Organisations eventually sink when they steadfastly refuse to address the malaise that grows over time
On October 30, I was in Cairo with a group of people when news came of Deutsche Bank axing 35,000 jobs. The net loss of the bank was $6.6 billion for the third quarter. It had paid $2.5 billion to settle libor case. Clearly, things were not right. This became the talk of just about every second conversation with the group which had come from 28 nations. Some of us tried discreetly to find out how the situation had emerged. The response was simple: ‘It was due to poor historic behaviour’.
Organisations do not sink overnight. They sink over a period of time when symptoms of a malaise are not treated. They sink when the organisation cannot answer basic problems, respond to common issues and keep talking of grand things. Organisations also sink when the leadership is immune to efficiency considerations in deference to personal relationships.
Deutsche Bank had to set aside billions to pay for fines and legal settlement in several cases. This includes rigging by a number of branches of the key interest rate benchmark known as the london Interest bank Offered Rate or libor. The bank had to settle dues with regulators in Britain and the United States to settle the libor case.
Naturally, heads had to roll. Co-CEO Anshu Jain resigned in June. The other Co-CEO, Juergen Fitschen, is leaving in May. This is by no means the end of the story. More heads may roll but the problems may not get mitigated soon enough.
Chief Executive Officer John Cryan has his task cut out. Unfortunately, the tendency in all such circumstances is almost invariably to attempt a solution through the ‘tightening the belt’ exercise. But then, there are certain limits to the extent that a belt can be tightened. (The play on words is entirely unintended!)
I came across a statement by John Cryan: “The bank faces hard decisions. We must reduce banks complexity.” I could not but recall that KPMG has this byline of “cutting through complexity”.
Of the 9,000 internal job cuts, about 4,000 are in Germany. Ironical, because Germany is rated to be right on the top among European nations for doing business. Most of the cuts are to be made through business sales, slated to come after divesting Postbank.
The fanciful buzz words, today, of organisational efficiency, include ‘transparency’ and ‘ethics’. The words that are so simple become complex. Thus, it is that cutting through complexity does not necessarily mean seeing over-simplified solutions.
Obviously John Cryan recognises this. The Deutsche Bank is slated to close its onshore operations in Argentina, Chile, Mexico, Peru, Uruguay, Denmark, Finland, Norway, Malta and New Zealand. Anything which spreads from Argentina to New Zealand cannot be a situation which would have reached this kind of nemesis if it had been handled at the right time.
The irony does not end there. There is another side of the spectrum. While Deutsche Bank is on the road to cut operations in Germany, there is a parallel phenomenon unfolding. Confidence in the Euro-area of economy has unexpectedly improved. In October for a fourth consecutive month, this process was again discovered. This was because the European Central Bank was looking carefully at further stimulus.
In September, the index of executive and consumer confidence was 105.6; in October it climbed to 105.9. Significantly this was the highest level since June 2011. ECB president Mario Draghi hinted last week that he may add on to a US $1.2 trillion asset-purchase plan to push up inflation in the 19-nation region. The head of the Reserve Bank of India, during this period, was pontificating on ‘tolerance’. The venue was IIT Delhi.
It is important for the economy to be resilient and have the ability to face risks from lower energy cost and work for a stronger rupee. Inflation has to be stable, somewhere around zero as has been achieved. The important thing is for sentiments to improve. India has become a land where even a Moody’s forecast has acquired behavioural overtones!
Anna Maria Grimaldi, an economist at Intesa Sanpaolo, was right in flagging monetary easing to start feed, though. The index of confidence in retail trade has to be watched.