Creative Bank Management Part 1, David Rockefeller

the that has been the peaks because by fbi good afternoon ladies and diamond welcome to the ninth in the series of columbia mackenzie foundation lectures on the management of larger of

large organizations this lecture series sponsored by the mckenzie foundation for months with research and arranged by the fundamentalists will as cheever of unique place in the development of thought on the future about mountain many of you will recall lectures of occupied this platform in years past initial center is was conducted by rob partner of general electric that hauser of sears roebuck following proper ritual of the top rubber ball the us steel corp for a couple of long learned for some of these tree eastman kodak thomas j watson jr of ibm

and last year and the lows of time and proper at that age has looked upon the management of large organizations and the peculiar an interesting characteristics of his own organization it's just given a good deal of attention to the role of people and the activities of a large organization another characteristic of these class lectures have been that they have all been given by man an active arts in active roles as leaders of their business organizations while they were acting in this way we have been assured that we were getting the hard realistic thinking of a man in service rather than me reflections of a man who

was thinking of his past reactions and activities as you know lectures are published by mcgraw hill the book's resulting from the lecture is that had very wide circulation in the several have been translated into foreign language it's one or more has found its way into spanish french german job and is an important part as it has been one in russia and i think it's rather interesting that this year's elections by a leader of the free enterprise system talking about his organization would have had such a feeling for the russians as to find a desirable to translate the volume into their line now

just a brief word about the arrangements as you came through the door on the student and his new everyone car i hope that you will tell my card as our lecture proceeds jot down any questions that may occur to you that you would like to elaborate have migrated are about those will be collected lectures over there we brought a name and within the time limits that are available with a lecture will respond to the questions i can assure you that we will terminate exactly five third this is our traditional practice and we should hold up and deciding what troops you're probably not how we manage to go through eight

years of a series like this without a leader of the financial community i simply don't know that deficiencies being cured that and the tourism i like to think of columbia at least has a tenuous plan on him he attended lincoln school teachers college for twelve years it understates joined our friends and knowing and then the estate than went to the midwest to take is the opera over the baccalaureate agree with rabin back about ten years ago another tenuous relationship that by awarding him a much deserved an honorary doctor i will not mention his many

directorships this philanthropic activities as cultural interests and encouraged i will simply say that is one of the creative spark plugs of the great by that is known as the chase manhattan and he would talk to us today about creative writing and the changing city as dr fb lane brown and ladies and gentlemen light to be here with you today i feel very much complement indeed you been asked to

succeed in the footsteps of such very eminent friends and colleagues from the business world from arrested and dane brown's introduction to note that a tendency in the banking world not to mention a rival by name has followed about living in the academic tests and chaser and did knowing that little knowing been colleagues and i went to his current law will rogers was fond of telling about a boyhood experience of walking into a class ends in pockets and being asked by the teacher where his books were don't have nuns and well what would you think outside of the teacher if you saw men going to work without any two

will reflect the moment and then replied i think he was the boss and let's see so many buses in our audience today i only hope that when we finished you will not conclude that you could've spent time more profit by bringing a good book along no area of endeavor today is more dynamic more swiftly paced more closely hedged about whiz has hidden opportunity than commercial banking in making such a statement such a sweeping statement i'm not overlooking automation space exploration or the problems in the developing nations i do not make an exception for any of them though because banking is creatively concerned with all of them from time to time and the pastor of an individual bankers whose creative skills helped shape the course of economic of fame is i have in mind for

instance the manatees who powered the ambitions of princes and from all of the development of the fine arts the farmers who financed wars in the settlements and arranged construction the first garden apartment project for the poor the rothschilds to strong railroads across europe supported oil fields in the caucuses and carve diamond mines in the african veldt but in today's complex competitive and rapidly changing economic environment creativity has taken on a fresh dimension of importance creative management has become an indispensable ingredient in the successive every outstanding bank in dayton its very survival this then would be the same for the columbia mackenzie foundation lectures creative bank management

i propose to discuss it and three contacts it's relation to the changing city to the national economic growth and the world economy this opening lecture i've deliberately chosen the bank's relations with the modern city because no banking function in my judgment is more vital and providing money credit an initiative for community development creativity is john gartner the carnegie corp point out is more than a word today it's become an incantation people regarded he says is a kind of psychic wonder drug powerful and presumably kindness and everyone wants a prescription my own prescription is relatively simple i think of creative banking not as an occasional novel idea or inspirational flash there's a continuing an attitude of mind

