Verne McKay, Ombudsman, Royal Bank Financial Group
MANAGING DIFFERENCES WELL
Chairman: Julie Hannaford, President, The Empire Club of Canada
Head Table Guests
Gareth Seltzer, Vice-President, Private Banking, Guardian Capital Advisors and a Director, The Empire Club of Canada; Amanda Porter, OAC Student, Harbord Collegiate; R. Michael Lauber, FCA, Ombudsman, Canadian Banking Ombudsman, Inc.; Jim Bull, Partner, Ernst & Young; Robert J. Sutherland, Vice-Chairman, Royal Bank of Canada; Ann Curran, Principal, Lewis Companies and a Director, The Empire Club of Canada; Rev. Thomas Little, Rector, St. Mark's Church, Port Hope; and Walter M. Bowen, Q.C., Partner, Cassels Brock & Blackwell.
Introduction by Julie Hannaford
The late Northrop Frye, one of the world's leading literary theorists and philosophers, as well as a great Canadian, once commented that Canada was in his view one of the few countries where churches were designed increasingly to look like banks, while banks had been designed and built to look like churches. In his view, that said something about Canadian culture, and perhaps a uniquely Canadian attitude towards or reverence for dealings with money.
If Northrop Frye were alive today, he might comment upon how very different banking is today from what it was even 10 or 20 years ago. For the average retail banking consumer, the act of banking has become more and more an impersonal technological activity, carried out at ATM machines, over the telephone and, we are promised, in the next few years, through our laptop computers. Concurrently for the average retail consumer banks are monolithic, impervious, impenetrable, and formidable. At the same time, the actual contact that the average consumer may have with their bank no longer involves day-today transactions but, rather more often than not, disputes. As we become less and less connected by banking activity to people in the banks and when the average consumer's only contact with the bank arises when a problem arises, the perception by the average consumer of banks as a fortress approachable only by those with special access threatens the stature of banks in the Canadian community.
Failure to address the way in which banking is changed for the average consumer, and the way in which the average consumer perceives their relationship with a bank, is a major strategic mistake. One bank, the Royal Bank of Canada, has taken a step towards the resolution of this problem.
Our guest today is Verne McKay, a Senior Vice-President and Ombudsman at the Royal Bank Financial Group. The function of the ombudsman is not the marketing of financial services but rather to ensure that those served by the financial institution are treated fairly and properly. The role of the ombudsman arises from a recognition that growth of banking services and changes in the way in which the consumer does business with the bank gives rise to the need for better, more open and fair communication.
As Senior Vice-President and Ombudsman for the Royal Bank Financial Group, Mr. McKay overseas the stewardship of service commitments, codes of conduct, privacy codes and pledges to stakeholders. His mandate is to appraise conflict resolution methods within all businesses of the Royal Bank Financial Group and to apply conflict management techniques in specific disputes. He is charged with being independent and impartial and he reports to the Chairman and CEO.
Mr. McKay joined the Royal Bank in 1981 and before that he worked at the Export Development Corporation. Within the Royal Bank he has been Senior Vice-President for International Trade, Managing Director for Orion Royal Pacific Limited in Hong Kong, and the Senior Vice-President for Corporate Banking for Asia and Hong Kong, as well as a Senior Vice-President of the International Banking Network for Europe, Asia, Tokyo and Singapore.
Mr. McKay was appointed to the position of ombudsman in January of 1996. He reports to us on the developments and the effectiveness of this novel and unique approach to making our banks responsive to the Canadian consumer.
Please join me in welcoming Verne McKay, Senior Vice-President and Ombudsman for The Royal Bank Financial Group to The Empire Club of Canada today.
Thank you Ms. Hannaford.
Good afternoon, ladies and gentlemen. I want to thank The Empire Club for giving me the opportunity to speak to you today about a trend which has taken on increased importance in the financial services industry: managing differences, or conflict management.
These days forward-thinking companies spend a lot of time developing strategies to grow their business by bringing in new clients. The way I look at it, it's a lot easier--and cheaper--for a business to keep a client rather than go out and win a new one. I'm quite sure that viewpoint is shared by just about every other financial institution in Canada.
