Ben Marshall didn’t like handouts. His father had raised him to take care of himself. But here he was, the CEO of ReliantShare Bank, about to receive $5 billion in federal funds, and the prospect of government intervention tied his stomach in knots. At the same time, unrelenting media scrutiny was starting to stifle even everyday business decisions. He knew that ReliantShare had to break free of the bunker mentality that had gripped everyone in financial services—but how?
He turned into the driveway of ReliantShare’s executive retreat, a gorgeous five-bedroom, four-fireplace house on several wooded acres of Connecticut dreamland. Discussions at “Camp Ben,” as the team liked to call it, were usually fairly forthright. The casual setting—coffee in the kitchen, a beautiful view through the large glass doors—put people at ease, so they felt less self-conscious and more direct when they sat down for a robust discussion. They could air their ideas in a safe environment and then go back to make a final decision in the boardroom.
As he pulled up to the graceful, ivy-covered front entrance, he idled his black BMW for a moment before turning off the engine. He was still in a sour mood following the negative publicity from the previous week’s congressional hearings. The bank’s top managers were anxious to deliver a more positive message than consumers and the market were getting from the financial pages and from Washington. Both the chief financial officer and the chief customer officer had ideas about what the message should be.
Less than an hour later, the bank’s leadership team assembled around the Victorian mahogany table in the dining room. No one seemed relaxed, despite the bucolic surroundings. Everybody wanted to get right down to business.
Ammon Rodriguez, the chief customer officer, started the proceedings. “Ben, we’ve got to acknowledge the funds,” she said. “Break from the cold, unfeeling image and show we are grateful and responsible. Show the taxpayers that we respect them and that they can trust us. Show some…well, humility.”
The words got Ben’s attention. None of the more than 400 U.S. banks receiving funds had publicly outlined specific plans for spending the money responsibly. He had made that point in an e-mail to the whole company about being “accountable stewards” of the public’s trust and money.
“Our ad agency has developed a thank-you campaign,” Ammon continued, “that will target consumers, directly acknowledge their ‘investment,’ and give us a platform for proactive communication and product development.”
Vernon Scott, ReliantShare’s CFO, couldn’t hide his irritation. “A good steward doesn’t waste money,” he cut in sharply. “We should be targeting investors and financial talking heads with the themes of stability and strength. If we do that, we may be able to put a floor under our falling share price and hang on for the long haul. We don’t want to have to come back to the table again with our hands out.”
Some of the executives, including Ammon, looked a bit taken aback. Trying to use a more reasonable tone, Vernon said, “Look, talking about the bailout can only hurt. A, it will advertise that we needed help, and B, the press will jump all over us again. People want to see that we’re moving forward, optimistic about the future, and advancing the recovery.”
“Talking about the bailout can only hurt. People want to see that we’re moving forward.”
Ammon shook her head impatiently. “That’s simply not a message anyone is going to believe today. Do you seriously imagine that investors will be piling back into bank stocks anytime soon? The people we’ve got to be talking to are the taxpayers.”
It Was a Very Bad Year
With precrisis assets nearing $114 billion, ReliantShare was the 20th largest bank in the United States. It focused on the country’s more populous states—especially California and New York—and had very few branches in the Southeast and the sparsely populated areas of the West.
When business was booming, a four-year acquisition spree had more than tripled the bank’s value. But nine months into 2008, the executives had faced $36 billion in write-downs and a 94% collapse in stock value. New businesses and existing lines had both suffered dramatic losses; the board had directed Ben to cut jobs and close branches.
Though not a part of the original Troubled Asset Relief Program, the bank had lobbied for $5 billion to shore up its capital after a substantial number of its loans had gone into default. Ben and five other bank CEOs had made their cases in February 2009 to a senate finance subcommittee headed by Billy Talos, an ambitious two-term senator from the South. A state-school graduate, Talos clearly relished the opportunity to deep-fry the Ivy League MBAs in front of him. Predictably, the hearing was more about grandstanding than about substance.
“Where I grew up, Mr. Marshall,” Talos began, playing up his trademark drawl, “you didn’t throw good money after bad. Seems to me you’ve already poured plenty of folks’ cash down the drain. Perhaps you can explain why we should be pourin’ more in after it.”
