Four Letters. Infinite Potential.

Is Your Board Leading You Forward or Holding You Back?

By J. Keith Hughey Senior Consultant

As the financial services industry becomes more competitive and institutions continue to face regulatory and economic pressures, having effective board leadership is essential to surviving the challenges that lie ahead. But for many institutions, having the time (or inclination) to put a reliable board succession plan in place isn’t given the level of priority it deserves. This is unfortunate since attracting and maintaining the next generation of board members is an essential element of ensuring an institution’s successful future.


Having directors who are not fully engaged or who do not represent the interests of all stakeholders can negatively impact a organizations ability to make prudent business decisions and meet its strategic objectives. What’s more, if directors don’t possess the basic knowledge required to understand the institution’s financial and accounting practices – or neglect to complete their fiduciary responsibilities – the consequences could result in potential regulatory action, or in the worst cases, cause the institution to fail.


Setting the stage for successful board succession planning

Maintaining a roster of board members that can lead your bank for the long-term doesn’t happen organically. It takes planning by existing internal and external leadership, as well as a commitment to staying agile in constantly changing regulatory, business, economic and technology environments.


Following are steps you can take to create and maintain effective board leadership:


      1.  Set board diversity goals to better serve account holder demographics

Take a look at your board membership. Does it accurately reflect your account holder demographic today or does it look more like the profile of 20 or 30 years ago?  If current director selection practices are merely perpetuating more of the same, it is time to identify what the board should look like, along with the skills and expertise it will need going forward to successfully thrive in an ever-changing marketplace.


     2.  Cast a wide recruiting net

Diversifying board membership requires widening the search beyond the traditional means of recruiting new candidates with the same profile as existing directors. But your efforts will pay off. Not only will more diversity inject new, forward-thinking perspectives to leadership discussions, it can also increase your account holder base from demographic groups that didn’t see a place for themselves in your institution, based on the previous leadership profile.


     3.  Institutionalize a board succession planning process

If you don’t make succession planning an on-going board objective, it will most likely get passed over by other seemingly more pressing needs. By sticking to a plan that specifies policies regarding board member diversity guidelines, industry/financial knowledge, community involvement requirements, and practices that are more appropriate than iron-clad term limits, you can define across-the-board expectations and spend more time dealing with issues regarding the institution’s long-term success.

     4.  Implement director self-evaluations

While it is difficult for board members to evaluate their peers, overlooking poor performance, a lack of commitment or minimal participation in meetings does not serve the best interest of the institution or its account holders. Setting expectations for director involvement – along with performance standards and a strict peer review process – are keys to maintaining a strong organization.


     5.  Require continuing education for all board members

While there are currently no requirements for earning professional education credits, Board members should have the knowledge necessary to make informed decisions on the institutions behalf. This includes the ability to read and understand a balance sheet, along with current knowledge of technology and compliance issues, such as Regulation E and the Bank Secrecy Act that could have regulatory implications for the institution.


The pros and cons of term limits

While instituting mandatory retirement age and term limits are sure ways to add new members to the board roster on a scheduled basis, doing so can be problematic for a number of reasons. A board member who is very knowledgeable and involved at age 78 can be much more valuable to the institution than a member in his or her 40s who doesn’t have the expertise or commitment to serve in the same capacity. Likewise, while setting term limits is seen as a way to ensure that directors are objective and independent from institutional leadership, it doesn’t take into account the talent and commitment that can be lost when certain members are forced to step down.


Strong board leadership paves the way for a solid future

Finding and maintaining a strong board is an on-going leadership challenge that requires bank CEOS and board chairmen to work together to understand the needs of their account holders, identify leadership potential in their midst and ensure that sitting board members are providing value to the institution. In today’s rapidly changing environment, staying the course isn’t an option for a bank that intends to be in the game for the long term.


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