Managing conflict is one of life's omnipresent realities. And it is a very natural occurrence, especially in the world of commerce. So before we go further, I want to make it absolutely clear that Royal Bank Financial Group thinks managing differences, and managing conflict well, is good for business. Why? It's good for clients and it's good for the bank because it enables them both to better understand and learn from each other.
We live in a very public society in which companies and individuals are held increasingly accountable for their actions. And the unfortunate reality is that more often than not, the mistakes and mis-steps receive far more attention than the accomplishments. We are often judged by what goes wrong, rather than what goes right. So our success depends on what we do to make our wrongs right. In many ways conflict management is about making those wrongs right. More importantly, it's about opening the lines of communications and working cooperatively to resolve disputes with fair, durable, mutually agreeable solutions.
When I took the ombudsman's job a year ago, I really didn't know what to expect. When we opened our doors we had no idea who would come through them. Now 12 months later, we have a much better sense of whom we are--and where we are going.
The banking community's initiative to establish an ombudsman exemplifies a very significant trend. Each of the major banks now has an ombudsman, and some of them are here with us today. Last May, the banking industry appointed the Canadian Banking Ombudsman for small business issues. I'm very pleased to have my colleague Michael Lauber here today as part of our head table.
There are several major issues that guided my office in 1996. Those issues and the trends that have emerged will continue to have a significant bearing on our direction in 1997 and beyond.
By definition, an ombudsman is an unbiased individual who helps to manage differences and resolve disputes. Working well with differences makes good business sense. Conflict management is all about our ability to understand the interests of our clients. It is also about our ability to proactively address those interests to improve our relationships and help create new opportunities. Whoever successfully manages differences will set themselves from the competition and ultimately win market share.
Let me touch on the five key aspects of Royal Bank Financial Group's conflict management programme:
• Dispute resolution;
• Interest-based negotiation;
• Independent, impartial review processes;
• Proactive investigation and recommendations; and
• Preparations for the future.
Let's first discuss dispute resolution. It's a process of thoughtful, methodical steps up a staircase. The bottom step is prevention. The next one is negotiation. If negotiation fails, move up to mediation. From there, the next step would be arbitration.
For example, one case we looked at last year came to us after years of negotiations, suits, and counter-suits. Every attempt at resolution had failed. By the time the case came to our office both sides were battle-weary. We suggested mediation and it occurred, but an agreement couldn't be reached. Based on the knowledge we had gained in this process, our office prepared a written recommendation. Both parties agreed our solution was fair and it was accepted.
In our efforts to build bridges between the bank and its clients, we are trying to remove barriers to finding mutually agreeable solutions. We want to avoid litigation, because the outcome usually means one side wins and the other loses.
Alternative dispute resolution encourages both sides to work together to find solutions agreeable to both. It is an ideal opportunity for everyone involved to revitalise the relationship between client and bank.
Our goal is to ensure that all clients receive access to an impartial appeal process for disputes and unresolved issues. We must ensure that all the concerns of all clients are addressed.
If there is a problem, clients are encouraged to work directly with the staff member at their local branch. If an agreement can't be reached, the next step is to contact Royal Solution Centre. The Solution Centre is a centralised group of experienced professionals trained in problem resolution. If the Solution Centre cannot bring about a resolution, the client or his banker should call the Office of the Ombudsman.
To put things in perspective, let's take a minute to look at how things unfolded in 1996. Royal Bank Financial Group handles more than 10 billion transactions every year for nearly 10 million clients. Just 214 cases made their way to the Office of the Ombudsman. This speaks well about the Group's ability to manage relationships with clients and it's a strong indicator of a constantly growing ability to resolve disputes.
Of these 214 cases, 45 per cent came from small business customers. Another 45 per cent involved personal account matters. The rest had to do with the bank's credit-card operations, securities and insurance units. As an aside, I'd like to point out that when our office opened, we expected most of our work to be with small and medium-size businesses. But when all was said and done, fewer than half our cases came from this sector. It is surprising since one in four small and medium-size businesses chooses Royal Bank as their business partner--some 350,000 small businesses.
