An Interview with Axel Weber, past-Chairman, UBS

Q: We’ve come through challenging few years. The COVID pandemic has ushered in changed work patterns, and revealed or highlighted revealed or highlighted the importance of company culture. What has your own experience been in this regard?

A: As regards changed work patterns, you’re right. A mix of working from home and from the office has become the norm for many. Surveys indicate very strong support, even today, for continued flexibility in that regard — which we support as a firm. We found that roughly 75% of our employees could be eligible to work in a hybrid setup. This hybrid model makes us a lot more attractive for employees and allows us to draw from a wider applicant pool. The hybrid set up will also help to foster better work-life balance. Early career talent probably finds the hybrid work model a more attractive way of working. And that’s also true for working parents, or job returners coming back after a parental break.

This has focused attention to the technology necessary to support hybrid working and sparked a lot of innovative thinking. It has front-loaded and accelerated technology transformation at many banks, e.g., by moving some applications to the cloud.

In the past, clients met us in the offices. But now we are in their living room, digitally. For example, we can share portfolio and scenario analysis with a client on an iPad. That’s a whole different way of delivering services. The technology part of client service is more advanced now, allowing us to respond better and faster to client needs.

During COVID, we wanted our employees to know that we were listening to them and developing solutions for them tailored to their specific situations. Regular surveys helped us to get important employee feedback around remote work issues, stress, communication challenges and other matters that they have struggled with during this period.

We also have bespoke e-learning programs, physical and mental health programs, and we’ve offered our staff opportunities to engage in volunteering programs. All of this was the result of employees having asked for such programs.

I’m very happy with the sensitivity we showed during the COVID period. It wasn’t just “go and work from home.” In fact, we said, “We are here for you, we’re close to you, we hear what you’re saying, we will try and help you with the problems that come from working from home.” I felt that it was quite a unique experience for the bank.

When it comes to corporate culture, there is a debate around the impact of COVID-related dislocations. New joiners that couldn’t join us physically, but who joined us virtually in this period, have had much less of an experience regarding what our corporate culture is, what it stands for. This has strengthened our appreciation for the need to maintain a very high corporate culture standard.

Q: You led UBS through its own corporate culture journey, in the wake of the Financial Crisis. As you step away from your role as Chairman, I wonder if you’d care to offer a ‘look-back’ on key lessons learned. What related counsel would you offer the next generation of leadership of the firm? And the generation that follows thereafter, and so on…?

A: You might be aware of the three keys in our logo. We also have a three keys program – three pillars – in connection with our culture, principles and the behaviors that follow from that. We’ve had that program over the entire 10 years during which I’ve been Chair. That has helped us when we onboard people, allowing us to give them a clear set of expectations.

We promote this through many locally driven culture-building initiatives and schemes like our group franchise award, where people are recognized and rewarded for promoting cross-divisional collaboration and innovation. This is important for a bank like UBS with different business divisions. We try to maintain a single client-facing front end, and then collaborate between divisions to support that. 

Long-term thinking is very much embedded into the Swiss culture. The challenge is to scale culture across a global franchise. Having clear principles about how we want to operate has really helped in that regard. 

During my 10-year journey at UBS, I have tried to push the idea that being a sustainable firm — which has become an in-thing — really requires thinking and acting with long-term interests in mind and with the right culture. I’m a former regulator and central banker, and focus on the medium to long term has been important in that job. Bringing long-term orientation to a private bank has really been a game changer over these years.

Culture and conduct reform, in my view, is an ongoing process. It won’t go away. I remember discussing this with Bill Dudley at the New York Fed many years ago. I was the only market participant in that discussion, as I recall, sitting between the General Counsel of the Fed, law enforcement, the CIA and others. All of them had to deal with conduct issues related to the Financial Crisis and its aftermath. We put so much effort into building a sustainability-oriented culture after the Financial Crisis because it is the only answer to ensuring the right conduct. And it was expected from the other side of the table — from the regulators.

Culture and conduct reform, in my view, is an ongoing process. It won’t go away.

But I also felt it was really in the self-interest of the bank to have a long-term orientation. We rebuilt our strategy in 2012. We focused on building capital as a strength, not as a regulatory requirement. Now, we have a 15% capital ratio, two percentage points above our guidance. While we look at capital buffers as a sign of strength and demonstration that the business generates significant amounts of capital, we also have the shareholders’ interests in mind and are currently returning the highest amounts in a decade to them through buy-backs and dividends.

