a credible fashion over a period of time that we will be able to expect unconditional trust again.
What are the main focus areas?
We have several important items on the agenda of our cultural change. First of all, we have to make it clear to everyone inside and outside of the bank that we play strictly according to the rules. That is why we have further reinforced our internal control mechanisms and monitoring processes. Second, we have set up an independent compensation review panel that has developed recommendations for us regarding the principles according to which we pay our employees. In this context, the criterion is how employees create sustainable value for our stakeholders. Additionally, we have launched several initiatives that will strengthen our corporate culture in the long term.
How were the main focus areas identified?
The focus areas were determined following an intensive dialogue with our clients and investors, with public institutions and our employees. We undertook considerable efforts in order to obtain their opinions: circa 52,000 employees participated in a staff survey, which was then supplemented with additional questions and discussions in focus groups. We discussed the results with 250 senior managers at our Senior Management Conference. In the last few months, we have obtained input from our over 350 advisory board members in Germany and the comparable bodies worldwide. Today, the new values are clear and we are in the process of implementing them.
What is the role and significance of the independent compensation review panel?
The panel is made up of very experienced individuals with leadership qualities, some of whom are from the financial industry and some from other business sectors. They contributed a very important external point of view. Their recommendations are being implemented now. Among other things, the panel recommended a well-balanced equilibrium between expenditures for staff and those for other stakeholders, the introduction of metrics in our remuneration systems that reflect employee services for clients and contributions towards risk reduction, as well as greater transparency, which we already took into account in our annual report in 2012.
Among the public there is a widespread view and some indignation about the fact that compensation packages that had nothing to do with value creation were paid out even right in the middle of the financial crisis. Are you dealing with that issue?
Of course we are dealing with this. Last year, the proportion of bonuses had already decreased from 22 percent of revenues before the crisis to 9 percent. Since 2009, our bonus total overall has dropped by one third and we have reduced the burdens on future revenues through deferred bonus payments. We have completely eliminated multi-year bonus guarantees and made our remuneration practices even more transparent in our reports. Nevertheless, in spite of all that, we want to pay competitive salaries for top talents and top performance – if that performance creates value for our clients, shareholders as well as society in a sustainable manner.
What concrete steps have you taken in order to strengthen the control systems of the bank?
I will give you an example: We have developed and rolled out a large number of mandatory training programs for the areas in which we observed misconduct or simply uncertainty among employees. We have developed early warning systems for our trading business. We have installed independent control entities that verify and monitor our notifications relating to reference interest rates including the LIBOR. We have created structures that mandate the escalation of reputational risks and the systematic evaluation of certain business transactions with regard to the impact on our reputation – and we have tightened the reins as far as approval of new products is concerned. All of those measures – and even more – are helping us make our reputation the central focus of our activities.
Why is that such an important part of the cultural change?
It is vitally important for us to restore the trust that the public places in our industry – and in our bank. Because today it is more important than ever for clients, investors, legislators, regulators and the general public to perceive us as trustworthy partners. We can never exclude the possibility of misconduct by an individual person, but we cannot afford any mistakes in the control system.
It is quite obvious that the change impacts everyone at the bank. But does that also mean that every employee has to change?
No. The vast majority of our employees have always conducted themselves in line with the desires and needs of our clients. We want to reinforce that behavior. Everyone here is called upon to conduct himself in an exemplary manner. The expectations society holds for banks have changed dramatically and that affects all of us. After all, we are all in the same boat.
Now let us talk about the priorities of a long-term cultural change: What impact will they have on clients in Germany? What concrete aspects will change for the clients of the Wealth Management division?
Continuity of advisory services and support, geographic proximity to the client and trust-based advisory service were and still are the most important principles of our client care approach. We do not want to change any of that, because the trust relationship that has evolved is the most valuable thing we have to build upon. Personal advisory service is combined with understanding of the capital markets, investment expertise and global access to the newly formed Deutsche Asset & Wealth Management division. What we have changed in the interest of our clients is the bundling of advisory service in one individual: the first contact in all matters of wealth management is the wealth management consultant, who gets all experts of the bank involved if necessary in order to be able to offer clients the optimal solution. And in general we will concentrate even more on creating sustainable value for our clients and dealing with them in an open and transparent manner.
How are you accomplishing that?
That starts with our focus on the business and how we work together. Our business portfolio has changed substantially during the last few years. Furthermore, we will align our goals even more clearly according to the requirements of our clients. We reward our employees not only for what they achieve, but also for how they accomplish that. In other words: the culture that we are striving to achieve everywhere at Deutsche Bank reveals itself in the manner in which we advise our clients and how we recruit, train, develop and compensate our employees.
To what extent is the bank becoming a role model for other financial institutes thanks to cultural change?
The standard and benchmark for our actions is set by the highest level of customer orientation, integrity and expertise. It is not enough for something to be permissible. The point is whether it is right. That is ultimately the only way that we can convince people that the financial industry plays a valuable role in society and in our home market.
Speaking of your home market: Since March Deutsche Bank has been strengthening its focus on the German SME sector. What does that mean for its clients?
We are strengthening the brick-and-mortar bank in our home market – among other things that means we want to advise clients in the SME sector about their business finances in a way that is tailored more closely to their needs and more focused. But above all it also means that we want to be closer to our clients and position and co-ordinate ourselves more effectively on site within the regions. Our Wealth Management clients will also benefit from that, because Deutsche Bank can offer the companies among them a particularly closely interlinked advisory service as well as support for their private as well as their business assets.
What time frame are we looking at for cultural change?
I would like to make it quite clear: It will be a long-term process spanning several years. A fundamental cultural change simply takes years,not just months. We have gotten off to a good start.
This interview was published first in Deutsche Bank’s Wealth Magazine:
WERTE, Nr. 8, 2013
“We have to earn the trust of our clients again”