In terms of outcome, full agreement was reached in 57 per cent of the cases. Full agreement means the client and the bank found common ground for an acceptable resolution to both. Partial agreement was reached in 11 per cent. In those 21 cases, clients reached an agreement with the bank on some portion of the dispute, but not on another. In the other 32 per cent of cases no agreement was reached and the cases remained unresolved. But it is important to note that in some of these cases the client went away with a better understanding of the reason behind the bank's position.
Again, our objective is not to "choose a winner." Our objective is to successfully manage differences. Effective conflict management is about finding solutions--and sometimes that simply means making sure everyone understands where the other is coming from.
But our job doesn't stop at 214 cases. It isn't about finding 214 solutions; it's about making sure we don't have to find 10 million!
The second primary component of our approach to managing differences is interest-based negotiation. This is all about our ability to understand the interests of our clients so we can better work with them to reach a solution.
Interest-based negotiations are a much less costly approach to resolving conflict than either rights-based or power-based negotiations. Negotiation based on rights and powers can damage a sensitive relationship even more.
During my career at Royal Bank I've had the opportunity to see up close how business is conducted in different parts of the world. Before returning to Toronto last January I spent 12 years in Asia. My time in Hong Kong, Tokyo and Singapore taught me many lessons about people--how to relate to them and how to listen to them. It is well understood that when you work in the Far East, you must be sensitive to face, or the loss of face. But regardless of where you do business, treating people with fairness and dignity is fundamental.
In order to become better at managing differences, the bank turned to experts. I want to acknowledge two of them now. Joan Fair and the people at the Canadian Dispute Resolution Corporation assisted in establishing mediation processes in the early parts of the programme. Rick Weiler and his colleagues at AGREE Incorporated helped us set up training programmes on conflict management for account managers and risk managers. Many of our people have received, or will receive, formal training in dispute resolution. But we are also strong believers in the old axiom, lead by example.
To find solutions you have to communicate. Free and open dialogue has been the catalyst for the third component of the office's approach to managing differences: the independent, impartial review process. In other words, we want people to feel they can come to us and that their cases will be reviewed in a balanced and impartial manner.
Over the years, our experience has taught us that quite often the root of the problem in many disputes boils down to simple lack of communication. Many times all it took was someone--in some cases our office--to reopen the lines of communication and get both sides talking again. I've been asked what is the number-one cause of disputes between Royal Bank and its clients--and that's it. It's communication.
We believe that good communication is so important that we put it on the cover of our first Annual Report, published this month. Fairness, openness and good communication are the three pillars that guide the work of our office.
Some of you are probably wondering how I can be fair and impartial when the bank pays my salary. Let me assure you I am. As a senior vice-president and ombudsman, I report to the chairman and chief executive officer, John Cleghorn. But I believe I am accountable to 10 million clients. The way I view it is that inside the bank, I am an ambassador for the client--outside the bank, I am an ambassador for the bank. I'm paid to be independent.
Fairness, openness and good communication are the high road to managing differences and managing conflict. Let me give you an example of what I mean by good communication. One case we reviewed last year involved a father who co-signed a loan with his daughter to finance a small business. When he died, Royal Bank Financial Group used the proceeds from the estate to retire the loan.
The daughter was upset, probably because of how the other beneficiaries might react. In fact, the bank had acted according to the terms of the will, as approved by the executor of the estate. But somewhere along the way, there was a lack of communication, and this had never been properly explained to the daughter. The bank provided her with an explanation of its actions, supported by all the right documentation. The terms of the original loan agreement were clearly communicated to the daughter and her family, and an understanding reached. All it took to defuse what had become a very emotional confrontation was good communication.
Often, if both sides are more open about their concerns and interests, the road to resolution is much smoother. An example is the case of the struggling business owner. He'd had a rough time, and his frustration was evident. There was clearly an impasse between the business owner and the bank. But we gave him the opportunity to talk openly and honestly about how he saw things. We gave him a chance to speak his mind, to vent his feelings. He went away, and within a week came back to the bank with a proposal that led to the solution. This gave everyone what we called psychological closure--when both parties work together to come to a mutually agreeable solution they can live with.