It went downhill from there. Eventually, Ben threw up his hands in frustration at the senator’s ignorance of basic economics, forgetting that the television cameras lay in wait for a shot like that. The image hit every major news outlet in prime time, and Ben’s “befuddled” profile reappeared with many stories about the arrogance and ignorance of bank CEOs.
That was ReliantShare’s second PR hit in three months. The first had occurred after reporters discovered the bank’s $2 million, prerecession purchase of the very Connecticut house in which the team now sat. The Sunday news supplements had reveled in their descriptions of the 1830s-era home, its tall stone fireplace in the huge living room and its teak deck overlooking the neighboring 1,700-acre Devil’s Den Preserve. Better still, the bank had put in $500,000 of “updates” to make the home as comfortable as any luxury conference space. When not being used for official events, it was available to executive team members on a “first come” basis. USA Today called the purchase “another example of today’s corporate culture of entitlement.” The New York Times said it was “irresponsible” and “more evidence that they believe they are ‘too big to fail.’” The Wall Street Journal offered the least scathing criticism but noted that the bank could have instead helped one of its customers by “buying a troubled property.” What nobody said was that the bank had purchased the estate partly to save on hotel and travel fees: Because it was only 45 miles from ReliantShare’s New York corporate office, executives could drive their own cars or take the train. Annual upkeep cost less than a week’s stay at a luxury resort.
As a result of these hits, the team was especially sensitive to any public perception of self-indulgence or wastefulness. Ben was acutely so, not just because it was his face in the media but also because the idea to purchase the house had been his. And look where that got us, he thought ruefully.
The “Camp Ben” Debate
After Vernon’s outburst and Ammon’s riposte, the team sat quietly for a few minutes. Corporate counsel Arthur Burns, who had been with Ben on that fateful trip to DC, eventually broke the silence, reminding the group that the senators had emphasized banks’ responsibility to help homeowners stay in their houses and to keep companies’ employees in their jobs. “Ammon’s got a point,” he said. “People are asking why we haven’t immediately loaned out the money or given concessions to those in or near foreclosure.”
There was another silence in the room as the executives pondered the fact that ReliantShare, like any other bank that took funds, needed the infusion because it didn’t have the hard assets to make up for likely defaults on its existing loans. “If we don’t respect the ratios,” Ben eventually said to no one in particular, “then we’ll be out of business. So we’ve got to be conservative with the money, or we’ll just be back again asking for more.”
“But wouldn’t we be better off at least expressing gratitude for the funds if we’re not actually going to be loaning them out?” asked Ammon. “Isn’t that the right thing to do?”
Vernon, the CFO, jumped in again, “I couldn’t disagree more. We need to focus the attention on our recapitalized balance sheet and link that with our future growth and economic development.” If the banks weren’t talking to the opinion makers in the media, he argued, then what the politicians said was all that would be heard.
“ABC News, Microsoft, the Olympics—they’ve all run thank-you ads in the past few years, and they were just thanking viewers and sponsors who actually got something out of their involvement,” Ammon persisted. She turned to Ben. “Didn’t you say the ‘Louisiana Thanks You!’ billboard you saw in North Carolina after Hurricane Katrina was a nice touch? Well, a lot of what Louisiana got was public money, just like we’re getting. Research shows that campaigns like this can have positive ROI effects. We’re talking about one one-hundredth of one percent of the funds to pull off the initial campaign.”
She added carefully, “We’ve got a chance to offset the images of angry senators and greedy CEOs with one of a caring company trying to help people.” Turning to Carole Clark, CEO of the retail banking division, Ammon said, “If we show our gratitude, our current customers may be more willing to stick with us, and others may be more likely to switch.”
Ben was impressed by her enthusiasm. “Go on,” he said, leaning forward.
“If you think about it, we can tie it all together: Because of taxpayers’ investment in us, we can loan out money. We can offer assistance to homeowners and businesses so people can keep their houses and their jobs. And we may even be able to create a new branded consumer-credit product—something like a Thank-You Card.” Wondering if she had gone too far, she said, “I guess it’s not just about receiving the funds; it’s about using them. Gratitude in action. That kind of thing.”
