planning.jpgSweeping new regulations and unprecedented scrutiny of the banking industry have combined to place a greater emphasis on the role of boards of directors in the leadership of banks. Although the board’s primary responsibilities have not changed—to maximize shareholder value and to hire, compensate and supervise qualified management—there is now a greater need to address these responsibilities within the context of a well considered strategic plan.

Many bank boards primarily employ a month-to-month approach to the oversight of their institutions, which can result in heavy reliance on bank management to chart the strategic course of the bank. It is valuable for a board occasionally to set time aside to take stock of the bank’s strengths, weaknesses and opportunities, and then proactively engage in a process of determining the strategic goals and direction for the bank. This gives the board a frame of reference within which to measure the performance of the bank going forward, and it will give management a clearer sense of the goals to be pursued and how aggressively to pursue them.

In our experience, directors can be skeptical of the benefits of strategic planning sessions – their enthusiasm dampened by visions of a day spent listening to consultants equipped with PowerPoint decks and sharing the latest buzz words. Too often, such sessions focus on tactical, not true strategic, issues. We recommend that board members be included in preparation for the planning session, in an effort to make the session more relevant to them and to foster a sense of ownership of the process. One approach is to seek input from the directors through short questionnaires in which they can describe their vision for the bank’s future, share their thoughts and analysis regarding the bank’s performance and its strengths and weaknesses, and indicate their preference of strategy for maximizing value to the bank’s shareholders. Such questionnaires are valuable in sharpening the focus of the strategic planning session.

A well crafted strategic plan is only as good as the people who will implement it. Since it involves future plans, the board should consider the depth, quality and enthusiasm of the bank’s senior management team. The question to be asked is do we have the right people to accomplish our goals, and are they in the management roles which are best suited for their skill sets, personalities, and energy levels? The board’s analysis should not be limited to senior management, but should also include the board members themselves. There has never been a more demanding time to be a bank director. Gone are the days when three or four members of a ten-person board can, or should, be expected to fill the gaps created by inattentive or non-involved board members. Good strategic planning will result in goals and objectives for the key people as well as for the organization.

A detailed description of best practices for a strategic planning session is beyond the scope of this brief article, but we have two suggestions for topics to begin the planning session and to lay the foundation for a productive strategic discussion:

  • Orienting the Board to the “New Normal.”  In order to formulate a viable strategic plan, it is helpful for the board members to have an informed appreciation of the overall environment in which the bank is operating. This should include an overview of the developing regulatory environment, a description of how the bank’s local and regional market areas are performing, and a description of how the bank is performing relative to its peers. Consider bringing in a trusted professional to provide this information, as the impact on the board can often be greater from an outside assessment. Providing this baseline information should also lessen the chance that anecdotal or speculative information shared by a board member will take the planning discussion off track. Such a presentation might also include information on the lower expectations for stock price and acquisition multiples in today’s market, which may come as a surprise to some board members.
  • The Threshold Question. The threshold question to be addressed in strategic planning is the board’s general vision for the bank’s future. Does the board think the bank should “buy, sell or hold” in the near to intermediate term? The answer to this threshold question can drive the direction of the discussion, and lead to more fruitful and specific conversation in the planning session. For example, if the board believes the bank should be positioned for sale, management will need to be careful about entering into new long-term contracts or commitments. If, on the other hand, the board believes the institution should position itself as an acquirer, steps will need to be taken to ensure sufficient capital. Care should be taken in this threshold discussion to engage the full board in the conversation. Almost everyone will have an opinion on this topic, and they should be encouraged to share it with the group.

In our experience, there is no magic formula for successful strategic planning. Each bank board is different because it consists of a unique collection of individuals. We suggest that you tailor your board’s strategic planning session to the needs of your bank and the desires of the board. The important part, as in beginning an exercise program, is to take the first step.  Schedule a strategic planning meeting, get input in advance from board members, and make sure you address the most important issues facing your bank. Be proactive in planning for your bank’s future and for securing a worthwhile return for its shareholders.

Walt Moeling