Home » When it comes to transparency, have banks got the memo?

14/06/2018

By: 

Martina Scapin

When it comes to transparency, have banks got the memo?

WHEN IT COMES TO TRANSPARENCY, HAVE BANKS GOT THE MEMO?

Ten years ago, two extraordinary events took place that would change the world of corporate communications forever—markets were rocked by the mounting financial crisis, and the first Apple iPhone was launched.

Webranking by Comprend has for more than 20 years been tracking how well the largest European companies have met their stakeholder needs on corporate websites. Together with International Banker, we thought it would be interesting to look back and see if things have changed for the banking sector, one of the sectors under perhaps the most ferocious public scrutiny post-crisis. More importantly,are they meeting stakeholders’ expectations on transparency—for example, on pay, diversity and leadership?

A significant finding from the research reveals that the Lehman Brothers crisis caused stakeholders to demand greater transparency. But while financial stakeholders are increasingly turning to online resources for substance, banks struggle to deliver the nitty gritty details—see trend #1: Openness on executive pay is WORSE than a decade ago. This poses a serious problem as the window of opportunity to respond to and generate news is shorter and more immediate, necessitating faster corporate action in the face of breaking news.

It is not all bad news. We’ve seen a surge in the last decade in banks explaining their performance through quality content—see trend #5: What lies behind the strategy. We’ve also seen a shift in terms of reporting on non-financial matters, with increasing demands from stakeholders in the last decade to account for this trend—see trend #3: Banks are reluctant to be open about diversity.  It’s not only stakeholders who are tipping the scales here, pushing for more information of this kind, but also banks that are noticing the advantages of taking an active role in contributing to society.

Why does this all matter?

In the past few years, the shift to mobile and social channels has thrown up new opportunities and challenges for corporate communications. The little all-in-one-screen launched by Apple changed the way we communicate and work, while the financial crisis led to a deep erosion of trust in banking institutions.

The Webranking by Comprend study is a useful barometer of how well the banking sector, on their corporate websites, meets the demands of the capital markets, and it allows us to compare its approach with other industries. Webranking evaluates almost 1,000 corporate websites annually, measuring content against the expectations of critical audiences (investors, analysts, business journalists and jobseekers are surveyed each year), producing a score out of 100 for each company. In the 2017-2018 edition, our research on the top 500 European companies included 39 banks—among them all of the continent’s top names such as HSBC, RBS (Royal Bank of Scotland), Credit Suisse and Deutsche Bank.

Increased focus on technology and branding at the cost of transparency

A lot has changed in the Webranking research since 2007. Back then, areas of corporate communications that would now be considered indispensable—such as having a responsive, mobile-friendly website; integrated social media; and storytelling (with substance!) were not near the minds of the target groups. It shows how far the world of digital corporate communications has come.

In the process, however, many companies appear to have lost sight of their websites’ basic purpose of transparency. Mobile has forced them to shrink content on websites to make them manageable from smaller screens; social has driven a focus on storytelling and engagement. This has led to the rise of corporate branding and the decline of corporate transparency.The banking sector is not immune to this trend. While perhaps not the most fervent storytellers compared to other sectors, the largest players have latched onto the fact that a corporate website can also serve as a portal for storytelling, which caters to both the company’s and its stakeholders’ needs.

But while storytelling can help engage audiences, a lot of this content can come across as heavily branded, and the essence of transparency is lost. Presenting the substance—strategies and action plans that show how the bank is accountable to communities, customers and employees (see trends #3, #4 and #5)—on a corporate website is at the essence of transparency.

Financial markets are in need of more transparency, rather than less.

A decade ago, Lundquist, a corporate consultancy based in Milan that runs the Webranking by Comprend research in Italy, Switzerland and Austria, conducted research on how top European banks were communicating in the midst of the crash, which was presented at the World Federation of Exchanges. The work revealed a communications blackout: only a handful of 52 of the world’s most important financial institutions were at the time using their digital corporate channels to communicate with their stakeholders and customers, after one of the biggest financial upheavals the market had witnessed since 1929. This was an opportunity lost: both on a reputational basis, as banks practically gave up the chance of controlling the narrative, and as a way to calm the markets, including stakeholders and customers. Let’s not make the same mistake again.

Having compared the latest data of Webranking to that of a decade ago, here are some of our main findings:

1. Openness on executive pay is WORSE than a decade ago.

Ten years ago, the world saw the largest financial crisis since the 20th century. Since then, we’ve had the Panama Papers, the Paradise Papers, Basel I, II, III and more. As time has passed, executive pay (the amounts, problems around clawbacks and lack of transparency) has been a lightning rod for public concern about unfair compensation and inequalities in wealth. We have only to look at the recent outrage over the executive bonus payout, post liquidation, of Carillion in the United Kingdom to understand that this is still a pertinent topic.

Our findings confirm this: today, 87 percent of stakeholders tell us that it is important to them that companies present the remuneration figures of the board of directors and executive management on their corporate websites, up 7 percentage points from 2007. Despite this, the proportion of banks actually presenting this information on their websites (i.e. not just in the annual report or governance report, but on a web page) has dropped from double to single figures, from 13 percent in 2007 to just 5 percent in this year’s edition. This despite the number of banks included in the research more than doubling in the same period.

