Pakistan Banking Industry: Career Paths of Bank Managers

Introduction

Pakistan has seen a great deal of change in its banking structure since 1947. Most recently, it underwent a long period of privatizing banks that had been nationalized a couple of decades earlier. Because of the importance of bank managers to banking operations, it seemed advisable to determine whether managers were currently in a positive condition — and if so, whether those working for privatized banks were more satisfied, productive, and so on than those working in government-owned banks.

In fact, there is only one government-owned bank in Pakistan at present, and even it has been partially privatized. It became apparent, however, that the emerging dichotomy is not between privatized and nationalized banks, but perhaps between Islamic and conventional banks. Even this divide has not yet developed into a clear-cut rivalry, with each type of bank competing for the best personnel. What has happened is that the head of the state-owned bank has been given carte blanche to bring Pakistani banking into the forefront of modern banking procedures. Unfortunately, he is apparently constrained by a lack of funding and forced to rely on a "trickle-down" approach to disseminate best practices to the nation's bank managers. The only serious concern on the horizon for Pakistani bankers — whether at Islamic or non-Islamic banks — is that the effort to bring all of them to global standards in service and IT knowledge is at risk of failure because of the haphazard way in which the information is being taught.

Political and Financial History Intertwined

Marietta (1996) has produced a relatively complete, if abbreviated, picture of Pakistan's banking industry from the late 1940s to the present. Understanding the industry, its pressures, and the financial and cultural expectations it brings to bear on current managers in both public and private banking sectors is essential. Indeed, the historical background is essential because few other nations host both public and private banking enterprises simultaneously. The peculiarities of Pakistan's political history have had a direct effect on its financial industry, and the progress of that industry within the larger socio-political culture that shaped it cannot help but affect managers — indeed, it may even influence a manager's choice of venue, public or private sector.

On August 14, 1947, the sovereign state of Pakistan was formed as an independent state for the Muslims of British India. The Muslims of British India would, in this new state, be permitted to live their lives "according to their political, social, and religious culture" (Burki, 1999, p. 1), which was regarded as distinct from the Hindu culture of British India. While noting that the idea of a partitioned state was not novel in modern political events, Burki (1999) contends that the partition of British India into India (predominantly Hindu) and Pakistan (predominantly Muslim) was unique and signified a much deeper rift than did, for example, the partition of Ireland into the Republic of Ireland and Northern Ireland — a partition that was, by the time of the India partition, already two decades old. Burki noted that:

"Each was a permanent hereditary group, exhibiting no intermarriage (except at the highest and lowest social levels, and then only very rarely) or internal absorption. It is therefore not only for the sake of completing the historical record that the story of modern-day Pakistan should begin long before independence day on August 14, 1947" (1999, pp. 1–2).

Arguably, the intensity of this Hindu-Muslim split continues to this day, at the social and political levels noted by Burki, as well as at the economic level. Therein, in fact, lies some of the proof of its continuance — in the form of Pakistan's belatedly adopting a more congenial attitude toward Islamic banking. Understanding the factors contributing to the partition may also aid in understanding today's banking attitudes and processes, especially as expressed in the careers of bank managers.

Before partition, in the 1940s, more than one-fourth of the total population of British India was Muslim — approximately 100 million people. The Muslims of the Punjab and those of Bengal were also geographically disparate. In general, the northwest (Punjab, Sindh, the Northwest Frontier, Bahawalpur, Kalat, Kashmir, and Khairpur) and the northeast (Bengal and Assam) claimed Muslim majorities of approximately 60 and 55 percent, respectively. Only in the north-central provinces were Muslims a minority, constituting no more than 20 percent in Bihar, Orissa, Delhi, and numerous princely states. However, that minority was better educated, more prosperous, and more urbanized than the Muslim populations in the other two regions.

Burki contends that the Muslim populations of the two largest Muslim-dominated regions benefited from the British raj. Among other things, there was the "threat of economic competition from the non-Muslims once the British lifted the protection they had provided, but this threat constituted only a minor worry" (Burki, 1999, p. 2). In the northwest, Muslims were relatively powerful and had been accommodated in more desirable professions, creating a positive socio-economic presence. The Muslims of the northeast, however, provided the peasantry (Burki, 1999, p. 2).

