Paul Pester has been at the centre of some of the U.K.’s most influential banking institutions over the past three decades, leading firms like Virgin Money, Lloyds, TSB Banking Group, and Loop through major strategic shifts, initial public offerings, and technological transformations.
Today, Pester serves as chairman of Tandem Bank, the fast-growing U.K. digital challenger bank that’s made sustainable banking its mission. He’s also a nonexecutive director at the National Bank of Bahrain, representing the interests of the Bahraini sovereign wealth fund, and co-founder and nonexecutive director of Archie, a fintech accelerator focused on scaling startups in the U.K., Australia, and the Middle East.
Over decades of experience, Pester has developed a unique perspective on what enables banking boards and leadership teams to thrive amidst relentless disruption and turbulence. His approach focuses on ensuring boards “understand the connective tissue” of the businesses they oversee.
“Why do I think it’s absolutely vital that you do that as a nonexecutive? It’s certainly not to become an executive, it’s certainly not to do the executive’s job. It’s to enable you to understand the business model and to use your experience to start identifying for yourself where you think the strengths, the weaknesses, and the risks are in that business model based on your experience,” he said in a recent interview on the “Enter the Boardroom With Nurole” podcast.
“There’s so little you can actually glean from a two- or three-hour board meeting maybe once a month, once every other month. How on earth are you expected to genuinely understand the market in which that business functions, and to understand the challenges and the risks that they face?”
Learning From Engaged Oversight
Paul Pester’s view stems from a career of hands-on leadership experiences that exposed him to the shortcomings of passive governance. As group CEO at Virgin Direct (later renamed Virgin Money) in the early 2000s, when digital banking was just getting off the ground, he saw firsthand how an engaged board catalysed success, noting how a rotating chairman position of Virgin Group founder Richard Branson and industrialist Sir Malcolm Bates created an effective yin and yang dynamic.
“Richard was absolutely focused on the customer, the customer outcomes, what makes sense for a customer, why we are doing something better for the customer than our competitors are,” Pester reflected. “And Sir Malcolm was absolutely focused on the economics and how the whole thing was going to stack up.”
An emphasis on business fundamentals laid the groundwork for Virgin’s disruption of consumer banking. But it was the board’s combined perspectives that enabled the company to challenge incumbents with an economically viable, customer-centric digital banking model before the concept of a “challenger bank” was mainstream.
Pester carried those lessons forward as managing director of Lloyds’ consumer banking division during the financial crisis, where he witnessed banks falter in part due to boards being too disconnected from their underlying business models and risk assessment strategies.
“There were times when perhaps the boards of those organisations were not as close to the real business model,” Pester said of the crisis period. He pointed to this period as highlighting the importance of board members “understanding the risks that they’re running as opposed to genuinely trying to do the executive’s job.”
Bank Boards and Fine-Grained Risk Management
Now at Tandem, Paul Pester is an outspoken advocate for embracing digital innovation and sustainable finance, aligning with the bank’s vision of helping “mainstream consumers transition to a low-carbon lifestyle whilst saving money.”
He’s also outspoken about ensuring the board understands the bank’s liquidity and management of deposits, a level of detail not all bank boards adhere to. Ultimately, though, the goal is to ensure the board is actively engaged in responsible risk management, avoiding the kind of liquidity crunch that caused the recent failure of Silicon Valley Bank in the U.S., which should have rung alarm bells for the bank’s board, Pester pointed out.
“It absolutely felt like an accident waiting to happen,” he said bluntly. “I don’t want to cast aspersions on any individuals, but if I was on that board you’d have to ask those questions and you’d want to really get under the business.”
He contrasted his approach leading Tandem’s board, which involves fine-grained attention to liquidity and deposits and anticipation of potential risk.
“We have a long debate around, okay, all of those deposits that are above the [Financial Services Compensation Scheme] limit, above £85,000, if this bank is in stress, what do we think is going to happen to them?” Pester said. “By forcing the board to work hard on the assumptions, it doesn’t mean they then go through and produce the detailed documentation which has to be submitted to the regulators. But it means they have had genuine input on, let’s say, the most important thing, the thing that can kill a bank quickest.”
Pester believes cultivating those collaborative, engaged dynamics is essential for boards to escape cyclical short-termism and see their role as entrepreneurial problem-solvers helping to shape the trajectory of the companies they govern.
Creating Space for Productive Tension
For Paul Pester, cultivating relationships and lines of communication that allow for open questioning and productive tension is key to fostering the level of insight required for effective board oversight.
“It’s getting back to understanding what drives the business model. I constantly talk about connective tissue. I want to understand the connective tissue in the business,” he explained. “If a customer does something, how does that work its way through the business to impact our balance sheet, and our [profit and loss], or our profitability, etc.? Driving through that connective tissue is vital.”
He encourages fellow directors to embrace curiosity and create an environment where inquisitive challenges are welcomed, not seen as intrusive oversight.
With experiences across industries and operating models, Pester has developed an appreciation for boards’ need to evolve in parallel with the businesses they oversee.
“I think I invest a lot more in the relationships now than I would’ve done in the very early days,” he said. “Understanding that a board is a team is really important. I know that I’m naturally a very analytical thinker, but I’ve learnt the importance of really investing in the relationships around the board table.”
That commitment to continuous improvement as a director has been enabled by his experiencing governance from numerous vantage points — from an executive being held accountable by boards, to serving as an outside director while in operating roles, to now being a full-time member of governing bodies across a diverse array of institutions.
“Boards are very strange creatures in the sense they don’t get together very often, but when they do get together they sometimes have to take very difficult decisions under very pressurised circumstances,” Pester observed. “And at that point, as human beings, we do rely on personal relationships, so, invest in the relationships around the board table.”
