Management Proverb - And Not Or

By late 2007, interest rates had begun to head-up. The average annual Federal Funds rate, for example, rose from 1.13 % in 2003 to over 5% by the end of 2007. Those days were halcyon days for banks that had a lot of demand deposits, those on which those chintzy banks paid no interest. (Hey, a bank has to make a buck, no?)  As rates rose, so did the yield or return on floating rate loans and investments of all stripes. If a bank was able to keep its deposit costs at or slightly above the low level it had reached in 2003, it was P-A-R-T-Y C-I-T-Y.

But not so fast, my friend.

Paying a customer less than 1/2 a percent on a deposit of $5 million, by definition an important customer at all but the biggest banks, while rates were sky-rocketing, was not something the customers were going to let pass for long. Especially with the competition knocking on their door, telling the customers that their existing bank was ripping them off. (Remind me to tell you the one about the difference between being a customer and a prospect someday.)

In this 2006-2008 timeframe—just before the @#$% hit the horizontal oscillator--I was running a bank in Los Angeles that was THRIVING in this environment. Our little business bank had a lot of low-cost deposits that were invested in loans and investments whose yield was rising. As were our bonus expectations.  Life was good.  

But as time went on, many---and I mean many—of our customers starting saying, “Hey, I’ve got $5 million at your fine bank. Don’t you think my business is worth more the 33 basis points?’” They, for the most part, refrained from calling us names.  At least to our face.

The clamor grew more and more as rates continued to rise, our competition whispered sweet rates in our best customers ears and it was clear that something had to be done. To not provide the clients a better rate would risk losing them as a customer. But to do so would hurt our earnings. Keeping rates low while saying “We are the best service bank on the planet” (which was true) only goes so far. Do we raise rates and hurt our earnings OR keep them low and risk losing customers and credibility?

This “or” is a false dichotomy. And to be clear, we weren’t deliberately holding rates low. At the time, we weren’t sure what was going on. (Little did we know. You ever heard of the Great Recession?)

To our rescue came our fantastic Chief Financial Officer and his team. (Figures he was from Pittsburgh.) He built a model that stratified our deposits by size and rates so that we, the management team, could play around with the alternative scenarios and see the impact on our profitability. This was not an easy task. It required a lot of strategizing, visualization, and programming to build a useful and accurate model. Oh. And did I mention it needed done yesterday? In a nutshell, it was very big ask. And it was a big ask for me…I had to be willing to: a) commit to the project; b) accept the results; and c) sell it to our board.

But we did it and, as a result, we were able to execute a deposit strategy that appeased the vast majority of clients—and certainly the most important ones—AND which had a minimal impact on earnings.

This is the essence of the proverb “and not or.” You have what seems to be conflicting objectives and need to accomplish both. You have to AND NOT OR. And that is always harder.

As a manager, you don’t have to settle for one answer or another. Nor should you. In the prior proverb (“You Don’t Know What You Don’t Know”), I postulated that you can run a great company AND foster a culture that values humility, compassion, and caring. I’ve tried to make sure that happens as best I could for as many of our stakeholders—shareholders, employees, customers and the community—as possible. And I was blessed, without only certain exceptions, with having teams and owners that agreed with this approach. But let’s be very clear. While striving for “and not or” is always very possible. It is also always very hard.

It was not easy for my Los Angeles finance team to conceive of and build that deposit model in short order. It would have been easier to blow it off, give the customers a line of malarkey, dare the customers to leave and collect bigger year-end bonuses. Many of our employees wanted to do just that. I told you there were certain exceptions. It is not the right thing to do for starters AND it is not in the organization’s best interests in the long-term.

Similarly, it is very hard to manage employee programs that help the staff feel better about themselves AND reach their full potential AND give them the proper recognition while maintaining a performance culture. Coffee cards, employee luncheons, a turkey at Thanksgiving, asking how Enrique did in his football game are “AND” solutions and take a LOT of a manager’s time and resources. But it is imminently doable. That’s AND NOT OR.

As you progress in your career, over the many years, many situations and many disciplines, you will find that these “and/or” choices. Indeed, they are ubiquitous. (That means they happen all time. But blogs mandate fancy words.) Design cost vs. safety. Growth vs. regulatory compliance. Just compensation vs. profits. Loan growth vs. asset quality. Spending your time with customers or on internal matters. Do you pay Mary or Maria that extra bonus? The list is endless. But you, the manager--in order to run the best team, the best department, the best company--have to commit to the “and not or” philosophy.

Two pieces of advice to be successful implementing this proverb. First, one needs to be very cognizant of these choices. Even the little ones matter. (A topic for another proverb.) I am sure most of you are painfully aware of these choices. That being said, many times managers either take the easy way OR (I guess OR is ok sometimes) just don’t want to deal with it. At the very least, you should know the trade-offs you are making in as certain terms as possible.

Second, you need to be willing to put in the work and be committed to finding the AND solution. There will be times—not many I have found—when you can’t find an “AND” solution or the “AND” solution just isn’t practical. But you owe it to your yourself, employees, customers, shareholders and community to look as hard as you can. It is the right thing to do. (Ah. Another proverb. So many. So many.)  

Show A Little Faith.

PS-Have a fun AND safe AND holy Thanksgiving.