Bankers Turn to Corporate Psychologists to Avoid Major Miscues

Mounting pressures seem to have bankers willing to take to a psychologist's couch to address corporate issues.

Financial firms, facing persistent external challenges, can turn to professionals to address internal issues such as productivity, hiring and merger due diligence. The goal, by and large, is to avoid miscues that could cost banks time and money over the long term, industry experts said.

"It’s a really challenging environment, given the softness of the economy, low interest rates and regulations on banks," said Alan Kaplan, chief executive of Kaplan Partners. "Good performance is more important than ever, so that puts more pressure on boards and executives to achieve that company’s goals."

It takes a special set of skills to be an effective corporate psychologist, said Gene Barger, a senior consultant and licensed psychologist at BCK Consulting. Most have a doctorate in their field, along with special certification that enables them to administer sophisticated personality assessments.

"I think it is fairly safe to say that personality has a tremendous impact on the way people express their leadership," Barger said. "What will really have an impact on the success of the merger is the way the personality styles of the leaders are expressed in terms of working together."

Mergers are an area where corporate psychologists can play an important role. While executives typically tout the cultural fit of a deal, banks often fall short of those expectations, industry experts said.

Professionals can help merging institutions discover ways to work together, outline roles and responsibilities and determine whether everyone will be happy once the deal closes, said Frank Merritt, chief executive of TalentQuest. Even seemingly small matters — such as job titles — can be worked out through counseling.

"You don’t want to lock yourself into a relationship that looks good from a financial basis but can be a train wreck on a professional level," said Merritt, who has a doctorate in psychology. Working with a psychologist "will give you clarity around how the organization will look post-acquisition and whether people will be happy and fulfilled."

Joe Evans, president and chief executive of the $3.5 billion-asset State Bank Financial in Atlanta, is a big proponent of using corporate psychologists, particularly when evaluating acquisitions. Evans has nixed deals after realizing, through the aid of a corporate psychologist, that the potential partner was a bad fit.

Corporate psychologists can cover uncomfortable topics — such as a CEO’s retirement plans or his or her favorite aspects of running a bank — that executives may choose to avoid discussing, Evans said.

In 1997, Evans, while at Bank Corporation of Georgia, was in talks on an MOE-type deal with Century South Banks. Executives worked with a corporate psychologist for hours "to ensure they wouldn’t get in each other’s ways" and to figure out how to structure their roles. After that, they took their most senior executives on a retreat to develop an organizational plan — all before pricing was ever discussed.

"We spent many more multiples of time on compatibility than on the price negotiations," Evans said. "When things don’t work out it usually has to do with people and culture. There are a lot of ways people can successfully run a bank, but only one way to run one bank."

Ideally, banks would meet with a psychologist during the due diligence process, before a deal is announced, said Jonathan Hightower, a lawyer at Bryan Cave.

Merritt, who has worked on 10 deals in the past two years, said he can recall at least three proposed mergers that he discouraged because of personal dynamics.

At the same time, psychologists can also salvage a deal that may have otherwise seemed doomed. In these cases, a professional can help leaders get back on track, often by helping each executive identify his or her own strengths and weaknesses and find ways to work together, industry experts said.

Corporate psychologists can help banks with hiring decisions, industry observers said.

Poor cultural fit is the biggest reason employees fail, and going through a new search process can be costly and time consuming, said Kaplan, who is certified to administer personality assessments. Turnover can create other problems, such as putting projects on hold, he said.

First Exchange Bank of Alabama in Louisville, for instance, turned to a corporate psychologist to support its search for a successor for its current president and chief executive, Greg Faison.

It is important for smaller banks — First Exchange has just $127 million of assets — to use a process like that for hiring decisions because they can’t afford to make mistakes, Faison said. First Exchange, meanwhile, is open to using psychologists to help it hire employees to lead expansion efforts.

"When you establish a new outpost, you need to make sure the person who heads it up buys into your culture," Faison said. "We can’t afford to send someone out to run an operation for us and find out they don’t have the basic understanding of community banking."

Finally, psychologists can help improve efficiency and profitability, particularly when it comes to corporate governance, industry observers said.

Directors, who are responsible for making sure management is doing its job, usually rely more on growth targets than formal assessments of executives, said Angela Holguin, founder of Holguin Consulting. Periodic evaluations should focus on areas such as problem solving, communication, organization and risk management, said Holguin, who became familiar with corporate psychologists during the financial crisis as regulators urged troubled banks to get third-party assessments of management as part of enforcement orders.

Corporate psychologists can help review management teams and find ways to move key executives around to make them more successful and improve returns, said Tom Hall, president and chief executive of Resurgent Performance. This practice has become more important as investors expect more from executive teams.

"A lot of executives know they should be managing for greater accountability and productivity, but there’s something in their personality that prevents them from making that pivot," Hall said. "We’re at the point where there’s enough change in the industry that a corporate psychologist can do their magic and see who is the most adaptable."

Cornerstone Bank in Atlanta wasn’t generating the returns it wanted, so it hired a corporate psychologist to help identify areas where it could improve, said President and CEO Hank Almquist. The outside firm helped address friction within the management team, which in turn brought in individuals who were a better fit with the bank’s goals, he said.

The $240 million-asset bank’s employees were initially unsure about the process, but they warmed up to it once they saw it being used constructively and consistently, Almquist said.

"It provides a fresh look at management with an unbiased perspective," Almquist said. "We found getting new hires screened on the way in gets a higher level of productivity and less friction post-employment."

To be sure, banks should rely on more than the input of a corporate psychologist, industry observers said. While tests can provide useful information about a potential hire, they should only be used as part of a broader evaluation, Barger said.

It is also important to be transparent about how a firm is going to use a corporate psychologist, said David Coxon, president and chief executive of Georgia Primary Bank in Atlanta. The $152 million-asset bank has mostly used corporate psychologists during the hiring process for senior managers.

"Is this a perfect science? No," Coxon said. "When humans are involved, nothing is perfect, but the process most often helps to take the emotion out of the decisions."