Facing Ethical Dilemmas in Banking Year One – Chief Retail Officer Perspective Mike Allen

Executive Banking School Roadmap GROWING Capability Confidence Courage YEAR THREE Chief Executive Officer Perspective YEAR ONE Chief Retail Officer Perspective YEAR TWO Chief Financial Officer Perspective

Executive Banking School Roadmap GROWING Capability Confidence Courage YEAR THREE Chief Executive Officer Perspective YEAR ONE Chief Retail Officer Perspective YEAR TWO Chief Financial Officer Perspective

Year One – Chief Retail Officer Perspective Retail Strategy Curriculum Leadership Communication Leading the Retail Line of Business via a Balanced Scorecard Discovering Customer Segments & Consumer Behaviors Successfully Communicating & Advertising in Retail Banking Developing and Pricing Profitable Bank Products Modernizing & Optimizing Delivery to Meet Customer Requirements Facing Ethical Dilemmas in Banking Applying Concepts Learned to Today’s Market Chief Retail Officer Perspective

Year One – Chief Retail Officer Perspective Retail Strategy Curriculum Leadership Communication Leading the Retail Line of Business via a Balanced Scorecard Discovering Customer Segments & Consumer Behaviors Successfully Communicating & Advertising in Retail Banking Developing and Pricing Profitable Bank Products Modernizing & Optimizing Delivery to Meet Customer Requirements Facing Ethical Dilemmas in Banking Applying Concepts Learned to Today’s Market Chief Retail Officer Perspective

This Session’s Critical Topics Ethics and the Bank Breakout Assignment

Ethics and the Bank

Culture eats Strategy for breakfast Ethics and the Bank What is Culture? Culture eats Strategy for breakfast – Peter Drucker

Ethics and the Bank What is Culture? Bank creates culture through socializing and training staff to view customers and customer interactions in specific ways. Banks create “a kind of person” consistent with the culture of the bank through rites and rituals. Maintaining a specific culture drives the ability to shape and direct customer and employee interactions in targeted and expected ways.

USAA                  Ethics and the Bank What is Culture?

What is Culture? Company Overview Ethics and the Bank USAA                  Ethics and the Bank What is Culture? Company Overview                                                                                                                                                                                                                                                                   United Airlines and United Express operate more than 4,500 flights a day to 339 airports across five continents. In 2016, United and United Express operated more than 1.6 million flights carrying more than 143 million customers. United is proud to have the world's most comprehensive route network, including U.S. mainland hubs in Chicago, Denver, Houston, Los Angeles, New York/Newark, San Francisco and Washington, D.C. United operates 737 mainline aircraft and the airline’s United Express partners operate 483 regional aircraft. The airline is a founding member of Star Alliance, which provides service to 192 countries via 28 member airlines.

Reasons that Culture Beats Strategy People are loyal to culture, not to strategy Culture provides resilience in tough times Culture is more efficient than strategy Culture creates competitive differentiation Culture can spark a contrarian business strategy A brittle culture can doom even a great organization When strategy and culture collide, culture will win Cultural miscues are more damaging than strategic ones Strategies can be copied but no one can copy your culture Culture provides greater discipline than disciplinary action does Culture provides a level of risk prevention that cannot be attained with strategy alone. Culture will have a significant impact on your bottom line.

Culture Questions of Culture How is loyalty expected and reflected in your culture? How tough and resilient is your culture How can you foster a higher level of alignment with your operational and customer service strategies? Answer in sentence: “What is the cultural brand?” What is your greatest cultural vulnerability? What is the greatest cultural resistance you can expect to your business’ strategy? When you have a social media crisis will your people come to your defense or join in the attack? How does your culture enable you to create competitive distinction? How does your culture enforce attitude and behavioral expectations? How can you enhance the economic impact of your culture?

Customer Communications and Ethics Ethics and the Bank Customer Communications and Ethics Can customer communication and advertising choices lead to a failure of duty of care? How so? Predatory practices Behavioral manipulations Defensible sales processes

Product Design and Ethics Ethics and the Bank Product Design and Ethics Can product design itself lead to a failure of duty of care? How so? Pricing conflict of “interest” Hiding costs in fees Ongoing fees versus punitive fees Fair lending, fair deposits Disparate impact UDAP

Delivery Decisions and Ethics Ethics and the Bank Delivery Decisions and Ethics Can delivery decisions lead to a failure of duty of care? How so? Cybersecurity – security versus safety Stakeholders beyond shareholders Closing the Last Branch in a community Branch role in communities

Risk Management and Ethics Ethics and the Bank Risk Management and Ethics How does a bank’s operational risk management structure relate to ethics at the customer level? Reputational risk Regulatory risk Compliance risk Enterprise-wide risk management How does a bank’s operational risk management structure relate to its culture?

Breakout Assignment

Breakout Assignment Ethics Case Study Read the Financial Industry Regulatory Authority’s rule concerning the duty of care owed to investment advisors’ customers Discuss and prepare answers for the questions on the following two slides At 10:15 am be here and ready to discuss and defend your position FINRA is dedicated to investor protection and market integrity through effective and efficient regulation of broker-dealers. FINRA is not part of the government. They are an independent, not-for-profit organization authorized by Congress to protect America’s investors by making sure the broker-dealer industry operates fairly and honestly.

Breakout Assignment Ethics Case Study Discuss the implications of mandating a suitability requirement to all retail banking customers. Currently, how far off is the banking industry? How far off is your bank? What would needed properly implement a suitability standard? Should it be implemented?

Breakout Assignment Ethics Case Study How would implementation impact customer communications? How would implementation impact products? How would implementation impact delivery channels? How would implementation impact measurements for success? Should the industry wait for regulators to impose compliance? Is there a strategic advantage for a bank to unilaterally implement?

Ethics Case Study Debrief Breakout Assignment Ethics Case Study Debrief

What Has Been Accomplished Critical Topics What Has Been Accomplished Determine the duty of care, if any, that is owed for a given customer Characterize bank culture. Assess whether that culture supports a reasonable duty of care.

Questions

Year One – Chief Retail Officer Perspective Retail Strategy Curriculum Leadership Communication Leading the Retail Line of Business via a Balanced Scorecard Discovering Customer Segments & Consumer Behaviors Successfully Communicating & Advertising in Retail Banking Developing and Pricing Profitable Bank Products Modernizing & Optimizing Delivery to Meet Customer Requirements Facing Ethical Dilemmas in Banking Applying Concepts Learned to Today’s Market Chief Retail Officer Perspective

Executive Banking School Roadmap GROWING Capability Confidence Courage YEAR THREE Chief Executive Officer Perspective YEAR ONE Chief Retail Officer Perspective YEAR TWO Chief Financial Officer Perspective