Vernon broke in again. “We already had to kiss their asses to get the money. I don’t think we should be paying to kiss them again.”
Good point, thought Ben.
“Besides,” Vernon added, “it would only remind people of the circus on Capitol Hill, and we can’t afford any more bad PR.”
Ben called a lunch break. It was past noon, and the hot trays that had arrived from Bobby Q’s were making it difficult to concentrate.
The retreat ended that afternoon without a definite plan of action, but that was by design. Ben knew that a lag between the initial presentations and the final evaluation would give people time to figure out which hills they were willing to die on and which they were willing to abandon.
A Vote from Mom
Two mornings later, arriving a little earlier than usual, Ammon briskly walked the four blocks from the parking garage to the corporate office and then repeatedly punched the 27th floor button in the elevator. She knew that the person she most needed to convince was Vernon Scott. Although she had disagreed with him, she personally had nothing against him. She respected his ability to understand complex financial instruments and his intuitive feel for the markets, which had made him one of Ben’s most trusted deputies. If the team was split, she presumed Ben would side with Vernon.
With that in mind, Ammon had asked Vernon to sit in on the agency’s presentation the day before and read its brief. Since a new consumer-credit product was potentially part of the plan, she knew that the bank would have to move quickly, and she wanted him on board from the beginning.
After listening to the presentation and reading the materials, Vernon had softened somewhat. He conceded that the plan was unlike anything else in the market—but he was still skeptical. His take was that retail customers wanted higher rates on their investments or lower rates on their loans, not public displays of gratitude. Besides, the “good government” types were certain to go ballistic when they found out that ReliantShare was using public money for advertising. But he agreed to think about the idea some more and suggested taking up the debate with Ammon again this morning.
As she neared his office, a one-sided conversation flowed through the open door. “Great, thanks, Mom,” she heard him say. “Anne and I could really use a night out.”
Ammon peeked around the corner and saw Vernon on the phone. He waved her in, and she took a seat by the desk.
“Hey, Mom, one last thing,” he said, nodding to Ammon. He quickly explained the $5 billion and the thank-you idea. “So, what do you think?”
Vernon hung up after getting an impassioned response. He said, “You’ve got one vote. My midwestern mother is in.”
Handing Ammon a newspaper, he pointed to an editorial and asked, “You see this?” The writer called ReliantShare “her bank,” not because she had an account but because she and other “working folks paid for it.” Ammon quickly scanned the article. It included a David Letterman–like list of the top 10 things the bank should do with the cash. The list ended with, “And since nothing is likely to save this bank or any of the other irresponsible companies that have received bailout funds, the number one thing ReliantShare should do with its $5 billion to show its appreciation is…throw a toga party!” Images of Paul Shaffer and his band kicking up a riff filled her mind.
She grinned, “Well, the number one recommendation does include the word ‘appreciation.’”
“Cute, isn’t it?” Vernon agreed. “But seriously, I think it’s the sort of association we should be fighting, not going along with. We’re not in the entertainment business. People come to us when they want to save money, buy houses, finance the kids’ education. They’d feel more secure doing that if we didn’t roll over and give them all this humility. We’ve got to look forward, not backward, and we’ve got to restore their confidence in our ability to help them get to the future.”
“I take your point, Vernon. But I can’t help feeling we need to give people some closure on the past before we can get them thinking about the future.”
What kind of message should ReliantShare send to restore public confidence?
Michael McCullough ([email protected]) is a professor of psychology at the University of Miami in Coral Gables, Florida, where he directs the Laboratory for Social and Clinical Psychology. His latest book is Beyond Revenge: The Evolution of the Forgiveness Instinct (Jossey-Bass, 2008).
No wonder Ben Marshall’s stomach is in knots. If Ammon Rodriguez’s idea of expressing gratitude for the taxpayers’ $5 billion lifeline is successful, it could increase customers’ loyalty and reduce their bitterness about the money the government took out of their pockets to help the bank. If it fails, ReliantShare could come off looking more ham-handed, self-serving, and irresponsible than ever.