but constantly seeks more imaginative and more effective ways of accommodating the financial requirements of our economy putting money to work for economic growth in the city across the nation and around the world i think creative writing is a consciously cultivated disposition to look for the opportunities of progress rather than lament their cause i think of creative writing as a willingness to re examine all segments of our business in the light of the changing technology and banking but is an unwillingness to be effected by arbitrary rules and routines there are five attributes the creative bank management would seem to me to apply not only to all aspects of banking but beyond these two business enterprise agenda i should like to discuss each one briefly by selecting example from the bank's

relations with the city of the local community which it's a part such is the temple of change that no management can afford to lock itself in an unshakable embrace with tradition there's a natural tendency to rely on methods that have worked in the past we acquire a measure of status and think it means security companies to take refuge behind the rock of security find that it soon becomes the tombstone we must recognize that the ways of working that made a business successful may not be the ones that will keep its successful as we look around we see on all sides developments to test our ability to adapt to modify to create new methods nowhere is this more impressive exemplified them in the relations between commercial banks and individual consumers

within the comparatively few years these relations and a garden changes that have revolutionized both are patterns of buying and i thinking about food and family budgeting before world war two most banks shied away from direct to consumer lending preferring to stick to their traditional function of providing self liquidating seasonal credit to business as our economy broadened our banks devise imaginative new service is aimed at helping the consumer enjoy an automobile a home improvement or even a vacation violet was paying for it and without producing the future security of his family they set up revolving credit plans developed charge account banking and established student aid programs today a commercial banks lend more money by far to consumers than do any other lending institutions their managements have had to adapt to this new situation from a

marketing point standpoint there's been a visible reorientation ogden nash summed it up rather amusing and when he wrote yes tankers used to be like scrooge before he encountered goes to monte along came tv and now they are good time charlie banks have increased their advertising out by tenfold since the war and now spend two hundred million dollars a year to tear down the facade of austerity that once separated them from the public in contrast to the rough jersey used to boast they accepted because it's only from their friends we are spending three million dollars this year alone to tell the world that you are a friend to chase manhattan where's david brinkley says brother wrote me that whenever he hears that is that he wants to go down to the bank and let his friend out

the pain inside syria sadly reflects the change a roof wrote about society classic columns are giving way to a daring experimental designs in glass and metal inside the old black and white combination of iron and marvel is being replaced by attractive new materials and bright colors only service representatives and in recognition of that individual and his family make up a growing market for commercial banking services and that banks can play an important role in helping human rights the life of the ordinary citizen banks now realize they must devote the same effort and talents to this market in the future but they have to meeting the needs of commerce and industry in agriculture in the past the second that you do that of creative management is closely related to flexibility mike bickle

receptivity a willingness to evaluate without prejudice and a new technological developments that may enhance management efficiency innovations that threatened to order the established operating routines an organizational patterns can be expected to encounter stiff resistance they always have and the bigger the organization the stronger the tendency towards rigidity and conformity so planned innovation lastly one of management's chief responsibilities enormous growth of the commercial banks consumer business and its impact on the cost structure have provided strong impetus for banks to organize more efficiently and automate more and more book keeping in check handling jurors are being turned over to the computer it's only a matter of time until more sophisticated assignments will be carried out

electronically for the past year a centralized check processing computer system has handled all checks drawn on chase manhattan by a total of five hundred and twenty five thousand customers an average of half a million transactions a day including both jackson deposits are now being processed by computer already the system has demonstrated the capacity to handle it growing by word that substantially lower courts we are now preparing to use electronic data processing exploit our outgoing chairman's other words the seven hundred thousand checks drawn on other banks and presented to us to leave our customers for processing in collection buy your own savings accounts for so many processed or electronics so much is being done now in aleppo electronic banking and so much more is planned in the near future but it's

