I recently held discussions with more than 20 senior executives on reputation and trust issues facing Financial Institutions (FI’s) in Asia. These executives work for diverse number of FI’s, including corporate and investment banks, asset managers, private equity firms, insurance companies and virtual banks/virtual insurers. The executives that took part represented a mix of CEOs, heads of business units and heads of communications for the region.
Despite the varying nature of the firms that I spoke with, some common themes emerged. These themes are not particularly new, but the fact that multiple executives proactively raised them reinforces their continued importance. In summary, they are:
1. Dealing with geopolitics.
2. Demonstrating ESG leadership.
3. Achieving cyber security.
4. Tackling technological transformation.
5. Navigating transactions.
6. Addressing the new workplace dynamic.
Interwoven throughout these themes is the ongoing impact of the pandemic. Covid-19 has gone longer, deeper and harder than anyone could have predicted. It continues to produce a variety of stakeholder and trust issues that are affecting FI’s (indeed, all companies) in Asia.
Dealing with Geopolitics
The access problem for foreign financial services firms in China has significantly improved and yet the market opening is playing out against an ugly geo-political backdrop. This hostile environment is set to continue this year and beyond. As FI’s look to drive growth in China, they will continue to face existing and new risks, from within China as well as their home markets.
Many executives noted that the situation is so polarised that it is extremely difficult to manage. Short of pulling out of China, there is no single solution. International FI’s, particularly U.S. ones, have an incredibly fine line to navigate. One executive noted that “many banks want to cosy up to China but still need to clear dollars.” The prospect of enforcing sanctions continues to be a major headache – both U.S. sanctions and Chinese anti-sanction laws. It is a matter of being hypersensitive to both sides of the fence when making any decisions concerning China and when making any public comment.
In addition, several people I spoke with noted that it is extremely difficult for corporate leaders to visit China and engage in meetings with senior local stakeholders. This heightens the need to truly empower the local management team to represent the FI and make decisions that help advance its interests.
More broadly, the war in the Ukraine has also created issues for Asian FI’s, particularly as they pertain to the exposure of both the FI and their institutional clients to Russia (i.e., Russian banks, corporations, individuals and so on). The ongoing program of fast-moving sanctions deployed against Russia, which have been implemented by several countries in the region, also creates a need for FI’s to ensure they are complying with relevant geographies. Amid many other complex implications, the war is also creating a heightened cyber security threat globally, which is another of the themes identified in this paper.
Demonstrating ESG Leadership
Unsurprisingly, multiple executives I spoke with noted that ESG is high on the agenda. Many firms reported increasing pressure to address ESG issues from their stakeholders, and this has been further accelerated by the pandemic.
Many FI’s in the region are grappling with how to develop coherent actions and messages that convey their respective programs, including how to define their Net Zero ambitions. One executive said that there is yet to be an established order in the context of ESG in Asia and a lot of “untaken real estate” remains to be utilised.
The issue of ESG credibility was often cited, including in the context of how to immunize against greenwashing claims. One executive noted, “There are plenty of FI’s talking about green financing, but who are also slow to commit to take substantive action in relation to their own business.”
While global FI’s tend to follow the direction of global headquarters, many firms headquartered in Asia are still struggling to understand how to develop a substantial ESG approach that is truly integrated into their business.
The “E” in ESG remains a prominent focus in Asia. Several of the people I spoke with were quick to note that climate change is impacting this region with particular significance. Governments and regulators are highly cognisant of the impact of the extreme weather events that are predicted to continue, to the detriment of communities and economies in the region. It is difficult to make broad statements regarding how different FIs in different Asian markets are reporting their climate impact, but how to stay on top of regulatory requirements (and wider stakeholder expectations) in this context will continue to be of high importance.
In terms of “S”, one executive I spoke to referenced human rights as a major issue for banks in the context of their clients and supply chains. Firms can talk about financing renewable energy development in the region, to cite just one example, but this will be completely undermined if such projects are ever connected to dangerous working conditions, unacceptably low wages, among a range of other issues detrimental to human rights. Others in the context of “S” brought up Diversity, Equity and Inclusion (DEI). One executive noted that DEI turns up differently in Asia than the West, and indeed, within the region itself. This is a fair observation. The region is so diverse in many ways, that it’s reasonable to accept DEI will be expressed in different forms and will be at varying rates of maturity across the Asia-Pacific region.
While the “E” and “S” aspects of ESG tend to generate the most prominence, several executives noted that Governance remains top of mind. They fed back that in Asia, in general, corporate governance remains in need of further strengthening if firms are to avoid reputation damage associated with lapses or breaches of good governance practices.
Achieving Cyber-Security
Cybersecurity remains top of mind in the context of reputation in region. This is a pain point that has enormous potential to create long-lasting reputational damage and loss of trust.
More than one respondent noted that their institution had been subjected to a cyber related breach in the last 18 months and that the ability to respond quickly and efficiently to such breaches was paramount. As referenced earlier, the Ukraine war has further increased the risk of Russian state-sponsored cyber-attacks, and financial institutions represent a prime target of such attacks.
