How Not to Waste Your Time in Strategic Planning

Bank boards are starting to take strategic planning seriously. The industry has returned to a modest level of profitability, and the boards at many small banks are wondering what the future holds for their institutions in an age of low interest rates and high levels of government regulation.

For many, the 4 percent or 6 percent return on equity that their bank promises to earn is not enough. Or perhaps the board managed to survive the financial crisis and many members are now ready to cash in their shares. Whatever the cause, more boards are asking about the value of remaining an independent entity versus selling or acquiring another bank, said investment bank Austin Associates Managing Director Craig Mancinotti, a speaker at Bank Director’s Acquire or Be Acquired Conference Tuesday in Scottsdale, Arizona. More than 800 people attended the three-day conference at The Phoenician hotel.

One of those who attended the conference is Arthur Johnson, chairman and chief executive officer at United Bank of Michigan in Grand Rapids, Michigan. Johnson is interested in starting a formal strategic process, with an independent moderator and an in-depth assessment of what the board’s goals are, now that many members of the closely-held bank board are over the age of 60. Most of the bank’s ownership lies with one family.

“I think the process has to become a little more formal than it has been in the past,’’ Johnson said. “I have a way of taking over meetings. Everybody knows my opinion counts but I have a hard time not letting my views come out first.”

When Austin Associates moderates a strategic planning retreat, each member of the board fills out in advance a brief S.W.O.T. analysis of the bank, which stands for strengths, weaknesses, opportunities and threats. Each member also lists the critical strategic issues facing the bank. To find out exactly what the board thinks and wants, Mancinotti recommends that management be excluded from the strategic planning sessions. Management’s input is still sought outside the sessions, but a director-only strategic planning session “is the best way to have unfiltered opinions,’’ he said.

As an introduction to the strategic planning retreat, Mancinotti gives a 30-minute to 45-minute overview of the economic and M&A environment, and he compares the bank’s performance to peers. That’s important so everyone is on the same page as to how the bank is performing. The board strategic planning session usually lasts six to eight hours, with a focus on developing key strategic priorities that management can then turn into a detailed action plan. The bank might need only two or three action items under each strategic priority, and all the different department heads should be involved in developing the action plan.

In order to make the goals a reality, the board should provide direction to management on how often, and when, management should report back to the board with progress toward the action items. It might be several times per year. “We are a big believer in reviewing [your strategic plan],’’ said Richard Maroney, Jr., managing director at Austin Associates in Toledo, Ohio. “You shouldn’t come up with a three-year plan and not look at it again for three years.” 

The bank’s M&A strategy should be a part of the strategic plan, and regulators should be informed in advance of the bank’s strategy. Regulators, just like shareholders, don’t like to be surprised. That should make the M&A approval process smoother.

If an acquisition is your goal, an investment banker can help the board identify a list of potential targets. Not all banks use an outside advisor for help with strategic planning, fearing that the advisor’s views will color the outcome. But regardless, the chief executive officer, not an investment banker, should make the first contact with potential targets and begin informal discussions. In fact, the board should understand that its role in the M&A process is to guide strategy, not initiate negotiations outside the board room.

Another good practice is to conduct a training session for the board to prepare for M&A. Is your board ready if it got an offer tomorrow? What if your number one target suddenly becomes available? An investment banker should be able to walk you through a hypothetical scenario. 

“You could waste a week just figuring out who has the authority to start the discussion,” Maroney said. “The first thing you should ask is: Are we ready to do M&A? What holes do we need to fill to be successful?” 

In the end, strategic planning can be a useful and productive exercise, as long as there is follow up and management knows to take the planning document seriously.