Chicago Fed President Speaks to GSB Alumni

Michael Moskow Recounts His Efforts to Revitalize the Federal Reserve Bank of Chicago

By: Scott Sharabura

Posted: 1/7/02

On December 3, the Chicago GSB Club hosted Michael H. Moskow, the President and CEO of the Federal Reserve Bank of Chicago, at the Gleacher Center. Dr. Moskow's speech to a mostly alumni audience was entitled "Cultural Transformation at the Chicago Fed."

Dr. Moskow has been the President of the Chicago Fed since 1994. With a Ph.D. in economics from the University of Pennsylvania, he taught economics and labor relations at several schools and held several senior U.S. government positions during the 1970s. His private sector experience includes senior management positions at Northwest Industries, Dart, Kraft, and Premark International. He also served as Deputy U.S. Trade Representative under President George H.W. Bush, and taught strategy and international management at the Kellogg Graduate School of Management before his appointment as President of the Chicago Fed.

In the mid-1990s, it became apparent that the Chicago Fed was falling behind private-sector competitors and other Federal Reserve Banks. "We were slow to change, bureaucratic," said Dr. Moskow. "We tended to over-analyze every decision. We were risk-averse to a fault. Our conservative culture was affecting productivity, morale, and our ability to succeed in a changing world." When compared to other Federal Reserve Banks, the Chicago bank was losing influence. Chicago was turned down several times to lead national programs for the Fed System, and in general was not seen as a leader among its peers.

The need for change was obvious. First, Dr. Moskow and his senior leadership team developed a clear vision for the organization, and then surveyed employees and customers about Bank culture. "The results were sobering," recalls Dr. Moskow. "It was very clear that we had to transform our culture if we were going to be a high-performing organization."

They took action very quickly in problem areas. They set up a new centralized call center for customers, consolidated and outsourced support services, and reduced layers of management. "I must confess that this was one of our most difficult decisions," says Dr. Moskow about his 13 percent staff reduction among the officer ranks. "But it was absolutely necessary to show how committed we were to increasing spans of control and streamlining the organization."

Long-Term Initiatives

Next, they looked at several key cultural initiatives that would provide the foundation for long-term transformation. The Chicago Fed instituted a 360-degree feedback process at all levels – including all the senior managers, right up to Dr. Moskow himself. While many in the business press express skepticism about 360-degree reviews, Dr. Moskow stresses two key points to make the process work: they are not used for raises or promotions, and are not a one-time event.

Another critical initiative was improving communications within the Chicago Fed. Instead of operating on a "need-to-know" basis, the Chicago Fed opened up dramatically. They expanded the number of face-to-face meetings, with box lunches, town halls, focus groups, breakfast meetings, and departmental meetings. They also launched an intranet publication called Dateline Daily, allowing employees to be up-to-date on Fed news and details of management meetings.

The Chicago Fed also overhauled its performance evaluations. Before the changes, joked Dr. Moskow, "you might have concluded that the Fed was like the mythical town of Lake Woebegone – where 'all the children are above average.' " Now, appraisals reflect differences in performances, and managers can make more meaningful distinctions when it comes to salary reviews.

Has the Chicago Fed been transformed? Most signs point to yes. In efficiency of financial services, the bank has risen from the bottom quartile to the top quartile in six years. The bank was selected to lead the Federal Reserve System's customer relations office. It also coordinates initiatives to develop the leadership skills of Fed officers, and serves as a knowledge center on merchant banking and Internet banking. Most importantly, the sense of pride and enthusiasm in the workforce has made the bank a much more enjoyable place to work.

Lessons learned

Make sure everyone understands the need to change. "To engage people in change, you need to create a sense of urgency. People need to know what is wrong and the consequences for the organization of not changing."

Involve everyone. "Leaders cast long shadows. The eyes of an organization are on its leaders to see if they are truly changing."

Use new staff to help forward the change process. "Each year, the average organization has turnover of about 10 percent… Every organization needs to hire new staff who reflect attributes needed in the desired culture and who can serve as ambassadors of change."

Create and celebrate role models. "At the Chicago Fed, our best role model for change was one of our highest-ranking officers… You might think such a veteran [of 42 years] would resist change, but he embraced it. His attitude was infectious, inspiring."

Communicate strategically. "In retrospect, we realized that we were guilty of trying to communicate too much, too soon… Focus your communications on one or two key messages, and make sure the messages are consistent throughout the organization."

Take a long-term view. "Transformation simply doesn't happen in a hundred, or even a thousand, days… While we had some 'quick hit' successes at the Chicago Fed, we knew it would take three to five years for change to begin to reach critical mass. And a high-performance culture would become the norm within seven to 10 years. We communicated this timetable to everyone in the organization, so they wouldn't become complacent or discouraged."

Q&A

During the Q&A session afterward, Dr. Moskow cited the contagious nature of change as the best "good surprise" that he witnessed. Though bank employees were skeptical at first – several complained that the transformation was just a "flavor of the month" managerial style—once it caught on, it spread in ways that he had never imagined.

When asked how to deal with employees' fear of change, Dr. Moskow identified three groups of employees: those who are enthusiastic about change, those who adopt a wait-and-see attitude, and those who actively resist the change. The latter group may never come around, and eventually may need to leave the organization.

What the audience concentrated on, though, was Dr. Moskow's views on the economy—the business press in attendance hung on his every word on the subject. One alumnus voiced what was on everyone's mind: what will lead the United States out of recession? Dr. Moskow focused on business spending and inventory levels, which have recently shown positive signs of turnaround. He also cited the Fed's ten interest rate cuts [now eleven, after the Fed's December 11 cut], the federal income tax cuts, and other fiscal stimulus proposals made in the wake of September 11. "Recessions do end, I just unfortunately can't tell you exactly when," he said.

Another alum asked about the housing market. "The strength in the housing sector this year has been very positive for the U.S. economy that is clearly extremely weak at this point," he answered.

One alum asked about Chicago's economy differed from the rest of the country's. Dr. Moskow noted that Chicago is far less dependent on manufacturing than in the past, with software, health care and services taking a more leading role in the local economy. As a result, Chicago's economy is much more diversified than that of other Midwest cities.

Before Dr. Moskow's speech, Dean Ted Snyder addressed the alumni in his first annual meeting as dean of the business school. He introduced himself to the alumni in attendance and gave a brief overview of his background in business education. He also outlined his three main challenges faced by the GSB: external relations with alumni, media and corporate partners; relations with the university; and students and the job search. "Right now we need to rally around the students," said Dean Snyder, asking alumni to offer career guidance to current GSB students.

The Chicago GSB Club, which hosted Dr. Moskow at its annual membership meeting, is a GSB alumni-run professional network. It organizes career roundtables, keeps Chicago-area GSB alumni in contact with each other, allows alumni to update their MBA, and spearheads outreach and community service activities in the Chicago area.