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 an organization’s 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:
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 ongoing 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.