
As regulators put the spotlight on banks following the financial crisis, SunTrust Banks Inc. beefed up its leadership preparedness.
by Ladan Nikravan
September 19, 2014
From left, SunTrust Banks' Kim Fleming, senior vice president of talent and risk management; Mary Slaughter, chief talent officer; and Katie Jones, a senior vice president, worked to trasform the bank's succession planning process.
In June, SunTrust Banks Inc. agreed to pay an expensive bill: $968 million to the United States government to settle probes by the Justice Department and other government agencies for allegations of abusive mortgage practices in the period leading up to the financial crisis.
Like other regional banks at the time, Atlanta-based SunTrust, with roughly $175 billion in assets, got caught up in the dash to maximize the potential for profit from rising residential real estate values. And as with other mortgage lenders, the means of doing so — by underwriting loans to customers with substandard credit to collect more revenue in fees — contributed to a systemic tsunami that propelled the worst recession in a generation.
“SunTrust’s conduct is a prime example of the widespread underwriting failures that helped bring about the financial crisis,” U.S. Attorney General Eric Holder said in a statement at the time of the settlement.
But SunTrust’s mismanagement of the risks associated with its mortgage lending conduct extended beyond the world of finance. To company executives, the problem was also internally systemic.
“We prided ourselves at SunTrust before the financial crisis as being a pretty conservative bank when it came to making loans and extending credit,” Mary Slaughter, SunTrust’s former chief talent officer, told Talent Management in May before recently leaving the bank. “We always thought we were really, really good at it, but came to find out that the whole world got to see there were flaws in our system. We didn’t think we’d go under like some other institutions, but it was very apparently time for a transformation.”
Part of that transformation came in the form of a revamp of the bank’s succession planning and approach to HR, with a focus on applying the principles of risk management. Before the financial crisis, SunTrust’s succession process only included its CEO, William Rogers Jr., and his 10 direct reports. Now, company executives say the bank’s critical succession reach goes more than 100 roles deep, with potential moves projected as far as five years out.
SunTrust’s succession overhaul has also come with peripheral HR changes, including a revised leadership competency model and talent review process. Executives say each has helped the bank regain its footing as it continues to build back a business sound enough to withstand whatever risks lay ahead.
“Today our succession planning process looks completely different,” said Kim Fleming, senior vice president of talent and risk management for the 26,000-employee company. “As we redesigned it, we were mindful to ensure we built a process that represented safety and soundness for the bank, and that our outcomes were ultimately aligned to the strategic needs of SunTrust.”
Yet before SunTrust could really get a grip on changing its HR culture, there were more blustery winds to calm. Surviving the rash of U.S. bank failures in the immediate aftermath of the crisis, working to repay loans it received as part of the government’s Troubled Asset Relief Program and wading through a bounty of pending regulations aimed at the financial sector stood in the bank’s way.
These challenges paled in comparison to SunTrust’s biggest goal coming out of the crisis: to regain the confidence and trust of its customers.
Risky Business
Like most bank holding companies, the shock of the financial crisis hit SunTrust like a brick in the face. Its stock price went from being valued at $73 a share in October 2007 to $7 a share in February 2009 — a 90 percent decrease in less than two years.
“We were trying to understand exactly where the bottom was, and nobody really knew,” Slaughter said. “It was a really tough time. Everybody was just holding on to see what would happen next.”
SunTrust’s own valuation troubles appeared especially daunting considering the severity of the financial crisis’ blow to the Southeast, the region in which the bank primarily does business.
Only three banks failed nationwide in 2007, according to the Federal Deposit Insurance Corp., the agency that regulates and insures most of the nation’s banks. That number jumped to 28 in 2008 and 140 in 2009, as the shocks brought on by the financial crisis reverberated. A bank fails when it is unable to meet its financial obligations to depositors and creditors.
The peak for nationwide bank failures during this period came in 2010, when 157 banks failed. Florida, a key SunTrust market, was especially hard hit by bank failures: 71 of the state’s community banks have failed since 2008, according to the FDIC.
Against this backdrop, SunTrust had to reinvent itself. In 2009, it began a new campaign, “Live solid, bank solid,” aimed at re-establishing the trust and confidence of customers. Part of the campaign came with internal changes such as increasing oversight across all of SunTrust’s lines of business. Specifically, Thomas Freeman, SunTrust’s chief risk officer, tasked all senior-level executives with analyzing their department’s risk management structure.
