2
ETHICAL BANKS AS HYBRID ORGANIZATIONS: CHALLENHES AND OPPORTUNITIES OF BANKING ON VALUES
Several studies have researched the implication of hybridity for corporate culture, performance and governance (Haveman&Rao, 2006; Pache&Santos, 2010; Tracey et al., 2011; Jay, 2012; Battilana&Lee, 2014). Nevertheless, the existing literature has given little attention to challenges that ethical organizations face in simultaneously pursuing social benefit creation and financial resilience goals. In this paper I explore how ethical banks perceive the challenges of combining community development and financial resilience goals, and how they manage the tensions among the multiple institutional demands that they face.
I define ethical banks as values-driven financial institutions that prioritize people before profits. Ethical banking deviates from conventional banking model in three main aspects, namely: where the bank is banking, what are its products and who it is banking with (Dossa, 2013). At the same time, they can vary significantly from context to context in legal forms, amounts of capital, investment strategies and community relations.
This study takes place at the Global Alliance for Banking on Values (GABV), a network of 28 financial institutions that collectively hold over USD 100 billion of assets under management, and serve over 20 million customers in countries across different continents.
This research is based on both qualitative data collection and analysis. Main evidence for this study has been collected through participant observations during the GABV Governing Board Forum meeting in Copenhagen in November 2015. I supported the analysis by incorporating data from an internal survey “Capturing the Essence of Governance” conducted by the GABV Secretariat and a large amount of secondary data collected from the GABV banks’ websites and publicly available documents.
I applied the framework developed by Battlilana et al. (2012) to investigate four major challenges of banking on values. These challenges are related to legal structure, financing, customers and beneficiaries, and organizational culture and talent development. Firstly, I have found that values-driven banks often struggle to meet regulatory requirements and are concerned that the “one size fits all” approach of financial regulators might force them to compromise their mission and values.
Secondly, they possess a unique understanding of their role within the community, and seek to use market mechanisms in ways that would allow them to achieve mutual benefit for their business, society and the environment. Moreover, contrary to existing literature, which often expects hybrid organizations to have difficulties in securing finance, ethical banks within the GABV at the moment are more likely to face the problem of excessive deposit supply that they struggle to channel into credits.
Thirdly, the GABV banks break the traditional customer-beneficiary dichotomy by offering products and services that create social or environmental value at the time of their consumption for the directly involved parties. However, my findings suggest that ethical banks find it challenging to ensure high levels of member participation due to the diversity of clients they serve.
Finally, my evidence from the GABV study suggests that in the case of ethical organizations their common-good missions and goals to improve social systems are embedded in their business models and are central to every major business decision they make. Thereby, financial assessment is not considered to be superior to compliance with ethical criteria and evidence of potential community benefit.