The general of Fifth Third: CEO George Schaefer launched his Ohio bank into the company of giants by transforming his work force into an army of salespeople - Banking - Company Profile

Chief Executive, The, Nov, 2003 by Paul Sweeney

The chief thing to remember about commercial banking, says George Schaefer, CEO of Fifth Third Bancorp in Cincinnati, is that it's not exact]y rocket science. "It's several hundred years old," Schaefer says of the practice of accepting deposits and lending out money at interest. "The Northern Italians started it in 1400, and banking hasn't changed significantly since then. Sure, technology is better," Schaefer adds, "and now we do e-transactions and we use plastic instead of doubloons, but it's still the basic business."

Unlike in many other industries, argues Schaefer, where companies rely on product differentiation or superior technology to give them a decisive competitive advantage, one banking organization is pretty much like any other. "Our dollar bills are the same," he says. "This is not the drug industry. It's not Abercrombie & Fitch or The Gap [where styles or quality can change with the season]. The main difference between us and 225 different banks in Ohio, 125 to 150 thrifts and 670 credit unions is the human-service element. We focus on daily execution."

Indeed, while other superregional and money center banks like Citigroup, Bank of America and Bank One were sinking large amounts of money into R&D for whiz bang technology that they hoped would put them out in front, Fifth Third was sticking to its knitting. Schaefer believes now, as he did then, that it will be the bank's high-touch customer service, diligence and relentless effort--and not high-tech bells and whistles--that will enable it to best its rivals in the heartland states of Ohio, Kentucky, Indiana, Michigan and Illinois.

So far, that strategy has served Fifth Third well. The 12th-largest commercial bank in the U.S., it boasts a record of 29 consecutive years of earnings growth. And it continues to post impressive returns. In the second quarter of 2003, while other companies struggled not to lose money in the continuing economic slump, the bank's net income rose 8 percent, to $437.5 million, compared with the same quarter in 2002. According to SNL Financial, a Charlottesville, Va.-based research organization, Fifth Third's 2 percent return on assets in the second quarter placed it fourth-best among the top 25 U.S. banks and well above its peer group average of 1.53 percent. And its return on equity of 19.8 percent ranked it fifth in its peer group and easily outstripped the average of 15.95 percent. Schaefer credits the bank's work ethic for its success.

"Hustle" is the catchword he most often uses to define Fifth Third's strategy, and his rousing speeches to employees evoke comparisons to sports leaders such as Knute Rockne and Vince Lombardi.

The tradition did not begin with Schaefer, who has served as Fifth Third's CEO since 1990. A.G. Edwards analyst David George notes that Schaefer inherited the bank's longstanding culture of shoe-leather salesmanship and penny-pinching parsimony when he took the wheel 13 years ago. But under Schaefer's demanding stewardship--a West Point graduate, he earned a Bronze Star for valor in Vietnam--that culture has become more entrepreneurial. And Fifth Third has morphed through 54 acquisitions during Schaefer's tenure from a backwater regional Ohio bank into a Midwestern powerhouse with $88.3 billion in assets.

Along the way, Fifth Third has become, despite its dowdy name--the result of two long-ago mergers--a bank that is much admired by its peers, feared and respected by competitors and often imitated as well. In a 2001 interview, Julian Banton, president and COO of Birmingham-based SouthTrust Bank, said proudly, "We are the Fifth Third Bank of the South."

"There is no question that others try to emulate Fifth Third," says George of A.G. Edwards. But in a traditionally stodgy industry, few banking organizations have been able to purge as much bureaucracy as Fifth Third, with its decentralized structure of 17 affiliated financial institutions. Headquartered in such cities as Louisville, Cleveland, Grand Rapids and Chicago, each affiliate is autonomous, with its own board of directors, president and management team. "The advantage," says Schaefer, "is that if someone walks into a local bank in Cleveland of Louisville to talk about a business loan, that's handled locally. The loan officer doesn't have to come back to Cincinnati to get a decision."

But even as Schaefer gives the affiliates plenty of leeway, he keeps a close eye on the profit-and-loss figures of every branch and loan officer throughout the organization. As Amar Bhide wrote in a 1986 Harvard Business Review article that is required reading for Fifth Third management, "Good financial institution managers recognize the importance of profit measures and they are obsessed with establishing them."

Schaefer makes sure employees are obsessed with them as well. Indeed, what really separates the Cincinnati bank from the competition is its system of rewards, recognition and punishment. "If you perform at Fifth Third, you're rewarded very well," says Michael Abrams, portfolio manager of Cincinnati Financial, an insurance holding company and the largest outside owner, with 72.8 million shares--about 12 percent--of Fifth Third stock. "If not," he adds, "you more on."