Governance
10/17/2016

Bank Succession Planning Made Simple


Succession-10-17-16.pngAccording to a recent Bank Director survey, 60 percent of those surveyed expect their bank’s CEO and/or other senior executives to retire within the next five years. The survey also revealed that most banks are unprepared for those coming changes. Only 45 percent have both a long-term and emergency succession plan in place for the CEO and all other senior executives. Does your bank have a plan? Will the plan actually work should the trigger be pulled?

There are a lot of moving parts in a bank’s management succession plan. That’s why we have highlighted the following three key steps to consider that have repeatedly surfaced in our experience working with bank boards and CEOs around the topic of management succession planning.

Who “Owns” Succession Planning?
The chairman or a board committee is the overall “owner” of management succession planning, specifically for the chief executive role and board of directors. In turn, senior management succession is owned by the CEO, with regulators now requiring most sized banks to have detailed succession plans in place for senior management. The big question quickly becomes; will those succession plans actually work, given the velocity of change in bank business models, regulatory demands, flat margins and the lack of viable growth options? Banks with well developed succession plans will clearly be in the driver seat. If your bank has a weak plan or no plan, here are three practical steps bank board, CEO and management teams should take.

Step One: Emergency Plan
In the event of an immediate leadership void, we recommend an emergency 90-day plan for each key position with no clear internal successor. Putting someone from the board or management team into the slot for 90 days buys time to consider the best short-term and long-term options. Appointing an interim person gives the board or CEO a chance to “test drive” the new leader while at the same time, considering external options. For public banks, it’s the fiduciary responsibility of the board to consider external options so as to compare and contrast to the internal candidate. However, based on our experience and observations, more often than not, the internal candidate gets the nod with minimal disruption and a high level of success.

Step Two: Internal Plan
Based on a recent Bank Director management survey, more than 50 percent of banks still do not have a formal succession plan for senior management. Shareholders are more active in bank succession and demand a written plan. Either way, regulators will soon be requiring formal succession plans across all asset sizes of banks. Clearly, succession requirements are moving down to the community bank level with all speed. Clients we serve with strong succession plans have taken the time to codify each senior management position, including the timeline to retirement and then review who in the bank could take on that role if necessary. Unfortunately, many banks simply don’t have a backup internal option. Either the bank can’t afford the extra overhead cost of a successor or the age and timeline of the backup option does not align for succession purposes. If your bank is in that predicament, move to step three immediately.

Step Three: External Plan
Being ever mindful of the internal succession plan is key when it comes to considering and evaluating potential external options. We have seen clients go to the extreme and develop a list of external succession options for all senior management positions. Since banks can’t predict when they will have a departure, which very well could happen before the internal successor is ready, it is wise to think and identify those whom it would make sense to recruit. Clearly knowing your competition and developing relationships in advance makes recruiting an executive easier, plus the culture fit can also be assessed early, thereby increasing a successful integration.

A practical three step plan can provide the board more detailed insights into the depth and reality of the company’s succession plan. A formal review by the bank board should be conducted annually to test succession plans and make adjustments where necessary.

Visit chartwellpartners.com/financial-services to download our simple succession planning guide.

WRITTEN BY

Scott Petty

Managing Partner

Scott Petty is managing partner at Chartwell Partners in the Dallas office. He leads the firm’s financial services practice serving bank, mortgage, wealth management and real estate clients across the country.  Mr. Petty has established a successful track record as an executive search consultant recruiting senior executives and board directors for small and mid-cap public and closely held private companies. 

Prior to joining Chartwell in 2009, Mr. Petty spent over a decade between his tenures with Heidrick & Struggles and Spencer Stuart.  Over the course of his time with each firm, he led search practices in banking, real estate and broad financial services.