In business, acquisition – not imitation – is the sincerest form of flattery. Which means Jayne-Anne Gadhia must have been doing something right. At the time of writing, Clydesdale Bank and Yorkshire Bank (CYBG) had agreed to pay £1.7bn to buy Virgin Money, the FTSE 250 bank she runs. 

Flattery, because Virgin Money really only got going in 2011, with its own acquisition of troubled building society Northern Rock. Since then, it has delivered some stellar results – culminating, in February, with an increase in underlying pre-tax profit of 28%, to £273m. So, is Gadhia that rarest of beasts, a popular banker? 

“I never think of myself as a banker,” she says, notwithstanding her autobiography’s title, The Virgin Banker. “My career hasn’t been that planned; it’s more a series of accidents.”

CYBG and Virgin are often classified as ‘challenger banks’ – an awkward catch-all term for institutions outside the big incumbents, such as Barclays and HSBC. Awkward, because it covers everything from TSB (a brand that dates back to 1810, but was recently spun out of Lloyds) to Atom Bank, a pure-play digital operation that doesn’t even offer a current account.

“The problem in banking is that we have two very dramatic ends of the scale,” says Gadhia. “Small, nimble, innovative fintechs that do some brilliant things, usually in narrow areas, and the big banks, with the burden of legacy systems, but the deep pockets to invest in new areas and customer service. We’re focused on building a digital bank, and we’d like to be one of the biggest fintechs, rather than one of the smallest banks.”

One reason for this decision is that the lessons of the financial crisis haven’t been fully absorbed by the conventional banking industry. And with Virgin Money’s stated ambition to make ‘everyone better off’ – Gadhia habitually shortens it to ‘ebo’, so embedded is the mission in her lexicon – it’s clear that Virgin Money is keen to distance itself from the excesses of the past.

The bad old days

Gadhia saw those excesses at first hand. She was a founder executive of Virgin Direct in 1994 and led the successful launch of the Virgin One account. When that business was sold in 2001, she joined the acquirer, RBS, as managing director of its mortgage division, then its consumer finance arm. Of course, RBS was the most aggressive – and most deeply affected – of all the UK banks in the crash of 2008.

“When I joined RBS, it had just made a record profit of £1bn – the first Scottish company to do it,” Gadhia recalls. “That was under CEO George Mathieson. Then Fred Goodwin became CEO and took RBS to multibillion-pound profits and a balance sheet bigger than the UK economy. That rush for growth, that striving to prove a Scottish bank could lead the world, hid the way growth was being achieved.”

“Nothing was done in an evil way,” she adds. “It was genuinely looking to help the Scottish economy thrive. But when that went wrong, the impact was huge.”

Gadhia did feel uncomfortable, even before the edifice crumbled (she left RBS in 2007 ). “In 2005, we were scenario planning,” she recalls. “We were asked to consider a joint venture with a bank owned by a major state actor. We all said, ‘there’s a problem with human rights in this country’, so we had to block the bank from doing further business. But Fred came in at the end and said, ‘it’s only the business solution that matters’. That was one of the things that tipped me over on the culture issue: doing the right thing is the only way.”

So what does that mean for the industry today? “We have to build more sustainably than that now – where we’re not overexposed to any one area,” she says. “If things go wrong, the impact should be on the directors and the shareholders – not the whole economy. The question is, how do we change the culture?”

In Gadhia’s view, it comes down to transparency. “So much of what happened in organisations was kept internal,” she says. “Exposing unhealthy practices and discussing them means we can effect change. Just recently, some businesses have failed in ways that revealed something was very wrong underneath. We need to learn from that.”

Profit with purpose

Gadhia’s point is that there’s a cultural malaise more widespread than just the financial services industry. Whether it’s the rocky business model at Carillion or the debt piled into companies such as Maplin – such structural problems require serious soul searching, but she sees no inconsistency between that cultural reform and capitalism.

“We want our shareholders to make money; we want our customers to have a great product, our staff to realise what they want in their lives, and to do good in the community,” she explains. “Thinking about stakeholders in those dimensions helps us make better decisions, and if anybody asks me why we’ve done well, it’s because we’re all aligned to that culture – that purpose, rather than a profit principle.”

The original Virgin One account, a pioneering offset mortgage, is a great example. “Every year, we would send a statement to a customer with advice on how to pay less in the coming year,” she says. “And a number of people said, ‘that’s not how banks work’. But the loyalty of customers repaid that decision. Helping them manage their finances and minimise their fees is how you build a sustainable business.”

You can still see that drive for customer connection in Virgin branches around the country. The Dorking branch, Gadhia says proudly, had a geranium sale recently. It might not deliver profit, but it demonstrated that the manager is passionate about her community. And empowering her people to act on the right instincts – guided by ‘ebo’ – is key.

Gadhia’s guts

Ah, instinct. Gadhia tends toward the Steve Jobs end of the spectrum when it comes to innovation. “I’m embarrassed to admit to researchers that we are very bad at deriving detailed insight from the market,” she says. “I – and, perhaps, Virgin as an organisation – work by instinct first, then support by analysis. That’s worked well for us.”