Ben can improve his odds of making the right decision by asking why humans possess the capacity to feel gratitude in the first place. Evolutionary psychologists think that gratitude became a universal feature of humans’ emotional palette because it makes cooperation happen: You help me today, and my private experience of gratitude motivates me to repay you in the future, and when I do, your gratitude motivates you to return the favor to me, and so on. As the great Adam Smith explained exactly 250 years ago, “The sentiment which most immediately and directly prompts us to reward, is gratitude.”
But to explain people’s compulsion to express gratitude, you need stronger stuff than Smith: You need Darwin. Humans wouldn’t have evolved a tendency to express gratitude if its only effect was to put their indebtedness up in lights for their creditors to see. Natural selection doesn’t keep cognitive mechanisms around that aren’t paying their way. People who developed a mechanism solely so they would settle their debts more quickly would have been outcompeted aeons ago by those willing to let their debts pile up. There must be some benefit to expressing your gratitude that, on average, outweighs the cost.
I think it’s this: If thanking you reassures you that I will indeed repay you in the future, then perhaps I can get a second favor out of you even before I have had the chance to repay you for the first one. It’s irrational that patrons in a restaurant, who have already paid part of the server’s wages by dining there in the first place, increase their tip by 11% just because the server writes “thank you” on the check, but they do. Natural selection doesn’t care one way or the other about rationality.
Nor is natural selection in the business of building suckers who allow their debtors to defer payment indefinitely. Humans actively seek evidence that others are trying to take advantage of them in exchange relationships. So for gratitude to continue as a hue in the human emotional palette (which it has) and for expressions of gratitude to encourage helpers to offer even more help (which they do), there must be a set of additional calculations that people make—probably subconsciously—to evaluate the likelihood that a grateful beneficiary really is, eventually, going to make good on the debts he or she is racking up.
Although the thank-you campaign is Ammon’s idea, Vernon Scott seems to have a better sense of what it needs to contain—a clear statement of ReliantShare’s intention to translate the $5 billion into increased capacity to serve the public in tangible ways. Here’s a first draft: “We know that you’ve been experiencing your own economic pain, and we didn’t ask for your financial help lightly. We are rebuilding how we do business so that we can begin, as soon as possible, to provide you with the credit you need to grow your business, buy a home or a car, or send your kids to college. When we’ve finished reorganizing, we’re going to have a stronger and smarter bank. And we’re going to pay back every cent of the $5 billion that you sacrificed for us.”
If Ben won’t eat a little crow, then expressing gratitude won’t help.
If Ben doesn’t have the stomach for eating a little crow and communicating a message like that, then Vernon’s right that they’d be better off keeping their gratitude to themselves and quietly rebuilding their business.
Alan Parker is the chairman of Brunswick Group, a corporate communications consulting firm with 15 offices around the world. He is based in London.
The gratitude campaign is really a way of saying sorry, and apologizing is usually quite hard for executives, in part because of legal risks in a litigious environment. Executives who take blame for something may not live to fight another day, since they nearly always lose their jobs soon afterward. This is one reason why expressions of regret that emanate from corporate corner offices are carefully worded. The former chairman of the struggling British bank HBOS, Lord Stevenson, provided an elegant example of such a statement at the UK parliamentary hearings on the banking crisis. He was careful to express regret about the “turn of events” rather than about the behavior and decisions of his bank and its senior executives.
Bankers now have to stand on the front lines when fault is being attributed but are understandably reluctant to carry all the blame for the collapse of the financial system. They were acting within the law and within the applicable regulatory framework. The practices of the banking sector, on both sides of the Atlantic, met with approval from customers, regulators, the media, and shareholders, who were generally lobbying for higher returns. The bankers’ transformation from creators of capital and wealth to the whipping boys of a potential depression has been so swift that those involved cannot have found it easy to adjust.
But to move ahead in a crisis like this, you have to be prepared to show real contrition and in some way acknowledge your role in the decisions that got you to this point. Even so, I doubt if that would be enough to draw a line under the affair for ReliantShare. Most of the banks that have taken government money have also changed their CEOs. To get a clean slate, ReliantShare will probably need new leadership, especially given Ben’s baggage from the congressional hearings and from the exposés about the house in Connecticut. The fact that he has been misrepresented and that the decision to buy Camp Ben made economic sense is simply going to get lost.