fascinating to visualize the banking tomorrow those of you who have occasionally complained about having to wait in line at the teller's window may see the day when you won't have to go to make it all online routine transactions your paycheck will be automatically deposited your account on your instructions the computer will deduct a certain amount of savings for christmas club for the mortgage for utilities and other household bills if you sort of borrow money you could simply write a check for the amount up to the limit of a prearranged line of credit instead of treating the sec is in overdrive the computer would process it as along on a shopping trip you would present universal credit cards the department store the specialty shop for the supermarket those would be transmitted automatically to your bank and charged your account periodic to the computer would send out a

comprehensive statement recording your checking account transactions savings deposits bills paid a personal loan payments deducted mortgage payments and the status of any trust investment you might have props around this time each year the computer might even fill out your income tax form this bank of tomorrow concert may sound fanciful and farfetched but actually many of the techniques are already in use an unlimited state and i would predict with confidence that most banks will be all things such services by nineteen seventy five in my judgment computers and contribute to measurably to improvements along the entire range of them managerial process detecting fraud problems gathering facts together formulating alternative courses of action weighing evidence and even suggesting conclusions

they can search out relevant facts on an entire operation and present them in a form that makes it easier and more efficient the process of management decision making i do not believe that management decisions themselves can never be automated but computers can immensely assistant decision making process by increasing both the amount of information available and the speed with which it's produced by taking over more and more of managerial routine these new tools can give the manager greater leeway to concentrate on the human as well as the truly innovation all aspects of his job by human aspect i mean particularly the motivation teaching and leadership functions of our daily becoming more important in the education of human progress the managers prime opportunity as i see it is to match technological advance with the kind of

social inventiveness but will take the pain out of human progress and make it more rewarding to the individual worker the third attribute of creative management is optimism a disposition to emphasize the opportunities rather than the problems in any management situation there's always danger that the corporate manager will become so overwhelmed by the immediate difficulties confronting him that he cannot see the longer range opportunities any sensible view of business is and always has been based on a clear eyed recognition of the material obstacles the personnel weaknesses and the basic limitations inevitably present in any situation anyone who does not recognize these is either very inexperienced you're immature but once having recognize them it's essential that the

manager dr ahead and do his best best and what he has available in the full spectrum of banking problems none is more important or more frustrating to management these days and finding the rare window for an expanding business mainly deposits the leveling off of demand deposits in recent years as forrest thanks to seek out savings more aggressively in order to build up their pool of local farms the neighborhood branch has proven a highly productive source of savings while at the same time enabling the bank to carry its services to the housewife and the local businessman but running through the labyrinth i may use of federal and state regulatory agencies for a bird to win approval for a single branch out let's take some awesome talk this has become increasingly a problem in recent years

because of differences of policy and at times of personality between the agencies and because of the justice department's more active role in the anti trust the last year for example we filed thirty applications for new branches that were granted only only seven branch sites the reason given was over banking but we've also been blocked from pursuing other courses of action and seeking a branch network and nassau county after it was opened to new york city banks jazzman worked for more than a year on a prepared a proposed merger with a smaller long island back extensive studies were made elaborate brief prepared impressive testimony delivered finally the state banking authorities more reluctant to see too many new branches approve the merger and there were more police more

testimony more delays but ultimately the project was vetoed by the pharaoh's heart all this points up our thanks to the need for a clarification and unification live policy on bank wrenching and mergers among the several felt federal right regulatory bodies and between federal and state agencies yet despite the difficulties of expansion by wrenching or by merger there are on occasion special satisfactions for the manager who can keep his eye on the opportunities some ranch site do win approval and do that work their way into a profitable position quickly more importantly these branches can contribute significantly to community development three years ago when chase manhattan was considering the establishment of a branch in harlem the question of problems and opportunities came sharply look for some authors pointed out that no other commercial bank it ventured into the area in a quarter of a century

so they must have detected a serious drawbacks others argue that a substantial middle income group was emerging in harlem that could well supported new commercial bank branch so the opportunities could be attractive the latter view prevailed and the results from the web so far the same considerations came into play two years ago when we weigh the question of opening a branch in spanish harlem again we felt you could we can contribute effectively to this area which contains new york's largest concentration of puerto rican residents as in harlem our expectations for sex successful branch operation have been fully realized and considering plans for expansion through merger or direct wrenching management us to praise a host of factors to ignore a formidable problems is foolhardy but to over emphasize them and overlook the corresponding

