In the high-stakes world of banking, where a single misstep can trigger a financial avalanche, the importance of an engaged and effective board cannot be overstated. Few understand this better than Paul Pester, a veteran of the U.K. banking industry whose career spans from established giants to upstart challenger banks.
Pester cut his teeth as CEO of Virgin Money at the turn of the millennium, steered Santander U.K. through the choppy waters of the 2008 financial crisis, led TSB Banking Group as it was carved out of Lloyds and then sold to Sabadell, and even founded his own fintech startup, Loop. Today, he chairs the board of Tandem Bank, a fast-growing digital-only challenger.
This breadth of experience has given Pester a unique perspective on board dynamics and leadership in banking. In a recent interview, he shared insights that offer a road map for creating boards that don’t just oversee, but actively drive a business’ strategy and innovation.
The 3 Levels of Board Engagement
Central to Paul Pester’s philosophy is his concept of the “three levels” at which boards can function.
“At its very base level, let’s call it level one, a board is there basically to satisfy the regulatory requirements,” he explained. “It’s a little bit of a tick-box exercise.”
Level two, according to Pester, is where boards use their “experience and insight and knowledge to hold the directors to account, the executives to account.” But it’s the third level where Pester believes boards can truly add value.
“At level three, the board, alongside the executive, are entrepreneurial leaders of the business,” he said.
This idea of boards as “entrepreneurial leaders” might raise eyebrows in some corners of the banking world, where boards are often thought of primarily in a risk management and oversight role. But Pester argues that banks need boards that can do more than just keep watch — they need to help chart the course.
The Executive-Board Partnership
Achieving this level of engagement, Pester believes, requires a fundamental shift in how executives and boards interact, advocating for a partnership model.
“I think making sure that the executives are presenting their insights, their data, in a way that enables the board to get up to level three and focus on the entrepreneurial leadership is key,” Paul Pester said. This approach stands in stark contrast to the adversarial dynamic that can sometimes develop between boards and management teams.
Pester’s perspective on this relationship was profoundly shaped by his experience taking on a nonexecutive role while still serving as a CEO. “It changed my way of fulfilling my executive role completely,” he recalled. “It changed the way that I engaged with the board. Understanding, frankly, the difficulty of fulfilling a board role and fulfilling it effectively.”
This dual experience led Pester to a crucial realisation: “I think the executive has an obligation of trying to put themselves into the nonexec role and providing information in a way which is meaningful and useful to the board.”
In practical terms, this means moving beyond the standard board deck and finding ways to give directors a deeper understanding of the business. At Tandem, for instance, Pester insists on detailed discussions of deposit behaviour and liquidity risk.
“I think that some of the exec team think I’m slightly nuts by insisting that the board understand the makeup of our deposits,” he said. “But we have a long debate around, OK, all of those deposits that are above the [Financial Services Compensation Scheme] limit, above 85,000 pounds, if this bank is in stress, what do we think is going to happen to them?
“OK, what’s going to affect the behaviour of all those balances less than 85,000 pounds? Well, maybe some customers that joined and they’ve been with us for three or four years, and the interest rate we were paying when they joined wasn’t particularly high, maybe they’re going to be a bit stickier.
“But those customers that have only been with us for two or three weeks when we’ve had high rates, they’re going to leave quickly. We focus on getting to the assumptions that are used to calculate the probability that, under stress, we see outflows from our business. That’s what I mean about the board understanding the business and the business model.”
Paul Pester on the Importance of ‘Connective Tissue’
Pester frequently returns to the concept of understanding a business’ “connective tissue” — the intricate web of relationships between customer behaviour, balance sheet dynamics, and financial performance. He believes this understanding is crucial not just for executives, but for board members as well.
“How do you make money out of a bank? The lending side of your balance sheet, the rates you can charge are typically set by the market,” he said. “Therefore, the way you influence the margin is to adjust the amount you have to pay for your deposits and the net interest margins, the difference between them, of course.”
This kind of holistic understanding, Paul Pester argues, allows boards to make more informed decisions and provide more valuable input on strategy. It also helps bridge the gap between high-level strategic discussions and the nitty-gritty operational details that can make or break a bank’s performance.
The Human Element
Despite his emphasis on data and understanding the technical aspects of banking, Pester is keenly aware of the human dynamics at play in boardrooms. He stresses the importance of building strong relationships among board members, particularly given the infrequent nature of board meetings and the high-pressure decisions they sometimes face.
“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 make very difficult decisions under very pressurised circumstances,” Pester said. “And at that point, as human beings, we do rely on personal relationships. We rely on just understanding people’s body language, rely upon understanding individuals as people.”
To foster these relationships, Pester advocates for informal interactions outside of formal board meetings. “It’s really hard getting the board together and they don’t meet that often. And therefore having a social engagement and relationship with the board members I think is key.”
For banks looking to build boards that can weather crises, drive innovation, and create long-term value, Paul Pester’s insights offer a valuable road map. In an industry where the stakes are always high, his message is clear: Engaged, well-prepared boards aren’t just a nice-to-have — they’re a competitive necessity.