All that said, I am not sure thank-you ads will be effective. The government money is not a gift. This is the problem with using the term “bailout” to describe such assistance in the United States and other countries. It implies that governments feel that the banks and the people working in them are worth rescuing for their own sake. That may be true for some of the assistance being provided in other industries. U.S. automakers, for example, really are being bailed out to save people’s jobs and sustain an independent car industry in the United States. But in the banking situation, what the U.S. and other governments want is to get the credit markets moving and inject liquidity into the system.
To rebuild trust, Ben should get ahead of events and orchestrate his own exit.
If Ben accepts that his departure may ultimately be required for the bank to regain the trust of its stakeholders, he should get ahead of events and orchestrate a clean, orderly exit. He could do this by publicly acknowledging his regret for the enormous losses that shareholders have suffered, ensuring that he and none of his executives can be accused of walking off with any of that money personally through large bonuses or generous early-retirement packages, and presenting his resignation. Some of the bank’s other leading executives should probably also resign—perhaps including Vernon, who, as the CFO and Ben’s confidant, was presumably involved in many of the key decisions related to the bank’s risk strategy. Only with fresh faces at the top can ReliantShare credibly re-engage with investors and stakeholders about the future.
C. William Pollard, former chairman and CEO of ServiceMaster, is the author of the book The Soul of the Firm (Zondervan, 2000).
I agree with Ammon that ReliantShare needs to develop a strategy for communicating with the public. Many people are under the impression that the government is bailing out the banks just to get them lending again, but in reality the money is also meant to help small business owners—who struggle to get enough credit to keep their companies going, let alone secure reasonable terms. Then they look at the media reports and see these same banks paying out millions in retention bonuses and golden parachutes.
However, I am more inclined to side with Vernon than with Ammon about the content of the messages ReliantShare should be sending out. The campaign needs to be about stewardship, transparency, and the restoration of trust. ReliantShare must explain exactly what the funds are going to be used for and how they will enable the bank to recommence lending and become a safer place to deposit money. The bank should also be explicit about how its policies and practices translate into the kinds of decisions that will strengthen the business. A thank-you campaign would not tell me that ReliantShare’s executives are necessarily good stewards of my tax dollars, even if it indicated that they are nice folks.
The campaign needs to be about stewardship and transparency.
Like any public company, ReliantShare already makes fairly full disclosures about its finances and strategy. The trouble is that most of these communications target analysts and professional investors. They get fed to the public through the news media, whose primary interest is in exposing wrongdoing and getting stories. The challenge for ReliantShare—and pretty much any large bank receiving government help—is to get used to talking with a general audience about its balance sheet, management, and strategy.
What sort of communication would be most effective? ReliantShare could certainly place ads in the major newspapers and in the local papers of communities where it has a strong presence, but even full-page ads aren’t usually well read. I would go further and have the bank’s senior managers take their message to national and local television and radio stations. They should contribute to web forums and issue podcasts. They should create a website dedicated to informing the public about the funds and ReliantShare’s strategy. And they should hold town hall–style meetings and “coffee mornings” in the bank’s branches, making themselves available to answer people’s questions.
ReliantShare needs to be very careful about who gets involved in the campaign. Ben’s irritation in the senate hearing suggests that he may not be the bank’s best public face. Both Ammon and Vernon have potential for the role. Both have communication skills and an understanding of the public’s worries. Whomever ReliantShare picks will need to talk in simple language about complicated stuff, and no one should underestimate how difficult that is.
I don’t think Ben should resign. Unless his performance was egregiously bad (and despite the acquisition spree, there’s no indication that it was), a “noble” gesture like that would only make the bad situation worse. Even if there’s leadership talent waiting in the wings, a new team would need some time to settle in and work out what to do, time that ReliantShare doesn’t have. And if Ben’s departure is necessary—not just as a symbolic sacrifice but as a matter of improving the bank’s performance and leadership—then that’s for the board to decide, not him. Since the board is ultimately accountable for the bank’s results, the most pressing question may be whether its present membership has the competency to assume this responsibility for the future.