The Wall Street Journal recently ran a column under the headline, “Why Would Anyone Sane Be a Bank Director?” It was written by Thomas P. Vartanian, a partner at the law firm Dechert LLP and a former general counsel of the old Federal Home Loan Bank Board, a former thrift regulatory agency that was superseded by the Office of Thrift Supervision. Vartanian pointed out that after every financial crisis over the last four decades, Congress and the bank regulatory agencies have piled a new layer of regulation on the banking industry, which has given bank directors an increasingly difficult governance task, while also raising their legal liability. I found little to argue with in that statement, and in fact, the increasing regulatory burden was the subject of a Bank Director magazine cover story in the second quarter 2016 issue.
So, to his question, why would anyone want to be a bank director? Certainly, it’s a challenging job which rarely offers a level of compensation commensurate with the time demands and liability risk. And operating in a thicket of regulations isn’t the only problem facing bank directors today. Emerging threats like cybersecurity, a challenging interest rate environment and the impact that digital commerce and fintech disruptors from outside the industry is having on the traditional bank business model are also bedeviling bank boards today. I think many bank directors serve because they are interested in banking and still see prestige in such an appointment, and because it provides an opportunity to give something back to their community.
On September 25-26, Bank Director will host the 2017 Bank Board Training Forum at the Ritz-Carlton Buckhead, in the northern edge of Atlanta. This will be the fourth year for this event (the first two years were in our hometown of Nashville, and last year we were in Chicago), and it is designed to provide bank directors with a broad perspective on many of the issues that bank boards must deal with today, including risk, compensation, governance and technology.
In his article, Vartanian pointed to a recent proposal made by the Federal Reserve Board that, among other things, would provide updated guidance on the supervisory expectations for the boards of banks and thrifts. The Fed would more clearly define the roles of the board and ensure that most supervisory findings make their way to the right hands—management teams, rather than the board. For supervisory purposes, boards of bank and thrift holding companies with more than $50 billion in assets would have several responsibilities. Here they are:
- Set clear, aligned and consistent direction regarding the firm’s strategy and risk tolerance.
- Actively manage information flow and board discussions.
- Hold senior management accountable.
- Support the independence and stature of independent risk management and internal audit.
- Maintain a capable board composition and governance structure.
To me, those are principles of good corporate governance in a banking context that every board should internalize as their modus operandi. And it’s the kind of governance that the Bank Board Training Forum was designed to support.