Actions that FIs need to be on top off include the implementation of a uniform, company-wide crisis plan; engaging the Board to ensure it is fully supportive of the investments and actions required to be prepared for a cyber-crisis, including through investing in the right people and technologies; and assigning clear roles and responsibilities to relevant members of the leadership team to ensure that the firm is ready to react quickly and effectively.
As one participant put it, “the work that needs to be completed in support of cybersecurity isn’t owned by technology or communications, it is something the entire business needs to get behind.”
Tackling Technological Transformation
Several people I spoke to referred to digital transformation being an imperative on their 2022 agenda, with feedback suggesting that many FI’s in Asia still have a long way to go in making this a reality. Connected to this process is the effort by traditional FI’s to materially improve their customer experience offering – one executive noted that “we have to find faster, simpler and better solutions that our customers expect, and in doing so, that will exemplify and amplify our brand.”
One of the key challenges for FI’s is managing investors’ expectations around digital transformation initiatives. Several traditional FI’s cited their interest in playing a role in ongoing developments of blockchain, separate from cryptocurrency. This is clearly a highly scrutinized area and one that requires FI’s to take a careful and credible approach.
Once the decision is made to pursue a strategic plan that incorporates significant technological change, at the outset, it was noted that it is important to create a compelling vision that helps to pave the path to success. It is also crucial to examine if the firm’s culture is aligned with the type of culture required to implement transformational change. This includes the ability to make agile decisions, to make changes quickly and adjust further as needed and to involve groups from all over the enterprise.
In the context of corporate communications, several executives described an aspiration to invest in more sophisticated analytics capabilities to help their firms improve their ability to navigate incoming issues while helping to enhance positive impact.
Navigating Transactions
Several executives I spoke with noted that their firm recently had – or expect to be this year – involved in a transaction of some nature. These transactions were diverse in nature and include IPOs, acquisitions, investments, as well as the striking of strategic partnerships to extend and enhance the value proposition provided by the FI. These executives noted that the ability to strike, close and embed such transactions was pertinent to overall reputation of the firm.
In the case of an acquisition or sale, one executive noted that cultural transformation is an important issue to manage effectively. An extra layer of complication is generated in those Asian markets with a strong trade union presence, which can force the FI to take a more definitive stance on employment related messages.
Overall, when thinking about reputation in the context of transactions, several matters need to be considered. These include: the firm’s philosophy towards inorganic growth and how to position that approach; how to build a compelling narrative that speaks to the firm’s strategic partnerships and the value they add to the firm’s customer offering; and how any deals struck will generate not only shareholder value but also societal benefits, as it seeks to ensure regulatory approval.
Addressing The New Workplace Dynamic
Even before the pandemic, the traditional employer-employee relationship was starting to change – in the West and in Asia. Today’s “work-from-home” phenomenon is leaving some FI’s in the region grappling with how to better connect with their employees, particularly junior people who may need more guidance. One executive noted that “with many of our people in the region still working remotely, this is starting to have an impact on the culture of the firm.”
Asian FI’s have significant opportunities for growth, but the talent pool available is a potential constraint. In addition, without the traditional experience of working in person together every day, the risk is that a sense of common focus recedes over time. This applies in Asia as much as the West. The opportunity is to deliver new ways of nurturing a corporate culture in this era of remote work that helps to attract and retain the best people. Included in this is the establishment of a credible, authentic and emotive purpose that allows employees to feel pride in the organisation they represent.
Closing Thoughts
As the Asia-Pacific region (and the world) continues to experience volatility, tension and turbulence, the imperative for trust between the FI and its stakeholders is greater than ever before. The themes identified in this paper are some of the major ones impacting FI’s in Asia. By their very nature, these themes will constantly evolve – and new ones will continue to emerge.
Of course, FI’s themselves represent a diverse array of firms, each with different business models, strategies, target customers and so on. Virtual banks, for example, are struggling to establish their value proposition and are striving to promote themselves to effectively stand apart from the competition – as they seek to build credibility among their target stakeholders. The global investment banks on the other hand are coyer about proactive profile building given the geopolitical tensions they face. The challenges are as varied as they are difficult.
One aspect remains common for all FI’s: if the challenges, as great as they are, can be managed effectively, the prize is enormous in what is set to be the world’s most vibrant economic region for many years to come.
Steve Thomas is Principal of TAVO Advisory, which he established to advise firms in the Asia-Pacific region on complex issues relating to reputation and trust. Steve is also a Trustee of the Institute for Public Relations. Prior to TAVO Advisory, Steve was Head of Brand and Communications for AIA Group. He is the Co-Chair of IPR’s Asia Taskforce. Steve recently conducted a series of discussions with senior executives representing a range of Financial Institutions in Asia. The result is a paper that identifies six themes relating to reputation challenges that are faced by FI’s in the region.