And this is also important in connection with the G in ESG. [See also the Our View interview with Barbara Novick, Gary Cohn, Keith Noreika] Governance issues will become dominant for listed companies globally. They will be judged on the G part as much as they’re judged on the E part and the S part. I’m convinced that we need a permanent culture change in banking, and across corporations more generally. 

The “purpose” discussion is very recent. We didn’t call it purpose when we started looking at culture 10 years ago. We have recently come out with a purpose statement that enlivens the firm’s principles, how we want to do business, why we are here. I think that being explicit in our purpose statement is an important part of our long-term success. It’s not just the results we achieve that are important, but also how we achieve them. [See also the Ground Breakers article Culture & Conduct Risk Management] When you’re a global wealth manager, your clients want to be able to put their trust in the company, and count on it having a long-term focus. When I first came to UBS, I asked clients how they would best describe what UBS means for them. The answer I heard from quite a lot of them and remember most was, “We’ve been with UBS for generations. My father, my grand−father started banking with this firm.” And we look at our role as managing the wealth of generations, for generations to come. 

I’m convinced that we need a permanent culture change in banking, and across corporations more generally. 

Our clients are not just interested in financial results. They look at us as managing a family fortune with a view to longevity, and as preserving an endowment to future generations of the family. They look at us as a trusted advisor and the sort of counter-party who is not just interested in short-term profits, but who is watching out for the long-term sustainability of wealth previously generated.

That has made it much easier, in my view, to align long-term thinking with a long-term oriented culture, as a wealth manager. It is important that even the more shorter-term, market driven businesses, like the investment bank, adopted that long-term view to support the core of the UBS franchise.

Q:During your tenure as Chairman, UBS created a Corporate Culture and Responsibility Committee (CCRC). Can you say a bit about what led to that? What is the intended role of the CCRC? What substantive changes or improvements resulted from its work? And what institutional resistance may there have been in this regard?

A: The bank’s Corporate Responsibility Committee was established already in 2001. After I took over as Chairman, we renamed it to Corporate Culture and Responsibility Committee, adding the term “Culture,” and upgraded it to a top-level committee, chaired by myself. The committee is tasked with embedding the longest-term thinking possible into the bank’s corporate structure. And this meant thinking a bit outside the box. Since 2013, we aligned the frequency of meetings with the frequency of our board meetings. It became an integral part of our board deliberations at every meeting, just like any other committee.

Through the whole discussion around climate, sustainable finance, long term regulatory developments, etc. this committee became a thought leader on these issues. Programs around climate change or corporate culture were designed in the Corporate Culture and Responsibility Committee and then handed off to management who then were tasked with reporting on this to the Board at future meetings. That trickled down into the entire organization and became part of the day-to-day work, which helped us a lot when it came to sustainability and to environmental questions. 

We’re now the first Swiss bank that has come out with a “say on climate” vote, where our shareholders have a consultative vote, just like in our “say on pay.” 

The long-term orientation of our clients lends itself to being a leader in sustainability, because they also ask: “how do I pass this planet onto my children and grandchildren?” It doesn’t help a lot if you know that you’re financially secure but that the environment — in which future generations will live — is compromised. So, it was natural to tie our long-term orientation in investing and managing wealth to climate and sustainability.

Q:It is increasingly common to see firms marrying their remuneration programs with their risk controls. But are incentives all about money, or are there other incentives that are as (or more) important?

A: I do think it is very important to align pay programs with performance, but also with risk governance. At UBS we have a scorecard for our senior executives that we go through. We commit to several objectives and targets, which we disclose. And then we work towards meeting those objectives: financial achievements, return on capital, building our capital ratios, etc. But then, on top of that, there are other objectives, like being a role model in conducting business. As I described earlier, we look at the ‘three keys’ — our pillars, principles and behaviors. This is also very important in our assessment of performance. When we talk about these three keys in the scorecard, we basically say “good risk management is an important part of this.” Another part is capital strength. We don’t want our clients to worry about their money being safe with us because they read in the news that their bank has a too low capital ratio, or that it suffered some adverse financial developments.

I do think it is very important to align pay programs with performance, but also with risk governance. 

Many organizations talk about client centricity, but we instead solicit direct feedback from our clients about how we are managing their money. For us, client centricity means a personalized engagement with the client, a connectivity that helps us to know what is on the client’s mind. And our clients must know that their client advisor at UBS is also properly connected within the bank. We want our employees to interact with their peers and with their clients, as opposed to just managing a portfolio and pushing products. And we look for successful collaboration. We want the client to have a single contact point. The clients tell us what they want, and then we deliver, involving all relevant parties internally. 

In the end, all this information becomes part of the compensation process. For us, our elaborate pay structure is based on our scorecards, performance reviews, 360-degree reviews, etc. It’s not only about the financial results achieved, but equally about how they were achieved.

