Community Bank Succession Planning in Seven Steps

June 25th, 2019

succession-6-25-19.pngSuccession planning is vital to a bank’s independence and continued success, but too many banks lack a realistic plan, or one at all.

Banks without a succession plan place themselves in a precarious, uncertain position. Succession plans give banks a chance to assess what skills and competencies future executives will need as banking evolves, and cultivate and identify those individuals. But many banks and their boards struggle to prepare for this pivotal moment in their growth. Succession planning for the CEO or executives was in the top three compensation challenges for respondents to Bank Director’s 2018 Compensation Survey.

The lack of planning comes even as regulators increasing treat this as an expectation. This all-important role is owned by a bank’s board, who must create, execute and update the plan. But directors may struggle with how to start a conversation with senior management, while executives may be preoccupied with running the daily operations of the bank and forget to think for the future of the bank without them. Without strong board direction and annual check-ins, miscommunications about expected retirement can occur.

Chartwell has broken down the process into seven steps that can help your bank’s board craft a succession plan that positions your institution for future growth. All you have to do is start.

Step 1: Begin Planning
When it comes to planning, there is no such thing as “too early.” Take care during this time to lay down the ground work for how communication throughout the process will work, which will help everything flow smoothly. Lack of communication can lead to organizational disruption.

Step 2: The Emergency Plan
A bank must be prepared if the unexpected occurs. It is essential that the board designates a person ahead of time to take over whatever position has been vacated. The emergency candidate should be prepared to take over for a 90-day period, which allows the board or management team time to institute short- and long-term plans.

Step 3: The Short-Term Plan
A bank should have a designated interim successor who stays in the deserted role until it has been satisfactorily filled. This ensures the bank can operate effectively and without interruption. Often, the interim successor becomes the permanent successor.

Step 4: Identify Internal Candidates
Internal candidates are often the best choice to take over an executive role at a community bank, given their understanding of the culture and the opportunity to prepare them for the role, which can smooth the transition. It is recommended that the bank develop a handful of potential internal candidates to ensure that at least one will be qualified and prepared to take over when the time comes. Boards should be aware that problems can sometimes arise from having limited options, as well as superfluous reasons for appointments, such as loyalty, that have no bearing on the ability to do the job.

Step 5: Consider External Candidates
It is always prudent for boards to consider external candidates during a CEO search. While an outsider might create organization disruption, he or she brings a fresh perspective and could be a better decision to spur changes in legacy organizations.

Step 6: Put the Plan into Motion
The board of directors is responsible for replacing the CEO, but replacing other executives is the CEO’s job. It is helpful to bring in a third-party advisory firm to get an objective perspective and leverage their expertise in succession and search. When the executive’s transition is planned, it can be helpful to have that person provide his or her perspective to the board. This gives the board or the CEO insight into what skills and traits they should look for. Beyond this, the outgoing executive should not be involved in the search for their successor.

Step 7: Completion
Once the new executive is installed, it is vital to help him or her get situated and set up for success through a well-planned onboarding program. This is also the time to recalibrate the succession plan, because it is never too early to start planning.

spetty

J. Scott Petty is the practice leader of the Financial Services practice at Chartwell Partners, a senior retained executive search firm. Petty serves community and regional banks across the country. He may be reached at (214-269-1919) or spetty@chartwellpartners.com.