In an industry filled with legacy providers, Synchrony had a key governance advantage when it spun off from GE in 2015. “We had an opportunity to start completely fresh,” says Richard Hartnack, the company’s founding chairman. Hartnack, who started in banking in 1971 and has had a front-row seat to the seismic shifts in financial services over the past 50 years, knew how important that was. Most bank boards had a similar composition, he says. “You had local small and medium-sized business leaders, community leaders, you usually had the CEO of the hospital and the CEO of the university and that type of thing. But then the industry got much more complex,” he says. Starting from scratch at Synchrony, “we had the ability to think about, how do you put a board together that really is responsive to the business needs today?”
In building Synchrony’s board, Hartnack aimed for a composition that reflected the company’s consumers, employees and the communities in which it operated. “We set out, from the outset, to have a diverse board that had current skills applicable to the business challenges that we anticipated we would have at Synchrony,” says Hartnack, adding that board refreshment was identified early on as a key element. “Evolving the board should be an integral part of the strategy because as business changes, you need to have people on board that can bring something to the table on those tough challenges.”
This month, in fact, Hartnack, who is 75, became the first Synchrony director to age off the board. They chose an age limit rather than term limits because “we figured most would cycle out close to 10 years anyway, so let’s just have that age limit to be sure that we don’t calcify, if you will.”
In the following interview, Hartnack shares his views on board turnover, monitoring culture, the biggest lessons from Covid days, and the greatest challenges boards face in the year to come.
When you were building up Synchrony’s board in 2015, what skills or characteristics were you prioritizing? And what sort of diversity was important?
Different forms of diversity bring different strengths. We were able to have what I would describe as real 21st century skills on our board. We have a former CEO of a cybersecurity firm, for example. Cybersecurity is just a major issue in our industry, especially because money’s at stake, and so having the best possible cybersecurity skills on your board is a big advantage. Also, the fintech segment of the financial services industry is very active, and we brought on a director who had significant digital electronics payments experience as well as the experience of integrating payments into other digital devices for our company. When we started the company, when we broke away from GE, we were among the leading telecommunications users in the country—15,000 or so people talking on the phone all day, every day. So we brought on an executive from the communications industry. Tech has played a bigger and bigger role, so we looked for people with tech experience and of course, being in the credit card industry, we wanted credit card experience. So I had some, and Roy Guthrie came from Discover. So we were able to build up a board step-by-step that really gave us the hard skills.
And then we looked for people that would bring gender and ethnicity diversity, because we wanted our board to represent the points of view of our employees and our customers. We ended up with now 12 people on the board and we’ve got four women, four minorities and two veterans. In many respects, we mirror the markets we serve, the investors, the clients and corporate partners. And it makes for a livelier conversation, for sure.
From the start, you’ve focused on employees as critical stakeholders. Can you share more on that?
Yeah. Especially at our company, because the only connection our customers have with us on any regular basis at all would be by telephone—or digitally, which doesn’t involve a person—but we handle a lot of voice-to-voice telecommunications connection with our clients. And we need those 10,000 or 11,000 frontline employees to be deeply engaged in the company, deeply invested in our cultural beliefs and our business beliefs about how we deliver product and what’s important to the company. So when they’re making decisions, those employees are really, to the extent we’re capable and successful at it, reflecting the will of our CEO, but in a one-to-one conversation with the customer. So if we get the employees understanding where the company is going, engaged in that, bought into that, then they represent the company to the customers, just the way we want it represented. That’s helped us.
There’s a lot of hype around stakeholder capitalism right now. What’s your take on it? What does it really boil down to for boards?
Yeah, it’s a good question. My reaction is no more than one person’s opinion, but people want to do business with companies that they believe have shared values, have an interest in the client’s well-being and that they can trust, because we constantly have to give clients choices and those choices are more palatable if they come in a way that the client trusts. I think the broader question of stakeholder capitalism or stakeholder investing is everything from how we treat the communities we serve to how we deal with our labor market as a supplier of health services and retirement services for our employees, all of that’s part of the stakeholder pitch. And now with the interest of more and more investors, we’re getting deeply involved in that whole topic of ESG, where the environment enters, and even companies like ours have a lot of opportunity to improve our environmental footprint. We actually improved our environmental footprint a lot during the pandemic, because our use of our office buildings went down, our use of travel and airplanes and everything else went down. We will look really good when we add up our carbon footprint from 2019, compared to 2020.
