Builders, bankers and risk

Our last article, titled “Builders and Bankers,” highlighted the difference in leadership style between builders and bankers, using the analogy of building a hot fire in a wood stove vs. banking the coals to keep the heat constant through a chilly night. Builders can get a blazing fire going from virtually nothing; they’re the serial entrepreneurs, the innovators, the cutting edge leaders of the business world. Think Steve Jobs, Elon Musk, Mark Zuckerberg. Bankers are the leaders who can keep the business going for the long haul. Think Jack Welch, Warren Buffett, Indra Nooyi (PepsiCo).

We argued in the last article that the credit union industry has many great bankers, but fewer true builders – and that if we truly want to remain competitive in an increasingly innovative financial services marketplace, we need an equal share of builders. We also noted that builders and bankers generally seek to surround themselves with their own kind, but that this can create real friction, as builders tend to compete with other builders, and bankers tend to compete with other bankers, while builders and bankers working together complete each other. To build a healthy credit union that innovates and creates lasting value out of that creative energy, we need to assemble balanced teams whose leadership styles complement one another, both in our executive suites and our boardrooms.

In this installment, we’ll look at some key differences between builders and bankers, focusing on one critical aspect of the characteristics of the two: risk-taking.

Builders are unafraid of taking risk. In fact, they thrive on it. They take energy from challenging the status quo, are likely contrarians, and may have something of a rebellious streak. Bankers are willing to assume calculated risks, but prefer to avoid the “unknown unknowns.” They tend to be more cautious, and sometimes may appear to suffer from “analysis paralysis.” Failure is never an option for bankers, while builders tend to forget their failures quickly, and move on to the next challenge.

On the flip side, builders often need to be reined in to some degree. Left to their own devices, they may forge ahead down a path whose end can’t be seen, sometimes leading their organizations to the brink of disaster. At that point, their lack of fear of failure can threaten the organization’s long-term well-being. That’s where bankers come in; working as a team, the banker can temper the builder’s swashbuckling style, playing devil’s advocate.

Bankers, on the other hand, sometimes need to be pushed to steer into uncharted waters. Their natural tendency is toward the familiar. And that’s where a builder can be a good complement. They challenge the banker to move outside his or her comfort zone, to inspire an element of derring-do.

However, both styles must be willing to work in tandem. Both have their egos, and both tend to believe their way is the right way – and will defend their position aggressively. The builder has to be willing to temper his unbridled enthusiasm for the thrill of chasing the unknown, of going for the big hit. The banker has to be willing to step out of the confines of safety and take chances, to swing for the fences. So it’s vital that both be willing to check their egos, avoid the “I told you so” game, and above all, listen to their counterpart.

Working together in a healthy environment of mutual respect and open, honest communication, builders and bankers can optimize risk-taking, driving results that otherwise couldn’t be achieved. A team of builders might build an organization that blazes like a comet, only to burn out when it hits the oxygen of reality. A team of bankers might create a “corporate train” that chugs along in perpetuity, but never realizes its full potential, and ultimately is passed by.

How did the notable builders we named above create lasting value from what they’d built? Simple: they surrounded themselves with bankers. Steve Jobs brought Tim Cook into Apple when he returned in 1998 to the company he founded, having learned from his earlier mistakes. The fiery Zuckerberg brought Sheryl Sandberg to Facebook in 2008, leading to a shift from novelty to profitability. Musk’s innovative Tesla appears to be still finding its way, perhaps in need of a solid banker to turn the corner from innovative upstart to competitive brand.

Similarly, we see very little in the way of innovation from banker-led enterprises such as Berkshire Hathaway and PepsiCo, just steady, stable performance. In fact, Warren Buffett’s success has been predicated on investing in steady-as-you-go, staple companies. You won’t find a high-flying tech start-up in Berkshire Hathaway’s portfolio. And PepsiCo tweaks, but it doesn’t really innovate.

We at The Rochdale Group spend the majority of our time focused on risk. Through our work in Enterprise Risk Management (ERM), Risk Appetite, and risk-focused strategic planning, we’ve found that most credit unions do a very good job of mitigating the risk of out-of-pocket losses. This is consistent with the observation that we have more bankers than builders in credit union land; bankers tend to be risk-averse, and the first order of risk aversion is loss aversion.

But there’s another side to risk: opportunity cost. We’ve found that credit unions are less adept at mitigating opportunity cost, which again is consistent with our builders and bankers theme. Mitigating opportunity cost means taking calculated risks to capitalize on opportunities, even though doing so may lead us into the unknown. It’s possible – in fact, it’s human nature – to be loss-averse without necessarily being risk-averse (we’ll explore that in our next article).

A sound ERM program will enable a well-constructed team of builders and bankers to assess organizational risk, in both quantitative and qualitative terms, helping to strike a balance between the two leadership styles. ERM also focuses on both sides of the risk coin: out-of-pocket loss mitigation and opportunity cost mitigation (i.e., optimized risk-taking). Assessing Risk Appetite is critical in balancing the willingness to assume risk in different situations, aligning that willingness on the part of management with each other, and with that of the board. Both tools are key in effective strategic planning.

For more information on incorporating ERM, Risk Appetite and risk-focused strategic planning into your credit union’s toolbox, contact Jeff Owen, Senior Consultant with The Rochdale Group, at (800) 424-4951, ext. 8011 or

Brian Hague

Brian Hague

Brian has more than 25 years’ experience in financial institutions and the capital markets, and has devoted 21 years to serving credit unions through various roles at CNBS, LLC, a ... Web: Details