The northwestern population, descendants of the Mughal raj, had served their people for hundreds of years. When the British conquered India, this elite group suffered the loss of both traditional occupations and cultural standing. In 1857, this group waged a short and unsuccessful war against the British. Thereafter, the British changed their form of governance — from allowing the British East India Company to run India to taking on direct control under British governmental rule. British viceroys ruled from 1857 to 1947 with the greatest royal mandate, reporting to the Crown alone. Not surprisingly, an elitist civil service developed, and this, Burki contends, would have a more profound "impact on Pakistan's political and economic development than on that of Pakistan's sister country, India" (Burki, 1999, p. 3). The effect was so great and deep that a model of governance based on the British viceregal model remained in force in Pakistan "for more than four decades following independence" (Burki, 1999, p. 3).

The Muslims were not as adaptable as the Hindus, nor as amenable to giving up their languages (Urdu and Persian) in favor of English. It was thus not long before the Muslims, who had controlled a great deal of wealth before direct British rule, found themselves economically disenfranchised. Without command of the major common tongue — however imported and imposed — they could not hope to obtain anything but the most menial jobs, and virtually no positions in the civil service were open to them. One British administrator remarked: "There is no Government office in which a Muslim could hope for any post above the rank of porter, messenger, filler of inkpots, and a mender of pens" (Burki, 1999, p. 4).

This was the diminished society that Ayub Khan had to deal with after coming to power in 1959; his tenure ended in 1969. Although the initial response to freedom from British rule had been overwhelmingly militaristic, Khan and his military colleagues quickly recognized that the economy could not be run by decree, that the private sector should not be harassed into accepting policies that would jeopardize its ability to make a profit, and that the government's economic role lay more in providing direction to the private sector than in direct participation in economic management (Burki, 1999, p. 4).

In short, Pakistan rapidly reverted to the sorts of industrial and economic policies imprinted upon it by the British, emphasizing consumer goods and imports rather than exports. However, Khan did change several essential facets of Pakistani industry — changes that had a direct effect on banking and, in turn, on the career possibilities of bank managers. One of Khan's first changes was to discourage the concentration of industry and capital in Karachi, since such concentration was poor military strategy and the port city was vulnerable to naval attack by India. The development of dispersed industrial bases has also helped shape banking and the expectations of bank managers.

Before relinquishing power, Khan had begun building two additional industrial bases: "one in and around Lahore, the other north of Rawalpindi. During the Ayub period, Lahore emerged as a major industrial base of Pakistan, second only to Karachi, while Taxila and Wah, two small towns north of Rawalpindi, developed into centres of heavy industry" (Burki, 1999, p. 127). Khan also encouraged new entrepreneurs to enter industry and urged the landed aristocracy to "move their savings into industry" — a factor of lasting significance for Pakistani banking.

Moreover, by encouraging the rapid development of the financial sector, Ayub Khan made it possible for newcomers to participate in industrialization. A number of private banks — including Habib Bank, United Bank, and Muslim Commercial Bank — expanded aggressively, mobilized savings from the public, and made funds available to private entrepreneurs for investment. The government also developed capital markets; the number of companies listed on the Karachi Stock Exchange increased, as did the volume of shares traded, and steps were taken to organize a stock market in Lahore (Burki, 1999, pp. 127–128).

Also organized during this period were the Pakistan Industrial Credit and Investment Corporation (PICIC) and the Industrial Development Bank of Pakistan (IDBP), both important to industrial development, obtaining "large amounts of capital from the World Bank, the former for investment in large industries, the latter in relatively smaller enterprises" (Burki, 1999, p. 128). This may account for the relatively better-developed structure of Pakistan's economy compared to those of other developing nations.

Under Khan, "The financial sector not only grew rapidly but also modernized. A number of privately owned commercial banks, most notably United Bank and Habib Bank, penetrated deeply into the country with an extensive network of branches" (Burki, 1999, p. 128). The government-owned National Bank of Pakistan was also active, and some banks established themselves outside the country. Most importantly for this discussion, "The banks established training institutions that turned out a large number of graduates who found employment in the fast developing financial sector" (Burki, 1999, p. 128).