Yes, and your decision to move to a hybrid model that includes remote work as a choice for employees will likely impact that further. What was behind that decision?
Yeah, that’s a good example of treating our employee group as stakeholders because rather than just make the decision, we felt it was important to get the perspective of our employees. So we did, and what we found was a lot of people, particularly frontline employees in direct contact with the customer, a high percentage of those folks wanted to be able to have work-at-home as an option, and to have access to the office from time to time—and to have that ability to work from home without concern about it being career threatening or in any way seen as a negative. And we said, we’ve had really good luck during the pandemic with this. It has worked out well, our service levels have been every bit as good as they were before—in fact, in some cases actually improved—and we want happy engaged employees, and if they want to work at home now that we know how to do it, that’s a win-win for us. The employees are getting what they want and we’re getting what we want. Time will tell, but I would guess this will give us the opportunity to achieve greater stability in our workforce, because if not everybody’s offering it, we’ll have a bigger market share of people that want to work at home. And those folks won’t have as maybe as many opportunities with other companies, so that might lead to longer term employment. That’s really helpful because experience equals quality service every time.
What are the risks with the new model and how do you anticipate those or deal with them ahead of time?
You know, if you sit around and think about it, you can worry yourself to death. Because there’s lots of risks with anything you do, okay? But we now have a full year of experience and actually, we started this work at home before the pandemic, which turned out to be a great advantage for us because we went into it with a roadmap and knew exactly how to do it. That allowed us to go from 500 beta test homes to more than 16,000 people working from home in the company.
When you were piloting that, how did the board monitor how well it was going and the risk involved?
We actually took a small group of directors down to Arizona where we were piloting it to look into risks and to engage with employees, to find out how work at home was going to work for us. That all made it simpler when we got the decision that, oh my God, we’re going to have to have everybody working at home. We were able to say, hey, that’s not a huge stretch because we’ve already been doing it. We’ve got the roadmap on how to do it. Let’s just execute. That’s what we ended up doing. The operational risks of it, security, things like that, we thought that through a lot ahead of time, so people working at home have a company computer, or thin client, that’s been designed specifically for the job so they can’t see everything at home about a client, they can just see what they need, which is not typically protected information.
So then the risk really gets down to, can we make training as effective and efficient? Can we retain the cultural advantages of getting everybody together? Are there other issues to mitigate? The way we’re going to do it is a hybrid system, so those who want to come to the office will be able to, and those that want to work at home will be able to. We’ll occasionally bring everybody together, either through these kinds of calls or by bringing them into a job site hub where we can talk to most of them face to face.
Do you feel like the culture at Synchrony is strong enough to move through virtual walls?
I think so. I mean, we’ve only been at this a year, or a little bit more for our Arizona colleagues, but culture at the company is kind of the accepted way we do things and that’s everything from how you relate to your coworkers, how you treat each other to does everybody get to work on time or do people not get to work on time? There’s just a thousand things around the culture of a company. If we just keep everybody behaving in ways that are consistent with the positive elements of our culture and we make sure that if people stray, we bring them back, then I would say we’re very confident that the Synchrony culture can continue. There’s also an element of work at home that’s a little unique and a lot of people don’t mention it, but it enables us to open our jobs to a wider range of people—people with disabilities, people that have unique childcare or senior care duties that our situation will allow them to work and meet those responsibilities. That really gives you as an employer a shot at a lot of good people that could not otherwise work.
What other steps do you take to monitor culture?
