Defence Bank has been in business since 1975, when it was known as Defence Force Credit Union Limited, and is now one of Australia’s largest member-owned banks. In contrast to many financial institutions, Defence Bank is a profit for members bank focused solely on the financial needs of the customer, offering financial products and services to both the Australian Defence Force and the wider community. The Australian Business Executive spoke recently with CEO Jon Linehan to discuss growth, innovation and the importance of ethical banking.
“I’ve held CEO positions since I was 38,” Mr Linehan explains, “in that I’ve been CEO of Hostplus, I’ve also been director and general manager of Australian Unity Funds Management, CEO of AustSafe Super and managing director and CEO of Defence Bank.”
All these companies share an association with finance, although in the areas of superannuation, funds management and banking. It is fairly unusual for Mr Linehan to have worked across all areas, as many people in finance tend to work within only one of these areas.
“Each of those companies respectively has grown significantly once I’ve been in that position. I had a range of qualifications, from law and economics, and I’ve had scholarships, been a fellow at Oxford, and also scholarships from Japan and elsewhere.”
In the grander scheme, Mr Linehan has always held senior positions, being lucky enough to gain head operational and board experience in his 20s and early 30s at senior levels in both government and industry.
“Since my 20s I have been on numerous government bodies and boards,” he says. “More recently, I’m obviously Managing Director/CEO of Defence Bank so I’m on the board, and when I was in Australian Unity Funds Management I was a director of that organisation.”
Over the years, Mr Linehan has been on around twelve different boards, spanning a career of 20-25 years. He admits that much of his work on boards is now in the past, the most recent examples coming about from his positions as CEO.
Mr Linehan’s first big CEO role was for well-known superannuation company Hostplus, where he increased asset holdings from around $480m to $1.8bn and oversaw an increase in membership and a high-profile merger to create a high-performing superannuation fund.
“[Then] I was headhunted into Australian Unity, where I was director and general manager of what’s called Australian Unity Funds Management. Also, I was a director of Acorn Microcap, which is a microcap investment company.”
After Australian Unity, Mr Linehan spent just a single year in Queensland working as CEO for industry superfund AustSafe Super. He left the role after deciding to return to work in Melbourne, where he soon began his employment at Defence Bank.
“Defence Bank, when I joined it, was Defence Force Credit Union,” he says. “It wasn’t a bank, it was a lot smaller, it was about $480-490m in assets. I decided that I liked the area it was in. It was an ethical company; it hadn’t been growing fast, but it was ethical.”
The company’s strong association with the Defence Force presented a huge opportunity for growth, and having an established presence meant there was room for enhancement to help it reach its potential, something Mr Linehan has a track record in achieving.
“You need to change the attitude of the organisation to focus on growth. Really, it’s very much a case of clearly understanding your market and picking your market, and not diversifying your energies into a range of places that mainly have no returns.”
In addition to concentrating resources and understanding the market, the key to the process is to have competent employees who are given a level of independence that allows them to achieve success within their roles, free from potentially disruptive micro-management.
“I spend a lot of my time listening to people,” Mr Linehan explains, “and I always say to them ‘I know what I know, but I don’t know what you know’. I’m trying to understand what they understand, and then see if we can utilise it.”
The CEO’s role in the growth process is to provide leadership to a very good team and to reallocate capital, making assessments about where to place the energy and focus of the organisation in order to achieve the desired results.
“I think if you get those points right—if you get good people, good strategy, clear focus, and concentrate in achievable areas of your market, don’t spread your energy too broadly and allocate your resources accordingly, then I think your organisation will grow.”
In addition to these factors, it is just as important for a company to be innovative, to ensure that if progress hits a road block, the organisation has the ability to move around it rather than slamming straight into it.
“Often things will change, markets will change quite dramatically. When we went through the GFC, we had all sorts of issues to manage, as everyone else did, and we just worked our way through those. We actually grew dramatically during the first year or two of the GFC.”
This growth was achieved when Defence was still a credit union. While everybody else was contracting, the organisation reoriented all its funding forces and structures, introduced new products, and navigated its way successfully through the crisis.
The organisation went through its change to a bank after Mr Linehan had taken over at the helm, the result of an opportunity that emerged largely because the government was facilitating the possibility of credit unions becoming subject to capital banks.
“We saw that opportunity, and we were keen to seize it. We realised that in our position, particularly with our young demographic—Defence Bank has a demographic that’s probably ten years younger than any other bank—that the words ‘credit union’ were fairly outdated.”
More importantly for the organisation, there was a brand image issue, in that many people just didn’t know what Defence Force Credit Union was. The solution was to introduce a much more powerful name: Defence Bank.