opportunities and the equally shortsighted the fourth attribute of creative management is courage a willingness to risk the stakes in the pursuit of growth and progress psychologists have called attention to the fact that one reason grown ups are likely to earn less than young people is that they're willing to risk this may pay a heavy price for our fear of failure it's a powerful deterrent to growth for business enterprise as well as for the individual there can be no learning without some difficulty in funding justice oliver wendell holmes that master judicial summation expressed it well when he said if you want to live without travel you have to die young writing it other business as in candidate sherrod from suffered through hard times and has made

mistakes six years ago chase manhattan took a long look at charge account it unlike the prospects are studies strongly indicated that there was a ready market for this type of credit card service designed to give customers of smaller retail establishments credit facilities comparable to those of the major department still so we ended the field with our chase manhattan charged planned the socal cme ct credit card as in any new business there were problems in starting up finally succeeded in getting a venture going on of places where it could have become a money making a proposition provided we would agree to a sharp increase in service charges for cardholders we had approval of the state banking authorities to boost our rates from twelve percent of the legal maximum of eighteen percent however when we evaluate the service in the

context of our overall banking activity we simply could not see ourselves charging customers making fifteen percent even though the service and cost frankly fully justified city charter instead we sold out after three years to another organization which we specialize in this one service and did not have the broad relationships to the community that commercial bank has a new organization instantly went immediately eighteen percent has thrived ever since from our own standpoint the venture might say moved into failure yet from it we learned many valuable lessons and we came away more thoroughly convinced than ever that if you want to keep on learning it was cheap on risking failure the fifth and final attribute of creative management is social responsibility responsibility for the developing of a strong sense of twitter's implosion in community life if a

business enterprises to achieve long range profitability it must take into account certain corporate citizenship responsibilities that have no direct bearing on profits foremost among these as peter drucker explains as a responsibility to get across to the layman what it is a business does can do and should do another is to help develop and maintain a favorable economic and political environment in which all businesses can grow and prosper still another to support with financial contributions and personal the dissipation those organizations genuinely concerned with fundamental problems of the community the bank his financial background plus a special vantage point in the community superb really equipped him to provide the initiative and direction in dealing with community problems whether they be in the field of industrial and commercial expansion better housing our land use planning i'm happy to say

that some really views of new york banking fraternity and then creatively involved in the continuing effort to preserve an enlarged lower manhattan's claim to being the mining companies that claim in not been seriously disputed by any of the city but in the immediate postwar period the downtown area was clearly showing signs of having suffered three erosion of time several major enterprises had moved at least some of their headquarters staff to midtown locations and some industrial corporations and moved out of the city altogether many of us felt that the experience of other financial centers of the world and convincingly demonstrated the importance of keeping all key elements within easy walking distance of one another we thought this desirable from the standpoint of sharing specialized services of speed in face to face communication we felt it would be most an economical if financial houses were scattered over the city and we were

convinced that no other section could ever become a tightly knit financial center comparable to norman initiative too revitalize downtown area was taken by a group of dedicated businessman and bankers under the aegis of the downtown orlando happen says tuition they brought to the task too advantage is an intimate knowledge of local conditions and the motivation of their own investments as well as promoting the well being of the city is the whole as a whole they carried their case to the mayor to the city planners and they made ambitious plans of their own and are banks were enormously impressed with the plans under consideration for the future down the downtown area after the merger of chace in manhattan we've been confronted with a major management decision on how to satisfy our space requirements

are headquarters staff alone numbered almost nine thousand and were scattered through nine different downtown buildings should we remodel our facilities build anew in a financial district split our head office activity or perhaps move to midtown manhattan fighting the choice was not easy the rapid growth in midtown was attracting more and more wall street firms including some of our competitors notice i don't mention a name nevertheless after weighing only factor this week decided to make our principal commitment downtown where we can preserve our vital links with other banks the federal reserve and clearinghouse business firms brokerage houses in the exchanges we announced that we would invest a sizeable sum in a new building a new downtown office building the impact on our