It’s something we work at. All of our directors sign up to make at least two site visits a year—when we’re not in a pandemic. That allows us opportunities to have our directors in roundtable discussions directly with employees. The top management of the company usually excuses themselves from those meetings, so that the directors have pretty direct, unfettered contact with employees in different work sites. I think we’ll adapt that now to a Zoom deal where we’ll have video calls with employees to put the directors up against employees where they can have personal conversations with them. I think you get a pretty good feel, not from one conversation, but by the time you’ve had 20. In my own experience, I’ve always spent a lot of time out in branches, talking with employees. If you open yourself up and ask leading questions, people tell the truth because it’s important to them. If there’s something wrong, they let you know because generally they want to get it fixed. They wouldn’t be working for us if they didn’t like some things, so if something was wrong, they tell you, then we try to fix it.
Will people share more with directors than with management?
Certainly, nobody’s trying to hide stuff, but the directors sitting down with employees, we do view it with a different lens because directors have all had experiences away from Synchrony that make their interpretation of what they’re hearing different. So it’s another kind of view into the company with a different set of filters and I think it’s important for directors to spend time on the shop floor, if you will, to know what’s going on.
In this past year with Covid, what was the biggest lesson you came away with as a director?
For us, the biggest lesson was practicing at the board level the same kind of agile approach to business that the company had been moving towards, had been executing on, and had been talking about. Because what we learned in the pandemic is that we had to turn on a dime. We had to make very fast decisions. So the board, we all participated in agile leadership and agile response to problems. A lot of companies did this. I think it went particularly well in our company, we felt very good about how we were able to respond.
[For example], we had to change our incentive plan for not just the top management, but for all the senior officers in the company because we had an incentive plan that was blown out on the water on the second day of the pandemic. We had expected that there’d be a lot of bad credit, but what actually happened was there was a lot of paydown of credit, which changed the economics of our business really quickly. So we knew that we needed to put in place a new set of goals and objectives that fit our unique circumstances caused by the pandemic. We got that done quickly—I mean, like, in one meeting—and that enabled leaders in the company to go out and talk to people about the fact that look, the incentive plan is almost out the window, but we’re putting in place new measures, new metrics, new goals, new objectives. If we do well on them, we’ll still have a good incentive payout at the end of the year. It worked out for us that way.
Looking out over the coming year, what is the biggest challenge facing boards?
In our company, I’d say the biggest board challenge is continuing to support and encourage the multi-directional efforts of our management teams, because we’re still working on improving our game in the digital space so that our digital connection to our client and our corporate partners is best in class. That’s a big job. And we also have to focus on getting the return to work exactly right because the last thing we want to do is return to work and end up making a judgment mistake that ends up in a lot of younger people who haven’t had their shots yet getting sick. So continuing to worry about the safety protocols we learned in the pandemic and not considering that risk behind us is still very much in front of us.
We’re like all businesses where we have a portfolio of businesses and we need to make sure that at the margin we’re continuing, despite all the other challenges, to put more resources into our higher growth, higher return opportunities. Like all businesses, we’ve got portfolios that are legacy portfolios that are very important to our bottom line and we need to invest in those to keep them competitive, but we’ve gotta be sure that we’re letting our best new things reach their full potential, because they’ll be our legacy businesses 10 years from now, and we’ve got to make sure we have strong legacy businesses 10 years from now.
Is the company planning to mandate vaccination for anyone coming back into the office?
We haven’t made final decisions on that. I believe that our approach will be that we provide the opportunity for you to work at home. If you’re not vaccinated, at least until the country ends up at herd immunity, it would be better to stay away from folks. The last thing you wanna do is get Covid going in an office environment.
Some boards have been changing the way they handle shareholder engagement. How has that evolved at Synchrony?
Yeah, we had some issues a few years ago with ISS not willing to recommend on a couple of things, and we felt that, rather than stomp our feet and get mad at ISS, it would be much more productive to engage directly with our shareholders. So, representing the board, I participated in, I don’t know the number but north of 20 conversations with our largest investors on a variety of topics. And that kind of has become part of our stockholder relations effort, to be sure that we give any investor that wants it, and our largest investors, for sure, to give them the opportunity to engage directly with the board so they get whatever questions they’ve got about the board answered. It’s worked out pretty well. I’ve personally done it for the last six years and it’s a practice that I think is nothing but good.