“That was obviously all supported by our staff and our members, because it was voted on accordingly, but more importantly for us, ever since that name change, we’ve never had an issue of people understanding who we were.”
This robust change has contributed to both the growth of the organisation and its penetration, creating a clean, strong brand. It was vitally important to keep the ‘defence’ part of the name, as this is a clear indicator of the organisation’s values.
The Australian defence market is still relatively big, serving uniformed communities such as those found in Townsville and Darwin, as well as having many members that are non-uniformed, these being families of defence workers.
“A range of people outside of defence often join us,” he says, “and our membership is open. So, realistically, we are always going to be a heavily concentred niche market, but the niche is quite broad.”
These very clear markets have helped the organisation achieve its aim of double the market growth for the past six years. Mr Linehan doesn’t recognise any ceiling that might prevent them from continuing to do that going forward.
Defence Bank’s impressive growth is there for all to see. Since Mr Linehan joined the organisation in 2006, asset and profitability has almost quadrupled in size, with the company at $1.8bn in assets and expected to reach $2bn by the end of this financial year.
Profitability has also risen, which has helped fund further growth. Interestingly, this has resulted in employment numbers dropping by about 30%, with the company now employing around 240 staff.
“At the same time we’ve upskilled staff, and by that I mean we have an enormous amount of training provided to staff. We have engagement levels of around about 82%, which is consistently measured in a lot of organisational change.”
The intention is to keep training staff, but also to keep moving their jobs in line with the needs of the organisation. By automating some of the more back-end jobs, focus has switched to having two-thirds of staff in front-end, customer-impacting roles.
Membership of the bank is now up to around 90,000, many of whom are based in rural Australia. This has been strongly influenced by the structure of the defence forces, which are generally concentrated outside of the capital cities.
“It doesn’t mean that we don’t have membership in capital cities, we have quite significant membership, but the majority of it lies outside. In terms of that, we have to deal with an enormous geographical spread, so that’s why we focus heavily on technology.”
Many members are not only young, but are also highly technologically literate because of their work in defence. Despite having 40 branches, most of the bank’s contact with members is made via mobile technology, the internet or through its video call-centre setup.
“What we find in respect of that,” Mr Linehan adds, “is that it means that we want to keep contact with people, be they on deployment overseas or be they based locally. A lot of our energies and time are focused on servicing those members.”
The bank’s reputation for attracting a younger membership base is both a conscious decision and one that is somewhat inevitable, with much of the defence community being naturally of a certain age group, as it’s almost exclusively younger people who sign up.
“That causes us, which is reasonable, to be quick moving in terms of particularly adaptation technology. We run a range of technologies; we run things like Apple Pay, which ANZ has but the other three major banks don’t have at this point.”
In addition, Defence Bank prides itself on being a highly ethical bank with an ethical staff base, and this is shown in the deep structural way that the bank’s values serve its day-to-day running.
“Our staff vote on our values, and then they own the values. Because we are a cooperative bank, and we’re structured where the members are shareholders, we don’t have that dichotomy of ownership, in terms of shareholder versus customer.”
With members acknowledging the positivity of the setup, the company has been able to achieve an impressive NPS (Net Promotor Score) of 24, where the major competitive banks are usually tracking at -15.5 to -16.
“Most of that is driven by the culture of the organisation, which is very ethical. We rarely receive negligible complaints. It’s very common for us to receive emails of thanks from our members, or our branches often receive flowers from members, for helping them.”
The bank continues to consider what’s best for its customers, ensuring that it has a local call-centre where staff are highly trained, but refraining from placing restrictions on the time of a call, preferring for staff to spend as much time as they need talking to members.
As far as Mr Linehan is concerned, a bank only sells one thing, and that is trust. The current problem that banks have is in regaining that trust from customers after so much scandal over the past decade.
“We see trust as the core thing that we do. Often our staff are based in defence establishments, many of those are spouses of defence force personnel, our board has a presence of senior officers from defence on them but has also commercial people as well.”
Mr Linehan is therefore highly conscious of Defence Bank’s need to behave ethically, to make sure it has the confidence of its members and does nothing to break that all-important trust.
The recent senate enquiry concerning some of the biggest banks in the country brought to light just how different Defence Bank is in terms of its relationship with customers than the supposed big banks.
“On that day, in a Melbourne paper there were letters to the editor, and all of them were slamming the big guys. Right at the bottom was a letter from one of our members in Tasmania, saying ‘I love my bank, I don’t understand why you people don’t love yours’.”