decision on the downtown redevelopment effort was stimulated other businesses to decided that they're most promising future lay in the financial district since nineteen fifty eight along lower manhattan the same sum thirty four commercial buildings completed her start assessed valuations in the area of crime by more than three hundred and fifty million dollars the advent of the world trade center and other projects now under active consideration the lower manhattan association the forces at least one billion dollars worth of public work to be done over the next twenty five years and the spending another billion by private interests to cope with and just just faded expansion of business activity or trade center as i see it represents a significant contribution was to maintaining new york's preeminent says a port city and in furthering the dynamic growth of lower manhattan the city as a whole would benefit because many of the businesses

taking space in the trade center never previously had in the office space in new york at all in the years ahead the area will be recognized throughout the world as a focal point for the convenient and efficient administration of all phases of international trade and finance downtown story is a good example of what can be accomplished and community community minded business men and bankers put their minds to a particular task and work closely with government and achieving mutual objectives the problems will never be solved by experts alone and experts of the first to acknowledge this they can and they should not be relegated exclusively to government these are problems calling for action on a broad front and for that to surprised by the entire citizen unless we in the business and banking community are personally concerned and passionately committed to a better life for all we should bear witness to a

society which forced tragically short of its great potential i've tried to suggest boy precept an example some attributes of creative management apply not only to banking but the business as a whole as it copes with the compelling challenge of change business can turn its back on change and take the consequences or it can manage change creatively and take advantage of that creative management design visited is one that strives constantly to apply to all areas of the business the concepts of flexibility receptivity optimism courage and social responsibility in terms of a company's internal environment this means that management most of our spouses to stimulate rather than stifle initiative inventiveness and innovation

an organization planning it means greater emphasis on the structure conducive to individual development and improved communication as well as our new and improved administrative control two years and personnel it means a growing demand for broad gauged individual's capable of independent original and critical thought and operations it means up to date compresses systems approach to the workload in policymaking it means greater reliance on integrated overall plan particularly long range plan in terms of management philosophy it means taking cognizance of the fact that the production of goods and services is simply a means to an end that ends is immediately turning a profit which gives the enterprise it's driving force but ultimately and more importantly providing opportunity for every individual to live a life of

dignity freedom and fulfillment a growing economy by itself is nothing what is important is what growth in profit can make possible sometimes in the quest for private gain this point is ignored or forgotten but the ultimate reality on which business enterprise is based is the conversion of earnings into meaningful human invention advancement and satisfaction a creative management philosophy was the one which not only sinks through efficient operation to maximize profit but that also recognizes its responsibility to render economic service by private enterprise to the public interest the british statesman lord halifax like to define service as the rent and we pay for our room on earth in the case of business

enterprise this becomes a do not once a month but every day of the year we can pay by contributing through creative management to making this a better and more prosperous world for all mankind the pope it is by its bite the fbi learned the

casbah mashburn is bark at the fbi there's been a new book let yourself be it's been a year ago it's been great well it's both it's

been like my guest today that the computer would to upgrade and how middle management i think that the place where it is going to eliminate jobs is the bottom rung of the ladder and i think this is probably true not only of banking but generally in business this of course is bad for those who like the education and training to permit them to compete for a higher level of jobs on the other hand it does mean also i think and importantly an attractively for them greater opportunities for higher achievement in the future when our educational system and training is better the motorcycle a year assembling knows i might mention the fact that already we see in our own bank a tipping of the proportion

of the people in what we call our our officer right people who have official signatures as compared with the clerical staff the ratio was constantly growing and growing in favor of the officials that you are as baby is born he's belligerent and i made some comments on on this subject for the rhyme bankers association in washington last fall so that i'm on the record and i hope it'll be consistent when i say now

so far as the government of the and national banks or consent and they of course are not directly affected by the state superintendents of banks and they are subject to the three agencies which were mentioned the federal reserve the controller of the parents in the fdic my recommendation was that these three governmental agencies each of which has certain specialized roles that zone which i think my truck would be the left where they are formed a new committee in washington which could deal with certain problems where there's an overlap of jurisdiction such as in the case is a case of ranching in mergers that this committee would have represented on a member's from each of the three and then that they would jointly make decisions on those problems so far as

the state is concerned and i have to believe that the advantages of the dual banking system which we know have always a disadvantage is therefore i think it's very important that state authority that be preserved for this reason i have been opposed to this to saxony controller of occurrences recommendation that he'd be permitted to authorize national banks to branch in the state regardless of state laws i think this would either force the state's superintendents to crumb rubber stamps or alternatively would force the state banks to become national banks in either case destroying the state system and hence that the ranking system so that in that case i would prefer to see the states maintain me right decision as to the structure of banking with ma states and would prefer to say they have federal authorities so far as