“He said, ‘Whether you’re in a revenue-generating role or a corporate function role, look at your operating practices and decide, are you optimizing the right balance of growth and innovation with risk management?” Slaughter said. “It’s all about the health of the company, and for HR that means making sure you’ve got the right talent ready and engaged to grow the business.”
Risk management is the act of making decisions based on the likelihood of certain events. In the financial industry, it typically occurs when a manager uses analysis to try to quantify the potential for dollar losses in an investment based on certain actions — or, in some instances, inaction. Most economists have pinned the underlying causes of the financial crisis on massive-scale inadequate risk management when it came to issuing credit, among other factors.
While risk management is fairly typical in the financial world, its principles are generally new to HR, said Ravin Jesuthasan, managing director and global practice leader for talent management at benefits consulting and research firm Towers Watson & Co. Jesuthasan said that since about 1950, when employment management was integrated into the term “personnel management,” HR has mostly acted from a perspective of compliance, not risk management.
“Compliance in the sense of ‘ensure we can run our business with minimal disruptions; ensure we have the right skills in our people, the right leaders; ensure we are following labor laws,’ ” he said. “But as economics have grown more volatile … HR has had to become more nuanced and more thoughtful about risk. HR has to understand the way people work, make decisions, how they are motivated.”
Beefing Up Succession
Moving from a compliance-based approach to a risk-management one was part of the challenge for Slaughter at SunTrust. “The financial industry is focused on regulation — it was before the recession and is even more now,” she said. “There are training requirements, hiring requirements, recertification requirements. On the talent development side, we were very much compliant and in alignment with what the Fed wanted us to be doing, but we weren’t focusing on risk.”
Under Slaughter’s direction and Freeman’s mandate, HR’s involvement with risk mitigation began with a new succession planning process in 2011. While the company had always had a succession planning process, it only occurred once a year and was solely focused on the CEO and his direct reports. HR reported the plan to SunTrust’s board of directors annually.
But the Dodd-Frank Wall Street Reform and Consumer Protection Act, signed into law in 2010 in response to the financial crisis, changed the regulatory environment regarding reporting succession at financial institutions. Part of the law requires banks to have detailed management succession plans analyzed at least annually — something SunTrust already had in place.
With the regulatory environment putting a greater emphasis on succession, Slaughter’s team took to revamping the talent process to be more thorough. They sat down with Rogers, the bank’s CEO, and his direct reports to identify critical roles in the organization — roles that, if left vacant, could put the company in serious financial trouble. Twenty roles were identified.
Next, they pinpointed 70 strategic roles on the next tier down that set strategy. Slaughter said these roles could be vacant temporarily but not for long, because they make sure the company runs smoothly.
To better align talent management with risk management, Slaughter’s team worked in 2012 with SunTrust’s finance department to create scorecards for the CEO and his direct reports. Each scorecard has 12 to 15 goals, which include talent benchmarks like top talent retention, placement of diverse teammates in senior management roles, as well as metrics that are specific to the executive’s function or line of business. Scorecards are measured and reported monthly.
Slaughter said under the bank’s new succession framework the executive’s scores weigh heavily when discussing compensation and planning for yearly bonuses. SunTrust’s annual bonus is based on three components: enterprisewide goals, functional goals and individual teammate goals. Achievement of those goals is weighted in the annual bonus calculations.
Succession planning and talent review goals are considered enterprise goals, so achievement of those influences the potential funding pool for bonuses each year. Bonus funding pools are reduced when goals aren’t met.
“We want to make sure they’re focusing not only on business results but that they are building a diverse leadership pipeline to continue to grow the health of the company,” Slaughter said.
Building an Infrastructure
The idea of linking talent management to executive compensation wasn’t unique to SunTrust. In the wake of the financial crisis, London-based Lloyds Banking Group created the role of people risk director, reporting directly into HR. Similarly, Pittsburgh-based PNC Financial Services Group Inc. has initiated an analytical approach linking financial performance, compensation and risk management. Representatives from each bank declined interview requests.
With the organization’s top leaders identified and scorecards in place, SunTrust’s talent team began revamping the talent review and learning and development components to its new succession planning process.