Public sector modernization ended suddenly in January 1972 when President Zulfikar Ali Bhutto nationalized large-scale industry and, shortly thereafter, privately owned banks and insurance companies (Burki, 1999, p. 133). Greater damage was done when Bhutto politicized commercial and investment banks, as well as commercial concerns and the national airline. While Bhutto's government fell in 1977, its attitude toward public firms operating in the private sector did not. "The administrations headed by President Zia ul-Haq and Prime Ministers Benazir Bhutto and Mian Nawaz Sharif continued to use firms operating in the public sector to accommodate friends and political associates as managers and then require these managers to find employment for political followers" (Burki, 1999, p. 134).

Banking nearly failed to survive these self-serving administrations. "By the time Benazir Bhutto's administration was dismissed from office in November 1996, most public firms in the service sector were either bankrupt or close to insolvency. The number of people they employed greatly exceeded their requirements. A significant number were 'ghost workers' who collected pay checks but did not add any value to the work of the companies" (Burki, 1999, p. 134).

By 1997, Pakistan's GDP growth rate was miniscule, mass poverty was increasing, and the government was incurring large deficits. "By the end of the 1990s, Pakistan was one of the most indebted countries in the world. The total amount of debt, internal and external, exceeded the gross domestic product. Two-fifths of all export earnings went to service external debt, the stock of which was increasing rapidly because a great deal of government borrowing was short-term and thus obtained at high rates of interest" (Burki, 1999, p. 134). This could not help but affect Pakistan's banking industry, and thereby its bank managers.

After the dismissal of Prime Minister Benazir Bhutto, Burki estimated the cost to the country of all the years of mismanagement at 20 to 25 percent of its 1996–1997 GDP — in absolute terms, the equivalent of $15 billion. Burki found that "The greatest amount of damage was done to financial institutions — commercial and investment banks owned and operated by the government, public sector insurance agencies, and investment institutions such as the National Investment Trust (NIT) and Investment Corporation of Pakistan (ICP)" (1999, p. 174). Non-performing banking assets had been accumulating for a long time, and the Bhutto regime's bad governance and outright corruption accelerated the process (Burki, 1999, p. 174).

Burki cites the World Bank's definition of governance: "the exercise of authority, control, management, power of government" — all factors essential to fostering development and sound economic policy. "The state's intrusion into the markets took a giant step under the nationalization policies of the government of Prime Minister Zulfikar Ali Bhutto, adopted between 1972 and 1976, when the National Finance Development Corporation was established to channel resources into the public sector industrial corporations" (Burki, 1999, p. 177). There had been a resolve to keep religion out of politics until Pakistan broke up in 1971, at which time that resolve began to weaken. In 1974, the National Assembly prohibited the use of alcohol and switched the weekly day of rest from Sunday to Friday. Making Friday a holiday, on which most global banking operates, might be presumed to have had some effect on Pakistan's integration into the international financial system.

Effect on Pakistani Bank Managers

From that ruin, however, the Bank of Credit and Commerce International (BCCI) emerged. "By the time Prime Minister Ali Bhutto nationalized all privately owned banks in the relatively new nation, certain ambitious bankers were already planning the Bank of Credit and Commerce International, a bank designed to be not merely multinational, but transnational, with no true parent country or home regulator" (Marietta, 1996, p. 79+). BCCI Holdings S.A., parent company of the bank, was registered in the "secrecy haven" of Luxembourg in September 1972. By 1975, BCCI had two major divisions: BCCI S.A. (Luxembourg), dealing chiefly with Europe and the Middle East, and BCCI Limited (Overseas), dealing with developing and less developed nations.

BCCI started out insolvent and was in some ways an ego-driven enterprise for at least one founder, Agha Hasan Abedi, "who had built his United Bank into the second largest in Pakistan" (Marietta, 1996, p. 79+) before nationalization. Its intention to serve as a sort of Third World bank did not help its solvency. Moreover, BCCI failed to follow traditional paths to banking profits, instead engaging in continual branch expansion and "acquisition of deposits, while a combination of imprudent and fraudulent uses of this money yielded substantial losses that were cleverly hidden" (Marietta, 1996, p. 79+).