She cites First Direct, which pioneered telephone banking when, Gadhia says, “all the research showed it would be the worst possible decision – everybody wanted branches”. First Direct remains the top-rated bank for customer experience, according to KPMG Nunwood research. “If you’re going to be really innovative, you often need to go with your gut feel first.”

Richard Branson, another instinctive business leader, helps Gadhia feel well-supported in her decision-making. “I’ve worked with him for 25 years and never seen any cynicism,” she says. “So I can be braver about standing up for what is right – because I know he’s standing right behind me.”

If it’s not detailed market insight that drives decisions, where does it come from? “Talking to people, what you see for yourself – a sense of what people who aren’t like you feel about something,” says Gadhia. “If you start with the research, there’s a risk you end up with what they’ve already got. Our job is to be innovative and create the future, then test it – rather than the other way around.”

Diversity, diversity, diversity

That, Gadhia says, is why diversity is so important. Monocultural organisations have a far harder time picking up those softer signals; they’re less likely to have sound instincts.

“Research and analysis shows that diverse boards and workforces create better business outcomes,” Gadhia says. “We need to make this an issue for the CEO, and ensure you have a strategy in your organisation for getting equality right.”

Her scepticism over research hasn’t stopped Gadhia from using staff surveys liberally at Virgin Money. One of the key insights from them is how engaged and comfortable people feel about working for the business. But it was while attending a session of the Inspiring Women network for school outreach that really made the equality issue live for her.

“There were 400 schoolgirls, around 90% non-white, sat at tables of eight or 10,” she says. “On the first couple of tables, I couldn’t really engage with them. So, on the third, I asked one girl, ‘why am I struggling with you all?’ She answered, ‘you’re a successful white woman – I will never be like you’. And I said: ‘Would it make a difference if I said my husband isn’t white?’ Suddenly, the engagement was more immediate.”

It was a revelatory moment. Virgin Money made a formal move to share employee stories via its intranet, letting people know their voice could be heard without mediation. That’s a test of culture – people need to feel comfortable sharing stories – but the results have been good. “For example, when we first did our staff survey, the number of people prepared to say they were gay was much lower than it is now,” says Gadhia. “Now people write to tell me how good they feel about working in a company where they can be themselves.”

The bigger picture

A female CEO with an instinct for diversity? It’s not surprising that Gadhia was approached in 2016, by then Chancellor George Osborne, to lead the Women in Finance campaign, aimed at getting firms to work towards a more balanced and fair industry. “As a woman in business, I’ve often felt patronised by powerful men,” she says. “I’d always felt I didn’t want to be an icon for women in financial services – but it shocked me that the progress of women in the sector is so much worse than in any other.” 

Gadhia stresses that, for her, it is not about feminism. “It’s about equality for everyone,” she says. “We recently recruited for a head of facilities and a head of IT. People say it can be harder to hire women in some roles, but we’ve hired women for both of these jobs by having a balanced list of men and women who are competent to do the job.”

Since the Women in Finance Charter was launched, around 85% of signatory firms have committed to having at least 30% of their senior roles filled by women by 2021; more than 25% say they are aiming for 50/50. Gadhia’s landmark 2016 report, which kicked off the programme, is the definitive snapshot of the sector’s gender problem. With 3,500 contributions, it’s also a huge piece of qualitative research – although Gadhia might argue it’s a classic case of the gut knowing something must be done, and insight backing it up.

Shining a light

This isn’t a problem that can be overcome overnight – and it’s deep. For example, a new survey sponsored by law firm Fox & Partners says that, for those earning more than £1m at financial services firms, there is a gender pay gap of 91%. What makes Gadhia even angrier is that many firms are fudging their figures.

“The organisations that should be criticised are the ones not reporting the pay gap,” she says. “When you shine a light on what’s going on, it forces people to change. 

“I’ve been horrified that some professional services firms excluded partners from their calculation – a tier heavily skewed towards men, so it masks the real pay gap. EY was the first to include partners, and that’s great. But now we have listed holding companies with fewer than 250 people not having to report. That’s not good enough.”

So how is Virgin Money doing? “We’re not proud of our gender pay gap,” admits Gadhia. “And, every day, someone mentions it: it’s 32%. But that’s down from 38%, so we have been making progress in the past 12 months.”

Changing that in a sector that has a number of deep cultural issues – not just diversity – won’t be easy. That’s one reason Gadhia is keen to stress equal opportunity – not quotas – as a solution. “When I first took on this report, I assumed one of the answers to why women aren’t progressing is that they want to bring up their kids,” she says. “But we did an extensive survey – 4,000 replies – and families were not an issue. So, first, we need to help both men and women with young families to progress at work. Second, we shouldn’t assume maternity is the reason women aren’t progressing. Don’t make it an excuse; make the solution a human way for people to run their lives as well as their careers.” 

Gadhia isn’t entirely out of love with research, then. It’s helping reveal the context for her ongoing mission – to make everyone better off. If she can change the culture of financial services to ensure its gut decisions are fairer and more sustainable, perhaps we’ll see even more of the Virgin banker.