An explanation of centralisation in London’s financial market and its projected effects on entrepreneurship. The desire to increase revenue will need progressive innovation, but how will today’s companies achieve this, and how might an effective and forward thinking Search Firm be able to help…
Banks, brokers and insurers; as well as the broader financial services sector; are all facing their demons: stricter regulation, new demands for information, and harsher penalties for malpractice. Regulatory authorities are creating an eco-system of centralised financial services via governance with increased interventions that puts pressure on the activity and decisions of banks, hedge funds, asset managers and the like.
Regulators argue that these changes will make London more competitive in the long-run because of the value placed on clean, well-regulated markets by the investors and companies who choose to bring their business to our City. The effects of this will inevitably require a modicum of adjustment in the short-run.
In October 2015 Goldman Sachs reported an 18% drop in their revenue from the previous year, which was reflected by the worst quarterly revenue generated by Goldman since 2011. The fact that an IB powerhouse such as Goldman has suffered, is hardly good news for the remainder of the economy. Concerns about: global economic growth, uncertainty over an IR hike and declining asset prices are the main culprits for poor performance. However, increased regulation has not made the situation any easier, so how does the financial services keep moving forward?
Entrepreneurship is the process of bringing new ideas to life. It is essential for the development of sustainable products and investment strategies; minimising environmental risk; managing a bank’s ecological footprint and much more. But all entrepreneurial endeavours require a certain amount of risk.
The problem is that risk taking behaviours have been tabooed following the financial crisis of 2008. It’s an understandable reaction as it was ‘entrepreneurship’ after all, that helped create products such as: the CDS, the ABS and Subprime Mortgages. These are the same tools that were used to devastate the global economy. Is the solution to become entrepreneurial again?
How to Remain Entrepreneurial
It is our opinion that the financial services industry must remain entrepreneurial. To achieve this it is important to develop the idea of ‘Entrepreneurial leadership’. This demands that individual leaders think of their business area as their “own business” and requires them to take an entrepreneurial approach to: improving efficiency, increasing revenue, building customer focus and managing risk.
There are five clear characteristics of Entrepreneurial Leadership which are:
- Desire to improve on the status quo: An example of this is Bill Gates who wanted to improve the potential of PCs and software, seizing every opportunity to do this in a growing industry
- Understanding & developing your expertise: An example of this is the difference between cooking from a recipe by buying the ingredients and making the dish; or cooking from ingredients you already have in the cupboard and determining your own recipe.
- The ability to motivate others: Every established entrepreneur needs to motivate others, or “recruit” people, including: new employees, new advisors, new investors and customers. Josh Hernandez built his successful gaming business: ‘tap.me’ by constantly looking for like-minded people and communities to support his vision.
- Reflective learning through feedback: Bill Gates is a perfect example by supplying his early model operating system to IBM and then constantly adapting it based on their feedback, to end up with a market leading product, while others were still at the design stage.
- Tenacity: Having long term vision is great, but without losing sight of the activities needed to get there. Small steps constantly taken like the tortoise, will always win out in the end over a fast moving theoretical but non-practical ‘hare’.
Now here’s the rub: It is up to senior management to take personal responsibility for change and ensure that new innovation does not conflict with specific regulatory requirements around financial activities globally. This is not an easy task however, a strong focus on being “entrepreneurial” as a leader should produce significant benefits and identify new opportunities for business and improvements to existing activities.
An Entrepreneurial HR
To support ‘Entrepreneurial Leadership’, a more entrepreneurial approach from Human Resources is required. Human Resources should not be seen as a support or cost cutting function; instead it should match the entrepreneurial leadership across the organization, serving as true proactive strategic advisors to their business colleagues and operational line managers.
Armstrong International has seen an increase in the role of HR departments in hiring new front-office staff. Yet, generally speaking, HR is still considered a support function that is tasked to cut costs, simplify recruitment processes and reduce the overall number of recruitment vendors they use.
Which search firms will survive?
- Search firms specialising in senior searches that are difficult to fill and/or are time sensitive.
- Search firms who understand their client’s business and culture extremely well and can hire people who ‘fit’ with those job requirements and values.
- Search firms who can execute effectively on assignments. Execution is the process of identifying the right candidate (this includes the essential qualities of: academic background, experience and cultural fit) and then placing them at a new company.
So in conclusion; we believe that centralisation is not killing entrepreneurship in the financial sector, however, the previous rulebook has been re-written. Financial services must begin to build teams of players who can succeed under the new parameters.