Chief among the changes: Instead of focusing on talent moves a year out, the company began projecting moves three to five years out and creating detailed role success profiles. These profiles define key responsibilities, competencies and experiences required for the role. They also help assess gaps and development needs for future successors.
The company then revised talent assessment definitions for assessing potential and created a new nine-box grid, which enabled mechanisms to recognize and reward top professionals with deeper expertise, not just high potentials with more vertical opportunities.
The company’s talent function also aligned nine-box ratings to its total rewards process; rolled out a new leadership competency model; aligned talent review and succession process with annual strategy and investment planning; implemented a cross-center of expertise process with the talent acquisition expert to use data as job openings occurred; and created a top-performer award process to retain top professionals.
“In the past we weren’t planning for the breadth of roles that were critical or strategic to our business,” said Fleming, “and we weren’t fully leveraging the talent view across the enterprise to build stronger pipelines.”
Moreover, Slaughter said talent reviews for the company’s top 1,500 employees now happen on a quarterly basis, and questions are asked that weren’t asked before.
She posed an example: “In order to get Allison ready for that role, what experiences does Allison need? Where can we move her? When can we place her?”
Slaughter added: “It has gone from being an exercise where you’re reporting out on data just to the executive team and/or to the board of directors to turn into an actual process that’s causing positive career movement to happen for our teammates; for our leadership pipeline to become more robust and more transparent; to upping the game on talking about the impact of diverse leaders in the organization and where we need them and how we can grow them; to even things as simple as when do you need talent from the inside and when do you need talent from the outside?”
Slaughter’s team has also created profiles for top talent — like hypothetical Allison. Every executive has access to these profiles, full of career history, performance, potential rating, engagement scores, educational backgrounds and career goals. SunTrust’s talent function can then match these to the success profiles of available jobs.
Most recently, the bank’s CEO has even asked HR to begin building role forecasts seven to 10 years out. Additionally, Slaughter said she has created an 18-month high potential program for early-career talent. At the time of this writing, 30 teammates were enrolled in the first round, with 67 percent of them considered “diverse leaders,” Slaughter said.
Forging Ahead
Roughly six years after the crisis, SunTrust said its succession environment is light-years ahead of where it was in 2008.
The bank said it has increased succession planning for what it considers its most critical roles from 25 positions to more than 100, each of which is aligned to the organization’s strategic goals. SunTrust also said it has seen a 12 percentage point increase in its talent mobility and retained 90 people who are considered top talent.
What’s more, the bank says it has doubled its investment in leadership development since 2011. In 2013, SunTrust sent roughly 400 leaders through its formal leadership development programs and is on target to increase this number to end 2014.
SunTrust is also on better financial footing. In March 2011, the bank announced it had repaid $4.85 billion to the U.S. Treasury. The bank’s balance sheet has also steadily improved since the crisis, with estimated capital ratios — a measure of a bank’s ability to withstand losses — “well above” regulatory requirements, according to its second-quarter earnings release in July.
To be sure, SunTrust isn’t entirely out of the woods. Though the bank has agreed to pay penalties to the government for its mortgage lending practices leading up to the crisis, an investigation by the Justice Department into mortgages it sold to Fannie Mae and Freddie Mac was still ongoing at the time of publication.
In any event, SunTrust’s succession overhaul appears to have injected a new sense of urgency into talent management throughout the company.
“The leadership team has become bolder and more decisive about placing the right people in the right jobs at the right time,” Slaughter said. Bill Rogers, SunTrust’s CEO, “feels a very strong sense of commitment and urgency to continue to accelerate the health of the business, and he knows this is a big part of it.”
Slaughter’s efforts on the bank’s succession rebuild have come full circle, as she decided to leave SunTrust over the summer to pursue opportunities more focused on learning and development.
Thanks to her efforts, filling her role — and the expertise she brought to the bank — has been made easier. Fleming has been promoted to assume a new talent management leadership role.
Though she’s leaving, the importance of talent management in the financial sector isn’t lost on Slaughter. And now that the bank has put more rigor on talent and succession, it appears more of its executives are singing the same tune.
“At our last shareholder meeting, Bill stood up and said, ‘The competitive advantage financial services has to have is talent, otherwise you’re just looking at commodity services. It’s the talent that makes a difference in the performance and health of an organization.’ And now that we’re out of the recession, it’s all about staying healthy.”