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Structuring for Financial Innovation

Structuring a business so it is capital and tax efficient sounds boring to most who aren’t accountants, but if you can pay your staff better and compete in the market more aggressively, it’s no longer a boring topic.

If you can operate more efficiently with business units set in rapid response structures to drive marketshare, and deliver better products, more effectively to customers and partners, that isn’t boring but the responsibility of those who captain any business.

So what’s the revelation? One of Australia’s most aggressive and innovative banks, Macquarie Bank commenced with 3 people in 1969 and re-structured in 2007 to operate with a holding company rather than its earlier structure with the listed company being the trading and licensed bank entity[1]. This bank is one of the world’s great banks operating in international markets and doing things many of its peers aren’t[2].

With structure, efficient use of capital and maximizing returns to shareholders at the center of Macquarie’s focus, the Group’s restructure is uncommon but evidence that companies need to change the way they are set-up if they are going to deliver better results for stakeholders.

The 15% of the Australian banking market operating with structural impediments

Did you know that changes to taxation laws almost 2 decades ago has meant that most of the mutuals and credit union entities operating in the banking and finance sector in Australia are operating with MUCH MORE top tier capital (percentage) than their bigger, listed peers, because capital in excess of regulatory requirements is “trapped”, all because these entities have failed #Business101, structure?

They have failed to do what the mighty Macquarie bank did when it realized there was a better way to operate – restructure!

Mutuals are failing their stakeholder members, customers and staff. This “trapped” capital effectively means they turn away business every week which by default goes to the larger listed banks. Despite consulting “top of town” lawyers and accountant advisors, nothing changes, year in, year out. In business, most things are possible, but businesses are run by people and most people don’t like or want change – this story is evidence to the structural impediments that face those seeking innovation in global financial markets.

The problem is that when a business commences on its journey, as Macquare did with just 3 people, it doesn’t know how its place will change in the market, or how its vision or operating model might need to change. The status quo takes over, with innovation blowing like a tumble weed down the main street. The winds of change come and those who are nimble enough, will move with those winds of change. Many businesses get left behind and cling to their existence in a ghost town – business and customers having moved on.

Approaching FinTech, Banking, Insurance, Blockchain, Payments and Innovation

The biggest issues facing the efficient operation of financial markets is the thinking within the entities operating in these markets. Nimble players are without structure for steady and efficient access to capital – at the whim of VC’s and investors. The mutuals and cooperatives are living in the past, often operated by teachers, pilots, or representatives of their member base and obviously with skills, but not equipped for restructure and change needed to take them to the frontier – two decades of non-action is evidence of this. Listed financial bank and insurance behemoths are paralysed by adherence to measures that will guarantee salary and stock bonuses for the career executives at the helm.

I can walk into many boardrooms and provide a succinct, cost-effective action plan, but the plan will never see the light of day, because there is no mandate for change that is deep enough and wide enough to change the structure, and without addressing structure, the answers my friend, are simply blowing in the wind.

[1] A 2007 corporate restructure, creating Macquarie Group Limited as a non-operating holding company, enables Macquarie to continue meeting its regulatory requirements without compromising its pursuit of growth initiatives. http://www.macquarie.com/au/about/company/history.

[2] https://en.wikipedia.org/wiki/Macquarie_Group

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Comments: (1)

David Mann
David Mann - Various - Santa Monica, California 16 September, 2016, 04:25Be the first to give this comment the thumbs up 0 likes

oops *piers, "peers" :-)

David Mann

David Mann

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This post is from a series of posts in the group:

Innovation in Financial Services

A discussion of trends in innovation management within financial institutions, and the key processes, technology and cultural shifts driving innovation.


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