Don’t just sit there — do something!
This is probably the normal emotional reaction of many bank directors as the COVID-19 pandemic consumes large chunks of the U.S. economy, possibly putting their institutions at risk if the crisis leads to a deep and enduring recession.
The role of the board, even in a crisis of this magnitude, is still to provide oversight rather than manage. The board’s role doesn’t change during a crisis, but certainly the governance process must become more focused and strategic, the pace of deliberations must quicken and communication becomes even more important.
Bank boards are ultimately responsible for the safety and soundness of their institutions. While senior management devotes their full attention to running the bank during a time of unprecedented economic turmoil, the board should be looking ahead to anticipate what might come next.
“I think the challenge for [directors] is to gauge the creeping impact on their bank over the next few months,” says James McAlpin, who heads up the banking practice at Bryan Cave Leighton Paisner in Atlanta. “The board’s role is oversight … but I believe that in certain times — and I think this is one of them — the oversight role takes on a heightened importance and the board needs to focus on it even more.”
Many economists expect the U.S. economy to tip into a recession, so every board needs to be looking at the key indicia of the health of their bank in relation to its loan portfolio. “I’ve spoken to a few CEOs and board members over the past couple of weeks where there are active conversations going on about benchmarks over the next few months,” says McAlpin. “‘If by, say, the end of April, certain events have occurred or certain challenges have emerged, this is what we’ll do.’ In other words, there’s pre-planning along the lines of, ‘If things worsen, what should be our response be?’”
This is not the first banking crisis that David Porteous, the lead director at Huntington Bancshares, a $109 billion regional bank in Columbus, Ohio, has lived through. Porteous served on the Huntington board during the previous banking crisis, recruiting a new executive management team and writing off hundreds of millions of dollars in bad loans. That experience was instructive for what the bank faces now.
Porteous says one of the board’s first steps during the current crisis should be to take an inventory of the available “assets” among its own members. Are there directors whose professional or business experience could be helpful to the board and management team as they work through the crisis together?
Communication is also crucial during a crisis. Porteous says that boards should be communicating more frequently and on a regular schedule so directors and senior executives can organize their own work flow efficiently. Given the social distancing restrictions that are in effect throughout most of the country, these meetings will have to occur over the phone or video conferencing.
“You may have meetings normally on a quarterly or monthly basis, but that simply is not enough,” Porteous says. “You need to have meetings in between those. What we have found at Huntington that served us very well in 2008 and 2009 and is serving us well now, we have set a time — the same day of the week, the same time of the day, every other week — where there’s a board call. So board members can begin to build their plans around that call.”
Porteous says the purpose of these calls is for select members of the management team to provide the board with updates on important developments, and the calls should be “very concise, very succinct” and take “an hour or less.”
Porteous also suggests that either the board’s executive committee or a special committee of the board should be prepared to convene on short notice, either virtually or over the phone, if a quick decision is required on an important matter.
C. Dallas Kayser, the non-executive chairman at City Holding Co., a $5 billion regional bank headquartered in Charleston, West Virginia, says that when the pandemic began to manifest itself in force, the board requested reports from all major divisions within the bank. “The focus was to have everybody drill down and tell us exactly how they’re responding to customers and employees,” he says. Like Porteous at Huntington, Kayser has asked the board’s executive committee to be available to meet on short notice. The full board, which normally meets once a month, is also preparing to meet telephonically more often.
As board chair, Kayser says he feels a special responsibility to support the bank’s chief executive officer, Charles “Skip” Hageboeck. “I’ve been in constant conversations with Skip,” he says. “I know that he’s stressed. Everyone is, in this situation.” Being a CEO during a crisis can be a lonely experience. “I recognize that, and I’ve made myself available for discussions with Skip 24/7, whenever he needs to bounce anything off of me,” Kayser says.
One of the things that every board will learn during a crisis is the strength of its culture. “The challenges that we all face in the banking industry are unprecedented, and it really becomes critical now for all directors, as well as the senior leadership of the organizations that they oversee, to work together,” says Porteous. One sign of a healthy board culture is transparency, where neither side holds back information from the other. “You should have that all the time, but it’s even more critical during a crisis. Management and the board have got to have a completely open and transparent relationship.”