Q: You referenced Bill Dudley’s early leadership on these issues at the NY Fed. In more recent years, thinking regarding firm culture has shifted away from a vague set of considerations relevant to those in HR — ‘soft stuff’ — to become more of a mainstream management priority that’s seen as central to the bottom line — ‘hard stuff’. What do you see happening here, and where are we headed.

A: I think that’s right. Culture is not an issue for the HR department alone. I look at HR as also having an audit role — sort of postmortem. If things pop up in the HR department, that’s because there is a lack of proper culture which has manifested itself in client complaints, regulatory complaints or legal cases.

What you need to be influencing is the way business is done in the front line. And you want close alignment of the client-facing roles with the risk controls at the second line of defense. But it’s important that the first line take it upon themselves to make sure they’re doing the right thing, rather than counting on other lines of defense. The firm cannot act as an audit-centric organization. There must be holistic alignment within the first line in how they do business, as well as checks and controls. And not because they fear being caught out by the compliance or risk teams, but because they are focused on the best interests of clients. 

A lot of internal investigations take place because things go wrong. Often this leads to establishing a “culture of compliance,” from the second and third lines rather than making sure that the first line adopts a culture that prioritizes the delivery of good quality outcomes for clients. 

As a former regulator, I’ve regularly observed that one does not notice a good culture, per se. What you notice is a lack thereof at a firm. I think many firms that don’t have a clear culture, around which they evolve their business, sooner or later find themselves facing problems. That lack of focus on desired culture means that such firms have a higher idiosyncratic risk of misbehavior, reflected in the attitude “it’s allowed if it’s not explicitly forbidden.” Well, not everything that is not explicitly forbidden is allowed, and even more to the point, even what may be allowed is not always in the interest of clients. 

I’ve regularly observed that one does not notice a good culture, per se. What you notice is a lack thereof at a firm.

When I joined UBS, it was seen as a former icon in Switzerland. It had somehow lost ground and it was having problems. Reinstalling this iconic character into the organization as the country’s largest and most successful bank was very important. I think we’re getting back there.

People told me they felt that “when somebody like you joins UBS at a point where the organization is in deep trouble, we take this as a signal that you have had the confidence that this can be put right.” That’s what we needed to instill in employees — that we’re going to work hard to bring UBS back to where it needs to be.

For the people who became part of that journey, that sense of purpose was a much more important motivator than pay. Very often, as the Chair or the CEO, you get praised for these turnarounds. You may be a part of that, but a small part. A successful culture meant that the 71,000 people at UBS were fighting back, trying to make it to the top again.

Q:Today we want disclosures around a firm’s environmental impact, and how it is acting to promote good social outcomes. The governance piece, you said earlier, is perhaps the most important piece. So, what sort of disclosure requirements do you think might be helpful, with regard to the purpose, culture and risk issues you’ve been addressing here?

A: I think that’s a difficult question. When I talk to employees or our shareholders, the part they want to understand is, how do you measure success? You can do 360-degree reviews. You can get feedback and work to make sure people act on that feedback. But it becomes very hard to put that into disclosures.

For example, we had a loss related to Archegos in the last year. That impacted pay with downward discretion, because we did an accountability review. We looked at who was close to the problem and asked whether they had done their job the way they should have done. We found that the answer to that was, no, not perfectly. This was a major risk materializing, and it shouldn’t have materialized. 

I think it’s important to take responsibility for things that aren’t going well, not letting that become a problem for the shareholder. Taking responsibility is important as opposed to assigning responsibilities. Although this is something that took place in our best year in 15 years for UBS, this was still a downside. It shouldn’t have happened.

And it’s precisely here where I think shareholders want to see robust processes in an organization. They want to see people taking responsibility if things go wrong, not just taking credit for the things that work out alright. There is a famous proverb: success has many fathers; failure is an orphan. Failure should have as many fathers as success, because usually when things go wrong, they go wrong in multiple dimensions.

But I do think that the more transparency one provides in situations like this, the better. I talk to our top 100 investors twice a year. Given our successful financial performance, we could have glossed over our troubles in connection with Archegos, but that would’ve been exactly the wrong cultural message. The fact that we acknowledged the issue, apologized for it to shareholders publicly, and that we made everyone accountable and that our people accepted that accountability, in my view was the right way to handle things.

Q:Regulators are paying increased attention to the promise of supervisory and regulatory technologies (“SupTech” and “RegTech”) that marry Big Data to AI, with some suggesting that these tools may help in managing and supervising culture and conduct risks. Yet, while there has been some early experimentation with these tools among firms, adoption rates remain relatively low. What do you see next for the SupTech and RegTech space?