ranching is concerned and forty the policies of the state's has been multiple times ms dolores a couple of those before congress at the moment with the person you asked that question does make sure which one they are referring to as

ben simmons and others latino i don't think that's the bill probably the videos for the question has in mind all of this there is the question leasing of the problem by banks which can switch banks can then make loans and they can either presently permitted to do that by the then under the national banking statutes but not under the new york state laws and that was an effort to part of the state banks in new york to persuade the new york state legislature to pass legislation in new york state which would give state banks the same privileges the national banks have i honestly don't know the

status of that legislation icu superintendent ruth over them and he knows when it was passed on and her advice to those signs is baseball has been this is just in a different practice that among banks have most of the banks in the ruling is the principal reason is that we want to get and deposits as well as loans if you've ridden overdraft it means that you and you don't get any deposit balances while the loan is outstanding as you know it's customary in in

this country to ask borrowing customers to maintain compensating balances and i think that other banks in the world would agree this is a good thing if you can get it fortunately we have been able to do so so far it's beef be the us he's been us doesn't three

quite widely divergent questions and they a contribution to time management functioning an operation i think here and the principle question is that it can provide an assimilated information needed by top management on important questions requiring a management understanding reason i said that and i thought that today the computer will never replace management is that obviously it has to posed the questions to the computer computers won't be able to formulate the questions there are a great many questions and in relation to all kinds of management decisions where an intelligent management certified haygood computers staff can get information far more quickly and more accurately than they couldn't otherwise yeah the second one was in relation

to it's b yes well this is something that is already being done i see myself no reason why it shouldn't be done the fact is that the banks frequently have considered computer time available which they do not require for their own purposes and if they can perform functions such as handling of a row are the handling of inventories are things that sort for a customer on an appropriate fee basis so that both benefit seems to me that this is a desirable thing to do i think the thing that banks are somewhat concerned about is that clear they know that competition among banks will persuade some banks to perform these services

without adequate compensation just as an inducement to do business within this could be a very costly proposition if it were and we'd done gentlemen another property basis i think it's a natural and unreasonable and desirable his novels brighton is born goes by well indeed they are of course are expected earnings i suppose is the most important factor there can be taken into account of parole it a banker and making alone is interested in knowing how it would be paid off than expected earnings so the thing that he looks to most particularly now you have to go back on that day what leads him to think that the earnings and b goodman then you get into portions of of

management and competition in the market and business conditions and so on but expected earnings i would say really with a key those bones securities lawyer this burial he has been it

is and i think that the two parts to that question to in relation to the self liquidating seasonal lange's i think one reason those have changed in paris is due to the use of computers her wide business in the business as the seasonal and it used to be and there's less need for a seasonal borrowing by business in these days of it business requires either short term loans which relate to a particular transaction for sale or something of that sort of our longer term loans they don't report to the seasonal title alone but in it in that term loan to a customer we very much have in mind or how has conveyed often it's the custom for thanks to require

installment payment so it's played over so much every three months or every six months over the period of a long so far as consumers are concerned of course and we're interested in two things first of all only character of the individual and his having some kind of regular employment and bombings of payment but frequently consumer loans are also maybe against or a current television set in other words some object which its loans not retain the banker and take over he's been this is a very interesting philosophical question i think my guess would be that if we were starting a banking system in the united states

today we would probably not think of developing a dual ranking system because communications are now so good and transportation is so rapid and the country's been developed so much overall that i think one would be would probably think in terms of a single banking system and other countries however we have to do a ranking system which was developed in a period when actually it's just a hundred years old and last year was developed in a period when the country was much more costs one section from the other where that it was important to have a series of federal reserve districts and when you couldn't transfer songs by wires and he likes him for days weekend day and i think that the advantages to have that one of the advantages to advantage persists today is that it does give some check and

balance as between the states and the central government i presume they would like to see a continued because i feel so long as there is a ranking system that means less intensive concentration of a financial and monetary power in the hands of the federal government and risley i believe this is the strength of our country it has been fb in