This should send alarm bells ringing, considering the public outcry on the lack of transparency of executive pay post-crisis. Encouragingly, a handful of banks—Swedish lender SEB (Skandinaviska Enskilda Banken)and the UK’s Barclays among them—are setting the right example.

2. Leaders thrust into the spotlight.

Stakeholders have always cared who the main players are behind the curtain of a bank, but it became even more so post the Lehman crisis, when the role of decision-makers was thrust into the spotlight, for many of the wrong reasons.

Back in 2007, fewer than half of the banks we surveyed gave prominence to their movers and shakers. Nowadays, transparency on leadership has become a prime topic, and encouragingly this number has increased: the number of banks presenting full CVs (curriculum vitaes) of their directors is up from 48 percent in 2007 to 77 percent today, while those that present their executive teams (by providing access to their CVs) has risen from 43 to 59 percent.

Ones to watch in this area: Mediobanca transparently presents details on its board of directors, from board composition to detailed CVs).

3. Banks are reluctant to be open about diversity.

And what about diversity, a pertinent topic for corporations as of late, and a topic that is very much here to stay? With the introduction of pink quotas in some European countries and the continuing struggle for equal pay and more diverse leadership, is the banking sector communicating more transparently on this topic? Well, in 2007 this topic wasn’t included in Webranking, which is interesting in itself: it shows how much the world has changed in 10 years. It’s telling that this has become an important topic, not only for public opinion but also for financial stakeholders (diversity in leadership and in the boardroom being two big topics here, something we also didn’t rank for back in ‘07).

In this year’s edition of the research, 66 percent of financial stakeholders said the composition of the board from a diversity point of view was “very important” to them. Encouragingly, more than half (51 percent) of the banks we analysed are presenting their board make-up. When we talk about diversity more generally, i.e. the ethnic and gender divide in a company, the numbers are less reassuring. Although 82 percent of stakeholders are eager to see this information, fewer than half the banks we evaluated (33 percent) present numbers on diversity when it comes to their own workforce.

Ones to watch in this area: Credit Suisse, Intesa Sanpaolo

Expectations are up on conducting ethical business, and banks are responding.
The real-world consequences of ethical business practices took on greater meaning in the years post the Lehman crisis. We’ve seen this turn into regulation, with the European Union directive on non-financial information creating a legal obligation to report on non-financial information and data. Larry Fink, CEO of BlackRock, recently called on companies to contribute to society to secure the continued support of the largest investor in the world, an important signal about how financial markets are adopting a broader sense of performance.

We’ve seen the importance of presenting non-financial information also increase in the Webranking research, with our protocol expanding to include content about sustainability on the corporate website, and with stakeholders increasingly asking corporations to communicate their contributions to society (from 56 percentin 2007 to 69 percent today). Banks are, in fact, one of the few sectors that communicate on sustainability well.

4. What lies behind the strategy?
While we didn’t rank how many banks presented their strategies in 2007 (this became more important as the years went by, due to financial-market expectations looking more towards qualitative information), the numbers presently are slightly up. With 95 percent of financial stakeholders eager to see banks present their strategies on their corporate websites, 67 percentof banks are providing at least an outline of where their companies are headed on their corporate websites (although few back these up with concrete actions, such as clear objectives or projected targets).

One to watch when it comes to strategy: BBVA

Who’s leading in online corporate communications?

This year’s best-in-class, for the second year running, is Sweden’s SEB with 77.5 points, followed by Credit Suisse with 61.4 points, then Austria’s Erste Group rounding the podium with 61.3 points.

SEB’s President and Chief Executive Officer (CEO) is Johan Torgeby

Overall, when it comes to communicating transparently to stakeholders, the banking sector seems to be moving in the right direction. We have seen the “pass rate” (considered as a score of at least 50 points out of 100) substantially increase over the years, reaching 46 percent in this year’s edition (compared to 44 percent in the 2016-2017 edition, when comparing the same cohort of banks in both studies) and

surpassing the 45-percent rate for Europe’s top 500 companies overall, reaching an average score of 46.2. Most impressively, we’ve seen significantly fewer banks (11 percent vs 32 percent last year) failing to reach the minimum information required to meet stakeholders’ needs (which we consider as scoring more than 30 points or higher), which shows that great strides are being made.

The sector ranks as 12th out of 19 sectors with an average score of 46.2 out of 100, beating the EU average of 45.3 points. It has moved up one place, having ranked in 13th place last year

A decade on: After all this, are banks any more transparent?

A decade on, banks seem to have received (part of) the memo on transparency; and although we are seeing improvements, there is still a long way to go.

Heightened stakeholder expectations in many cases have not translated into greater openness and easy access to critical information online. In fact, access to top-management remuneration figures is worse off than 10 years ago, whereas corporate branding is flourishing to make easy wins in an increasingly saturated digital landscape. Stakeholders may ask themselves: “Why aren’t banks making it easy to find out the most important facts about them?” The credibility of financial markets goes hand-in-hand with the commitment of banks to provide high-quality and transparent firsthand information to regain trust in the marketplace—trust that should not be taken for granted.

But it’s not all bad news.

More and more banks are embracing sustainability and using their digital channels to communicate their broad commitments.By using the corporate website as an integrated part of the corporate communication strategy, the banking sector can meet growing stakeholder demand in a more time-efficient and cost-effective manner. In a world in which trust is ever in decline, banks play an important role by using transparency as way to regain the public’s trust. This can only be a win-win situation.