Marietta notes that BCCI resorted to extralegal remedies, including the facilitation of flight capital, bribery of government officials to induce deposits of government reserves, falsification of letters of credit, facilitation of illegal arms transactions, catering to dictators and terrorists, and money laundering. "Full details of BCCI's varied activities may never be available, but those that have been documented seem to share a common theme: institutional circumvention of legal norms and desire for a continuous cash flow" (Marietta, 1996, p. 79+).

Despite good public relations, BCCI was clearly a troubled organization. "Price Waterhouse, the principal accounting firm for BCCI, concluded that 'on the basis of the losses which have been concealed, it would appear that the bank has generated significant losses over the last decade, and may never have been profitable in its entire history' (Adams & Franz, p. 319)" (Marietta, 1996, p. 79+). BCCI made loans of at least $700 million to the Gokal brothers, on which there appear to have been no principal or interest payments; those loans ultimately went into default. There was a virtual Ponzi scheme of moving funds between accounts to maintain an illusion of prosperity. The more BCCI expanded, the greater became its insolvency — and the more it relied on further expansion to maintain appearances.

This situation persisted for more than two decades, primarily because BCCI had chosen locations known for lax oversight (Luxembourg, the Cayman Islands), preventing any single central regulator from gaining a view of the entire bank. The instantaneous electronic transfer of funds allowed the bank to shift money between branches whenever needed. Bank regulators did not ultimately expose BCCI's activities; a U.S. congressional investigation by Senator John Kerry did, leading the U.S. Customs agency to issue criminal indictments against BCCI personnel. In 1991, the Bank of England organized the simultaneous closure of BCCI branches in the United Kingdom, Luxembourg, the Cayman Islands, France, Spain, Switzerland, and the United States (Marietta, 1996).

While this paper does not claim to establish any direct connection between BCCI and the conduct of current bank managers in Pakistan, the enormity of the problems caused by BCCI can reasonably be assumed to have had a lasting effect on the industry and on its managers. "BCCI's strategies — globalism and aggressive marketing — were not significantly different in nature than standard banking practice, but were simply larger in scope" (Marietta, 1996, p. 79+). It is the bank's extralegal activities that are more likely to have shaped the atmosphere and conduct of Pakistani banking over the long term.

Literature Review

Siddiqi noted that Islamic banks lack a sufficient variety of liquid instruments in the form of asset-backed and freely tradable securities on secondary markets, which limits their capacity to invest in long-term projects as conventional banks can. On the other hand, Islamic banks — with the notable exception of BCCI — have lower levels of bad debt than western banks. In general, Islamic banks select investment projects with near-guaranteed returns, debts are mostly secured in the form of leasing, speculative lending is unacceptable, and financing is directly tied to specific economic projects. Furthermore, an Islamic bank is not permitted to leverage itself: for every ten million dollars lent or invested, the same amount must exist in assets (Siddiqi, 1999, p. 33+). Despite these constraints, the environment for Pakistani bank managers appears primarily positive; Siddiqi identified Pakistan as one of the great potential market opportunities for Islamic banking.

Thomas and Linstead posed a fundamental question: what is happening to the cadre of middle managers currently employed in contemporary organizations in the aftermath of downsizing, restructuring, and the removal of bureaucratic layers? The literature, they noted, had identified contrasting views — negative and positive. They concluded that attempts to find accurate pictures of the status of middle management were insufficient for understanding the phenomenon, and that a social constructionist framework would better accommodate the divergence of findings. Thomas and Linstead used interviews with middle managers to illustrate how those managers construct their identities, how they arrive at those identities, and how they secure both economic stability and social legitimacy during corporate upheavals such as restructuring.

Thomas and Linstead performed an extensive literature search. The question they posed had first been raised by Dopson and Stewart in 1990, and it was apparent that interest in the condition of middle management had developed as early as the 1980s. By the time of the Thomas and Linstead study, the concept — that the traditional role of middle managers was the root of many of the problems of organizational hierarchies — had become an entrenched mantra of business life. Thomas and Linstead noted that the roles and identities of middle managers had become increasingly problematic, including redundancies and job insecurity (Cameron et al., 1991; Heckscher, 1995). They also investigated "survivor syndrome" (Brockner et al., 1992; Guest and Peccei, 1992; Doherty et al., 1995; Dopson and Neumann, 1998), and the reconstitution of management roles and how managerial careers were changing (Noer, 1993; Arthur et al., 1995).