It is interesting to note that it's not always the client who comes to us first. In the case just mentioned it was the bank that made the first move. And this is part of Royal Bank Financial Group's shift toward better conflict management. A steadily increasing number of staff are embracing our approach and are welcoming the opportunity to become more involved.
None of these solutions were what Don Cherry would call "rocket surgery." But the reality is that more often than not emotions get in the way of common sense.
There is a strong reactive component to our work but we must also be proactive in our thinking. Again it's not just about 214 cases; it's about 10 million clients. Thinking about tomorrow today is the governing influence behind the fourth component of our approach to managing differences--proactive investigations and recommendations. The information we gather throughout the conflict-management process is used to better meet, and where possible exceed, overall customer expectations with new policies, procedures, products and services. From the database we are building, patterns are emerging. Our office is now investigating several areas of potential conflict and we are proactively recommending changes.
This brings us to the fifth and final component of Royal Bank's approach to conflict management--preparing for the future. Our goal is to anticipate friction points before they occur.
The ombudsman must balance the needs of all the bank's stakeholders and keep the principles of fairness, openness and good communication in mind. More specifically, these concerns include privacy, data-based marketing and serve-delivery channels. No one wants their bank to shadow their lives or lifestyle.
So let's talk about privacy. We believe there is a "fuzzy uncertainty" out there with regard to how the bank uses confidential information. We understand these concerns. And you can be confident that Royal Bank will not compromise client confidentiality and privacy. Royal Bank Financial Group will not sell customer lists and will only share confidential information when permitted.
Canadian banks have traditionally been very serious about the confidentiality of client-bank relationships. Royal Bank Financial Group's guiding principles and employee rules require that each employee commit to maintaining client information confidential. The privacy code of Royal Bank Financial Group meets or exceeds the Canadian Standards Association's model privacy code and the enhanced Canadian Bankers Association's model privacy code. Regular reviews ensure confirmation of these high standards and relevance.
The Office of the Ombudsman does not make policy. Our role is the stewardship of bank principles. The bank must work to clarify that fuzzy uncertainty so clients fully understand how information is used and that they are comfortable it is secure.
As you're all aware, deregulation in the 1990s has opened up new opportunities for the financial services industry. The Royal Bank Financial Group of companies was formed to better meet these opportunities. This has made it possible to provide better products and services, and bundle products and services to best meet client needs. Cross-selling and preferred pricing are common features of modern commercial life in all industries and offer many advantages to clients. But if a customer does not want to participate they may opt out at any time. The Office of the Ombudsman would be concerned and would review allegations that a client was coerced to commit to one service in order to avail themselves of another.
Our job is to bridge the gap between the interests of the client and his financial institution. And make no mistake: these bridges, just like real ones, will require ongoing maintenance to handle the increased traffic that will come with change and progress.
For years and years, banking was something you did in person at your local branch. Now, there are four ways to access banking services: branches, banking machines, telephones, and personal computers. Royal Bank Financial Group has to stay on the leading edge and provide the new technologies people are demanding. At the same time, the bank needs to retain the old ways some people are used to. We believe there should be a balance, and part of that balance is price. If it's cheaper for the bank, then it should be cheaper for its clients. Similarly, if people choose to use older and more costly methods of banking, then they must expect to pay for that service.
Let me leave you with a few final thoughts. The next few years should be rather interesting in terms of the volume of cases which flow through our office. We fully expect that as our role grows, and as we become more visible both internally and externally, the number of cases will increase. Then as more of our people become more familiar with the techniques to facilitate the resolution of disputes, our volume of cases should decline.
The lynch pin will continue to be our ability to successfully manage differences and apply academic principles to real-life situations. After all, no one remembers all the good things you do. They remember you, and judge you, for what you did when things went wrong. It's the ombudsman's job to facilitate effective conflict management at Royal Bank Financial Group; it's our job to make wrongs right.
Thank you very much. If any of you have any questions, please come and see me or simply call the Office of the Ombudsman at Royal Bank Financial Group.
The appreciation of the meeting was expressed by Gareth Seltzer, Vice-President, Private Banking, Guardian Capital Advisors and a Director, The Empire Club of Canada.