This was a surprise to Mr Linehan, as this was just an average member writing in. But the letter highlighted that the ethical standards the bank keeps have not gone unnoticed by members, and make all the difference.
“If we do get a complaint,” Mr Linehan goes on to add, “which is very, very rare, it’s escalated, right up the tree. I will see it, or one of my direct reports will see it, and we’ll actually investigate it.”
In addition to its ethical standards, Defence Bank prides itself on its business and innovation, which fits in with the organisation’s structure to enable sustainable growth, which many organisations do not manage.
“In that, we aim to keep, in an operational sense, in the top quartile in technology, but more importantly we build products that are specific for our market, and which reflect the demographic and perhaps that regional spread.”
Examples of this include the organisation’s innovative video call-centre, as well as the shift of the main customer interface to mobile and web technology. The main aim is for the bank to build unique products out of these innovations.
“For example, we built deposits within superannuation when the GFC came through. We’re very conscious of building unique products, we have different insurance products in some aspects of defence, such as barracks insurance.”
Mr Linehan insists that the bank will always be very thorough when it comes to technology, and will always aim to be at the very top of the market, always looking for the next innovation.
“As an organisation, we can’t innovate across the whole thing, so we will concentrate on one or two major innovations, but within that we will always be at the top through things like Apple Pay and Android Pay. These things are always operational with us.”
In terms of staff engagement, it can be difficult to keep staff on the technological journey, because there is a lot of change running through the organisation. At any point there are major programmes of organisational change, staffing issues can arise.
“We put a lot of resources into training, both online and directly, and across our branches, which are spread all across the nation. Further to that, we provide a framework where people understand why we do what we do, and they’re clearly committed to the organisation.”
This means that staff engagement—which is measured by a standard, annual independent survey—currently sits at about 82%. This is extraordinarily high for any organisation, but particularly for one that goes through the level of change seen at Defence Bank.
The organisation has also been the recipient of the very prestigious Employer of Choice Award for 2016, which is awarded each year to an outstanding employer by the Australian HR Awards.
“One of the programmes we’ve been running over the course of this year is what’s called an Appreciative Inquiry, a process based out of essentially the Positive Psychology school at Melbourne University.”
The Appreciative Inquiry process involves using positive aspects of inquiry for the organisation to redirect it. Defence Bank began the process in June 2016 and is one of the very first Australian organisations to do so.
The employment of ethical standards and innovation has culminated in a fantastic offering for customers and members, and has meant that the bank is able to do more to help out those in need, to reach out into the defence community and offer assistance.
The organisation has always been an ardent supporter of social needs within defence, and in January 2013 setup what is known as the Defence Bank Foundation, which runs a programme known as Defence Community Dogs.
“It’s major role is to raise money and sponsor welfare dogs for return service personnel with PTSD, and we’ve got a very significant presence now, we’ve got over 200 dogs out, and we donate money to and provide the programme [for Defence Community Dogs].”
The main part of the bank’s involvement is the use of prisons, such as Bathurst in NSW, where the prisoners train the dog to a certain level, after which it is allocated to somebody with PTSD and the organisation provides ongoing training.
“The purpose of the training is partly about the dog, to keep the training going, but it’s also about keeping the person with PTSD engaged as a part of society, and the dogs have been a great programme, they’ve been so helpful.”
The success of the programme has been seen in testimonies from those people assigned dogs, many of whom have spoken about the life changing effect the scheme has had. The programme is supported by all of the bank’s 40 branches and its members.
“Our endeavour is to have people sponsor a dog—it costs $7,500 to sponsor a trained dog. But the cost structure and the admin is borne by us directly, so we want all the money to go through to the person with PTSD and the dog.”
The bank sponsors a range of activities beyond this that help people with PTSD, including being actively engaged in the Soldier Recovery Centre and several other operations that it throws its weight behind.
So, why should customers choose Defence Bank over others, especially the big four Australian banks? Mr Linehan says the bank’s defining characteristic is that it has a clearly defined moral compass.
“My view is that people work for organisations for two reasons. One is an economic reason; because it’s a successful organisation, and there are opportunities for expansion. But the other is a moral compass, and that’s where ethics come in.”
Mr Linehan believes that if people think they are working for an organisation that is ethically sound, then the organisation will always benefit from better results from the work and commitment of those people.
“A lot of our job applicants that come to us mention that as one of the reasons they applied. What’s happened over my time is that the quality of people coming in has increased every year, and we always have a lot of people that really are keen to work for us.”
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To view this editorial as it appeared originally in The Australian Business Executive magazine, click here.
Written by Nicholas Paul Griffin