A: I think they offer a lot if used in the right way. These technologies help standardize many manual work processes that would otherwise absorb a lot of the attention of people working in, say, the second or third line of defense. These technologies promise to free up time to focus on issues that require judgment. So, in that sense, I do welcome these technologies and we are using them intensively.

For instance, we have installed dozens and dozens of ‘bots’ in audit, to standardize data gathering exercises and move from spreadsheets into something that better supports our decision processes. Again, for me the major advantage is that we can make better decisions with better informed judgement. Sometimes these audit and compliance jobs can be repetitive, even tiring, and people may make mistakes. But machines are not bothered by repetition. They don’t get tired. And they make far fewer mistakes in these automated processes.

Still, you need both: automatized systems and human judgment. The line manager of the future will have to be much more tech savvy to manage both people and machines.

The line manager of the future will have to be much more tech savvy to manage both people and machines. 

Q:If we hope to see new tools brought to bear in connection with entrenched problems, it seems clear that this will require collaboration — among regulators, firms and technologists. What role do you see here for industry bodies like the Institute of International Finance (IIF), where you have been chairman for several years?

A: The IIF helped form what has ultimately become the Europol Financial Intelligence Public Private Partnership in 2017, an initiative which has grown into the first multilateral partnership on financial crime issues between regulators, law enforcement, financial intelligence units and the private sector across the EU, UK, US and Australia.

Let me give you one example. AML is usually about looking for a needle in a haystack. You look at a vast flow of data and you need to find the couple of data points that are outliers or appear problematic. That’s where AI can play an important role. And that’s true in a reverse exercise, where law enforcement or intelligence agencies tell you that they have a couple of suspicious cases and ask if you could screen your data to see if you have anything of relevance related to those people, those accounts, or those activities.

Most of RegTech tools are institution-specific. But I think, ultimately, we need to see collaboration through a private-public partnership where both sides know that the other side is contributing to achieve shared goals. For me, as someone who’s been a regulator who then moved to a private bank — and this relates also to my IIF role — I have attempted since the Financial Crisis to show that there is a lot the private sector and the public sector can better achieve together. The supervisors and banks were too far apart because there wasn’t a trusted relationship. I think that’s where organizations like the IIF can play a key role, as a convenor and mediator. And I think the IIF has done that.

Whether it’s been in connection with technology transformation, RegTech, FinTech, the digitalization of banking, or the latest initiatives on sustainability, the IIF has had programs for all these areas. Because it matters to the public at large, it matters to the regulators, it matters to the banks and their clients. But we need to bring both sides together to get a good regulation.

What often creates problems are new regulations without even consulting the financial industry. Then that is put into a legal text, passed as a law, and then the industry is asked to do an impact assessment to see how things map out. That’s usually not the best way to regulate.

What is needed is working on regulatory initiatives together. One might find the proposed regulation triggers important unintended consequences. One can then work to eliminate those before going live with a regulation. Part of what I’ve really wanted to achieve was more mutual recognition of both sides — public and private — to develop a better appreciation for how either side is doing its best to achieve a common good.

Banks have to understand that they are part of society. They are in the middle of society and have a very important role in everybody’s daily life because banks look after people’s money, facilitate their transactions, and invest their savings. That societal role of banking is essential. And it comes with a responsibility that has to be met.

Banks have to understand that they are part of society. And it comes with a responsibility that has to be met. 

Q:Any other thoughts on these topics that you’d like to share, or that you think we should attend to more closely in future issues of this report?

A: The two major Swiss banks were founded to finance the construction of the Gotthard Tunnel and the Gotthard Railway, which is a major connection between Northern Europe and Italy. When the banks were founded, it was clear that they would serve the Swiss people. The banks collected capital from wealthy individuals and used it in public construction projects while paying attractive returns. The purpose of the banks was to generate returns for the country, for clients, and for shareholders.

This link between banking and society has never been as clear as it is today. With a war raging on European territory, it’s clear that not being part of the current sanctions regime was not an option for banks. Not for UBS, not for Switzerland, not for anyone. Because this goes right to the heart of our current understanding of what humanity is about. Aggression and wars of this type are no longer compatible with the way humanity has progressed over the centuries. We therefore need to be part of a very clear response to stop this, and tough sanctions can achieve that.

And let me finish by saying that the Starling Compendium has been integral to the industry’s efforts to improve. I’ve always read it, and so I really appreciate being part of it this year. It’s a tremendous job you’re doing, for the banking community and society at large.