Thomas and Linstead concluded that, because of the upheaval in organizations, middle management futures were extremely uncertain. On the other hand, they acknowledged those predicting a rosier picture: that once freed from bureaucratic constraints, middle managers might find a more useful role in "new managerial work" (Kanter, 1989), actually rising in relative importance as organizational structures flattened. Some researchers regard middle management as more entrepreneurial and as eliciting high intrinsic motivation (Dopson and Stewart, 1990; Neumann et al., 1995; Newell and Dopson, 1996; Floyd and Wooldridge, 1997). Interestingly, Thomas and Linstead argued that the original question itself — what is happening to middle management? — limits the possible responses and thus produces a dualism by treating managers as if they could only operate in a binary, either/or manner.

Since the 1980s, feminist scholars have also been involved in the issue of gender neutrality in management theory, Thomas and Linstead noted. They investigated the possibility that the picture of middle management is skewed by an erroneous assumption of masculine gender bias, leading to more culturally sensitive research. Thomas and Linstead adopted a social constructivist epistemology, viewing identity as constantly in flux with various social and linguistic constructs competing with each other. Rather than seeing middle managers solely as victims of organizational changes, they see them as agents of change as well. They noted that "Insecurity, ambiguity and confusion can be understood as a leitmotiv running through the text [of their interviews], suggesting that these middle managers feel that they are 'losing the plot' in their organizations" (p. 87).

The interviews conducted by Thomas and Linstead revealed ways in which middle managers use expertise, gender, performance, commitment, and a public sector ethic to construct identities within their organizations. Most of the identities constructed revealed a sense among middle managers that their work was important enough to warrant sacrifices in their private lives.

While Thomas and Linstead sought to determine how middle managers defined themselves, Budhwar and Baruch (2003) investigated career management in a large number of Indian organizations. Because of the geographic and cultural proximity to Pakistan, their findings are relatively germane here. Budhwar and Baruch use the acronym CPM to denote career planning and management, and HRM for human resource management. Their major concern was that, in the current dynamic global business environment, traditional modes of career management were no longer workable — a challenge even more pronounced in developing nations where relevant research is particularly scarce. They proposed that the paucity of information could be traced to the fact that academics and practitioners have barely comprehended the importance of the field, and that few theoretical frameworks exist in which to conduct studies.

One of the important findings of Budhwar and Baruch was that India is a "cultural island," not clustered with other nations, due to the complexity of its cultural context. While it could be argued both ways — that Pakistan has an equally convoluted culture, or that it has a simpler one because it broke away specifically to be an Islamic state rather than an inclusive multi-religious one — it is likely that Pakistan is sufficiently singular to benefit from several of Budhwar and Baruch's findings. They concluded that a possible way forward for those managing careers is to "develop career systems as actual systems, i.e., as sets of practices which naturally fit together, and are appropriate to the organization's stage of development, form, and/or industry" (Budhwar and Baruch, 2003, p. 714). Most interestingly for the current discussion, Budhwar and Baruch found some "crossvergence" occurring in HRM and CPM practice between developed and developing nations, attributing this to the fact that many managers were trained in the West, or with western-developed management tools.

While Budhwar and Baruch studied the empowerment of Indian managers, Holden and Roberts (2004) studied the "depowerment" of European middle managers. Despite decades of debate about whether middle management was disappearing, Holden and Roberts accepted its longevity and studied managers in the Netherlands, Sweden, and the United Kingdom regarding increasing pressures to perform "within a surge of management initiatives and policy moves to make organisations more profitable (in the private sector) and more 'efficient' and accountable (in the public sector)" (Holden and Roberts, 2004, p. 269). This invariably leads to contradictions between a manager's performance and his or her perceived roles — the need to do more with less — which they equate with being "depowered."

