The role of Chief Executive Officers (CEOs) has become an emerging function. The goal is to strike a balance between serving both shareholders and other stakeholders. The contribution of CEOs of banks is no different, except for the industry in which they operate. Depending on the industry, their approaches may be different, but the long-term value creation goals remain same.
Historically, their approach toward society and customers at large has been occasionally questioned. They have been criticized for their partial dedication towards customers and other stakeholders. In this modern era, stakeholders like employees and customers hold high expectations of the companies. CEOs failing to fulfil their expectations risk losing a talented workforce and loyal customers. In this rapidly changing financial service industry, every CEO is expected to attract and retain top talent.
One of the impediments of banks in recent times is the rise of non-performing loans. Concerning this dilemma, the contributions of CEOs of banks have not been up to the mark and remain vague and uncertain. Due to the outbreak of COVID-19, it has become more challenging for the CEOs to manage the level of NPLs in the economy. In these tough times, the CEOs should stand in the front line to develop ways to overcome obstacles.
One of the core reasons behind the rise in bad loans has been attributed to the deficiency in the leadership skills of CEOs. Successful CEOs always try to seek long-term solutions. They try to compare any activity's expected and actual returns and provide meaningful resolutions. In the context of Bangladesh, many recommendations from CEOs for loan approvals are based only on good relationships and referrals rather than any real cost-benefit analysis. Such actions have turned out to be devastating because several loans became non-performing. Researchers have pointed out that good leadership of CEOs comes with effective intuition, comprehending one's leadership style, understanding leaders around one, embracing team mentality, and possessing a getting-thing-done mindset.
In this context, many researchers have also noted the reluctance of many CEOs to take on long-term challenges. Apprehending risks and uncertainty fall under the umbrella of the responsibilities of CEOs. Understanding the economy and industry offers CEOs options in times of difficulty to change or adapt to different strategies. However, in Bangladesh, the tendency of most CEOs to overlook the long-term picture has affected the economy in significant ways.
Some CEOs have been found to be engaged in disinformation when it comes to dealing with the board of directors. This tendency has been highlighted with their intention of maintaining a good relationship with the bank owners rather than keeping in touch with the whole chain of employees. Research in this field has revealed that politically connected CEOs negatively impact shareholders' value maximisation. Poor relationship with lower-level management diminishes the chance of proper loan monitoring, which increases the risk of bad debts. CEOs should remember that they are the moral leader of every employee of the company, and it is the exclusive commitment of the CEOs that they treat everyone equally and break down the workplace politics in the company for outstanding performance and motivations.
In the same manner, some CEOs tend to inflate financial information. Sometimes banks do "window dressing" of the balance sheet and income statement without revealing the actual scenarios. In the long run, the bank faces a high volume of bad debts. This situation leads to devastating results, emanating from an inadequate provision in the past.
Regardless of the issues mentioned above, CEOs will be demotivated to engage with long-term value creation for the banks without proper recognition and incentives. They may try to find solutions within their contractual working period but may not immerse themselves in the long-term profitability of banks. Bank owners should encourage CEOs to propose innovative strategies and ideas.
In this regard, many researchers have found that the professional qualification of CEOs in the banking and finance stream enhances performance. Research also showed a strong relationship between the education level of CEOs and the financial performance of banks.
Top financial CEOs worldwide always try to improve themselves and take responsibility. This quality is apparent in the CEO of General Electric, who said, "I'm responsible for this company. I stand behind the results. I know the details, and I think the CEO has to be the moral leader of the company, I think high standards are good, but let's not anybody be confused, it's about performance with integrity. That's what you have to do."
Ultimately, CEOs must possess innovativeness, confidence, excellent communication skills, directionality, the drive to excel, and trustworthiness. These qualities are mainly for the shifting expectations of regulators and investors, who pay far more attention to issues like governance, reputation, and culture. CEOs are now highly expected to be on the front line to ensure that banks treat customers fairly, maintain corporate social responsibilities, and avoid shortcuts to achieve the expected profit. In response, banks must also value their efforts to keep them motivated for an extended period. After all, the CEOs can make a difference and take our banking sector to the zenith of success.
Dr. Syed Md. Aminul Karim is a former Member (Grade-I), NBR.
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Dr. Md. Ariful Islam is a banker and economic researcher.
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