2023 Governance Best Practices Survey Results: Equipping the Board for a Tough Environment
Brought to you by Barack Ferrazzano
The vast majority of bank board members and CEOs believe their board proactively addresses the risks and opportunities facing their institutions, and that issues and challenges are adequately reflected in the board’s agenda. But a lack of various skill sets and knowledge could mean the board is ill-equipped to ask questions about key risks or business opportunities at a time when the operating environment looks increasingly tough.
Many boards, particularly at smaller banks, could be lacking expertise in critical areas that may be needed to address today’s challenges, according to Bank Director’s 2023 Governance Best Practices Survey, sponsored by Barack Ferrazzano’s Financial Institutions Group. Many respondents representing banks below $1 billion in assets see gaps in board-level expertise around risk, regulations and technology. Overall, just a third say their board possesses cybersecurity expertise, while 95% say their board has finance and accounting experience.
Given the nature of the industry, accounting and audit expertise aren’t likely to be overrepresented on bank boards, says Robert Fleetwood, a partner in the Financial Institutions Group at Barack Ferrazzano.“The risk of not having specific technology or cyber expertise is that you don’t have someone overseeing management that understands the lingo and knows if what’s getting done is appropriate,” he adds. “You’re gonna have a board that might not have a true understanding of the possible significance of [data breaches or email hacks] and the practical effects of how to fix it if there is an issue.”
Respondents feel confident about their board’s ability to monitor risk, with 94% calling their board very or somewhat effective at executing that responsibility. When asked about duties specific to risk oversight, 81% say the board reviews, approves and monitors the bank’s risk limits, and 73% say they hold management accountable for adhering to the risk governance framework. Two-thirds say their board reviews and approves the bank’s risk appetite statement, which defines the level and types of risk a bank will take on.
While the board can’t be expected to be experts on everything, a diversity of professional backgrounds can help the board as a whole ask better questions and provide a credible challenge to management. In anonymous comments, an independent director at a Midwest public bank offered this view: “Director expertise is essential.”
Key Findings:
Focus On Asset/Liability Management
A majority of respondents (83%) say their board revisited its asset/liability management policy over the past 12 months. Almost all (93%) believe their board is somewhat or very effective at monitoring asset/liability risk.
Stamp Of Approval
Sixty-four percent – primarily representing banks below $10 billion in assets – say their board approves individual loans, either as an entity or via a board-level committee, while 36% say their board approves policies and limits but not individual loans.
Finding New Board Members
Fifty-six percent say their board or governance/nominating committee cultivates an active pool of potential board candidates, while over a third (34%) say it does not. When asked what their board does to attract new potential directors, many share in anonymous comments that they rely on personal networks or referrals from existing board members.
Turnover In The Boardroom
Almost half (49%) say that one or two new directors have joined their board since January 2020, while 22% say that three or four new directors joined in that time. Twenty percent say that no new directors have joined their board in that three-year period.
Dialing Up Diversity
More than half (57%) of respondents say their board has three or more diverse directors, as defined by gender, race or ethnicity – up slightly from last year’s survey. Another 36% this year say their board has one or two directors who fit that definition.
Zooming In
Eighty-three percent of all respondents say their board has established guidelines around virtual meeting attendance.
To view the high-level findings, click here. Governance issues like these will be covered during Bank Director’s Bank Board Training Forum in Nashville Sept. 11-12, 2023.
Bank Services members can access a deeper exploration of the survey results. Members can click here to view the complete results, broken out by asset category and other relevant attributes. To find out how your bank can gain access to this exclusive report, contact [email protected].