I have been part of the financial services industry for over forty years and have held various positions of responsibility on the credit/risk side the entire time. My time has been spent with several organizations and, while there have been many differences between the various companies, there also have been distinct similarities. One that stands out and may be obvious to most readers is the inherent conflict between sales and credit. While some might argue that the conflict would best be resolved, I believe the conflict can be healthy if roles for each are clearly defined and supported by executive management, especially the CEO of the business unit.

The divide between credit and sales is one that has been around since time immemorial and I don’t believe it is realistic to aspire to resolve the friction (probably obvious) nor do I believe that it is always in the best interest of the organization (maybe not as obvious). Again, this is what I deem to be a healthy friction and the key lies in first, the degree of this conflict and second, the extent to which this friction is recognized and managed. This is where executive management plays a critical role.

By definition, the sales organization is charged with generating new volume to meet the revenue goals and the credit organization is charged with adjudicating transactions to meet asset quality metrics and overall portfolio well-being. While both the sales and credit goals are part of the business unit planning strategy, sales and credit goals are not always aligned. This is where executive management plays a key role, especially the CEO, who becomes the ultimate arbitrator and, in doing so in a consistent, authoritative manner, helps to define the culture of the organization. While it might be expected that the role of executive management would include defining and disseminating the corporate philosophy, the task is not an easy one, especially in those organizations where matrix management is the norm. Within this matrix environment, members of the business executive management team have allegiances to other areas in the organization, each with its own set of goals and objectives which, not surprisingly, may not align directly with those of each of the underlying business units.

Matrix management has been employed in financial services for quite some time and is more prevalent on the credit side versus the sales side. To some degree this has been initiated and/or encouraged by the regulatory agencies for the financial institutions they oversee to ensure separation and objectivity of the risk management process. The matrix management application has not been exclusive to the risk management side of the business; however, the impact is arguably the most significant with respect to creating the vehicle for disparate objectives and goals that could heighten the degree of conflict between sales and credit. I believe it is common that the goals of 1) the functional side within the credit matrix management and 2) the business unit management responsible for volume generation are not focused in the same direction.

In any organization and especially within the above-described scenario it is critical that the executive management of the business unit, with the CEO at the helm and providing the guidance and direction, create and communicate a corporate vision and teamwork environment that enables and even demands that credit and sales work together. How can a commercial finance company best benefit from the previously mentioned healthy friction? By setting the ground rules or defining the “box” in which the company will operate, the direction has been set for both sales and credit. When credit and sales are aligned through the guidance from the top management of the unit, it is very likely that the two functions will operate in greater harmony due to the fact that a clear direction has been agreed upon. This still provides the opportunity (and the necessity) to “work around the edges” of the box for both credit and sales but should reduce the amount of friction as well as the wasted time and energy that can be expended on prospects that have little or no possibility of becoming viable clients.

In today’s environment, it appears that many commercial finance companies have relaxed their credit standards, after imposing restrictive measures during the recessionary period that began in 2008. The pressure to increase volume in a setting of aggressive sales budget goals and significantly lower levels of charge-offs and delinquencies over the past couple of years have combined to create a scenario that seems eerily similar to that which we saw in the years prior to 2008. It is critical at this time for credit and sales to work together to ensure that short-term goals are not achieved at the expense of deteriorating portfolio quality. It is therefore incumbent upon the executive team to ensure that this takes place.

Looking back at my own experience, I can personality attest to the effectiveness of a distinct environment in which the culture is easily understood and defined -- expectations are clearly laid out and employee roles are easier to characterize, communicate and accomplish. Differences of opinion between sales and credit are still present and there is a genuine interest in working together to find solutions to problems and maximize opportunities. A by-product of this environment is the creation of a certain profile of both the prototypical sales and credit person that one associates with the organization. This, in turn, lends itself to providing a means by which employees are better able to connect with the organization. Conversely it is also easier to identify those who can’t relate and to address the situation. In addition to providing the roadmap for current employees, the ability to define and articulate the culture is an invaluable aid in the hiring process. Both the organization and the job applicant benefit by reducing the risk of turnover due to mismatch between the expectations of the company and the new employee. This is not meant to imply that creating a Stepford-like organization, in which everyone thinks the same, is the desired outcome. Those of us who have been fortunate to be a part of an organization with a well-formed culture can attest to its benefits.

Describing what I perceive are the benefits of the well-defined environment also reflects on what I believe are the disadvantages of the more loosely or ill-defined environment. I have had this experience as well in which I have seen a higher level of the credit-sales friction that I don’t believe is largely random but rather a circumstance of the cultural backdrop. With no clear direction and/or definition from the top of the organization, the functional area leaders will take it upon themselves to determine their best course of action, often without buy-in from and/or consideration for other functional heads. This often leads to a higher level of frustration, wasted energy, and a resulting sub-optimization of volume and/or asset quality, both of which have obvious impact on the bottom line.

The overall dynamics of an organization drives its culture. Whatever that might be, helping to create a clearer roadmap by which to navigate, direct others and plot future course changes makes for a more efficient operation and, in most cases, higher employee satisfaction. Even in instances of employee dissatisfaction when they are of a more ongoing vs. random nature, the determination can be made more easily in the well-defined environment as to whether the cause is associated with the makeup of an organization. With this information, decisions can and should be made regarding the employees and their long-term viability in the company.