Holden and Roberts also considered the impact of new technologies, which replace jobs and restructure remaining functions. This is especially true in banking and finance, where middle management positions are disappearing along with the professional identity they once conferred. Their work drew heavily on Hofstede's typology of cultural comparisons, noting that British, Dutch, and Swedish managers are close on three of four indices of work-related values — power distance, uncertainty avoidance, and individualism — and differ mainly on the masculinity dimension (Hofstede, 1984).

Holden and Roberts express ideas similar to those of other researchers: that "As employees middle managers are one of the foci of change, while their position and vicarious responsibilities make them also the agents of change" (2004, p. 273), citing Jackson and Humble (1994). They note that middle managers who survive downsizing do become more empowered, with greater control over budgets and HRM activities, and greater autonomy in daily operations. The executive suite has pushed many functions formerly reserved for higher organizational levels down to middle management. However, this comes alongside considerable countervailing pressures. As Holden and Roberts observe:

"Our research reveals that this widening of function in an environment of rapid change has created tensions, conflicts and contradictions in the role of middle managers leading to feelings of being overburdened, stressed and ultimately, in some cases, entering a state of anomie" (Holden and Roberts, 2004, p. 275).

Holden and Roberts conclude that "Middle managers can be viewed as both the purveyors of change and the recipients of change (Staehle and Schirmer, 1992)" (2004, p. 285), but that their identification with their organization remains weak and they remain subject to feelings of discontinuity and ambiguity. Role conflict, isolation, and ethical dilemmas are the result in many cases. Still, Holden and Roberts propose that the opportunities to develop new skills and lead more varied professional lives represent a significant advantage in the new middle manager's environment.

Dixon (1995) was concerned with middle manager development specifically in privatized companies. She proposed that organizations should develop an organic culture that can constantly respond to and learn from environmental pressures, enabling decision-making and idea generation at all levels. In concert with other research cited here, Dixon proposed that middle management behavior both responds to and contributes to changes in organizational cultural values. She noted Noel Tichy's rubric for dealing with ambiguity in organizations, identifying the characteristics of organizations with high tolerance for managing cultural uncertainty as: differences in values and ideology; orientation toward facilitative and collaborative relationships; learning-oriented norms supporting trust; respect for individuality; open confrontation of difficult issues; and risk-taking with internal commitment (Tichy, 1983).

Dixon also emphasized the importance of ensuring that middle managers believe they can make a positive contribution. "Companies must demonstrate they value the knowledge and expertise held by their managers" (Dixon, 1995). Training is key to preventing middle manager burnout. She found "a great deal of enthusiasm where the intention of restructuring was to increase responsibility and decision-making lower down the organization, for example in support of customer service initiatives" (Dixon, 1995), although this same tactic had been identified by others as an unfortunate pushing down of demands without commensurate increases in prestige or pay. In Dixon's research, teamwork was rated highly among the things necessary for successful privatization, with cross-functional teamwork cited as a way to reduce interdepartmental rivalry.

Regardless of the specifics of a reorganization or privatization, Tregoe and Tobia (1990) pointed out that involving middle managers in the process early was a positive step, both for the success of the change program and for the managers' careers. Dixon offered a detailed set of recommendations for organizations undergoing change, including: clearly defining how the current role of middle managers will need to evolve; developing a positive perspective on middle managers as leaders of change; articulating a clear and simple organizational vision and soliciting feedback from managers to ensure it is understood; involving middle managers in corporate strategy development; rewarding innovation and learning from mistakes; and building mutual trust and confidence between senior and middle managers rather than cultivating suspicion and resistance (Dixon, 1995).

In the introduction, two contrary factors were noted. First, post-independence banking in Pakistan experienced significant periods of unethical conduct resulting in financial disaster. Second, Islamic banking is currently ascendant, and Pakistan appears to be a major market for those services. This section outlines the current status of Pakistani banking and presents composite case studies of several Pakistani bank managers concerning their beliefs about advancement in the industry as currently constituted.

Conclusion, Discussion, and Recommendations

The hypothesis behind the current study was that managers working for public banking organizations in Pakistan had a very different experience of their work and work environment than do managers in privatized banks, and therefore have very different career orientations. In fact, because there is only one primarily state-owned bank in Pakistan — and even that has become substantially privatized — the hypothesis was difficult to prove.