What can investing in Detroit tell us about the banking industry’s reputation?
Doing well by doing good
As a native Detroiter, I have been dismayed by the downward spiral the city has been in for my entire life.
May 31, 2017
A blog post by Jim Eckenrode, executive director, Deloitte Services LP
My parents both grew up there, and lived with my brothers in one of tens of thousands of starter homes that were built in the Motor City in the postwar years before moving to the suburbs. I, too, was born in Detroit, and, like most of my friends’ dads, my father worked in the auto industry for his entire career.
The city’s decline has been well-covered, as has the beginnings of what I hope will be a true renaissance, led by a few early investors, like the late Mike Ilitch, founder of Little Caesar’s Pizza, and Dan Gilbert, CEO of Quicken Loans and Rock Ventures. These two individuals are often credited with starting Detroit’s redevelopment by buying and redeveloping a large number of properties in the urban core downtown over the past decade.
Which is why a recent headline caught my attention. The story was about how JP Morgan Chase’s corporate social responsibility (CSR) initiative called Invested in Detroit has paid off, not only for the city, but also for the bank.1 So much so that the bank announced an allocation of an additional $50 million to the initiative, on top of the $100 million already invested.
The program covers not only housing assistance, but also small business loans, employee training programs, charter school development, and many other initiatives that are required to turn Detroit around. A good deal of this investment is in loans, rather than grants, and the bank cited the fact that a sizable chunk of the loans have already been paid off as a reason for the additional funding.
Doing well by doing good
Certainly, other financial institutions are also partnering with Detroit and other communities in need of the same kinds of programs and services. In fact, Fortune magazine has created a list of the top corporate philanthropists across all industries and geographies. Among its top 50 are eight financial services companies, including three in the United States: MasterCard, Bank of America, and PayPal.2
It’s no secret that the reputation of the financial services industry has enjoyed less than a stellar run over the past decade. According to a recent Gallup poll, as many Americans view the banking industry negatively as positively, which ranks 19th out of 25 industries surveyed. And while the industry’s reputation has improved in recent years, it’s still a rebound from a low of 26 percent of respondents that held a positive or somewhat positive view in 2010. Gallup’s most recent survey shows that number to have increased to 38 percent. Better, but I’m pretty sure still not good enough, in the minds of many bank executives.3
We covered the growing interest in impact investing within the hedge fund sector in a recent report, highlighting the fact that investors, too, may see the benefit of CSR. To underscore this point, a recent study found a connection between CSR and bank performance.4 The authors assert that CSR is perhaps especially important for banks, since “bank products are hard to differentiate, (and therefore) reputation is a strategically important resource for service companies with a predominantly intangible offer.…” Interestingly, the authors found that, while this effect is generally true, it did not hold during the most recent economic downturn, perhaps due to the role that financial services firm behavior played into overall economic performance.
Is the notion of “doing well by doing good” broadly supported in bank boardrooms? Perhaps not quite yet. We are doing a followup study to our 2015 publication on bank board governance, and one of the areas we are analyzing is the degree to which CSR is becoming worthy of board committee attention. To this point, about 20 percent of banks have dedicated committees focused on public responsibilities and community investment.
Is the notion of “doing well by doing good” broadly supported in bank boardrooms? Perhaps not quite yet.
– Jim Eckenrode
What do you think?
Is your firm involved in community development and social responsibility initiatives? Do you believe that there’s a connection between these activities, reputation, and financial return?
1 Adrienne Roberts, “JP Morgan Expands Investment in Detroit,” Wall St. Journal, May 10, 2017
2 “Change the world 2016,” Fortune, sourced from http://fortune.com/change-the-world/ on May 17, 2017
3 “Business and industry sector ratings,” sourced from http://www.gallup.com/poll/12748/business-industry-sector-ratings.aspx on May 17 2017
4 Francisco Javier Forcadell and Elisa Aracil, “European Banks’ Reputation for Corporate Social Responsibility,” Corporate Social Responsibility and Environmental Management, January 18, 2017
QuickLook is a weekly blog from the Deloitte Center for Financial Services about technology, innovation, growth, regulation, and other challenges facing the industry. The opinions expressed in QuickLook are those of the authors and do not necessarily reflect the views of Deloitte.