When Nathan Gravel got a call from Dave Mansfield, chief executive officer of The Provident Bank in Amesbury, Massachusetts, he was not at all prepared for how the conversation would end.
Gravel assumed Mansfield was calling for help identifying someone with technology experience to put on the bank’s board of directors. Every bank is looking for that nowadays, and Gravel is deeply versed in the subject, given his role as vice president of information security and information technology at GraVoc Associates.
But that’s not what Mansfield had in mind. He didn’t want Gravel’s help finding someone to sit on the $3 billion asset Provident’s board – he was calling to ask if Gravel, who was just 32 years old, would join as a director.
It’s not that Gravel wasn’t flattered by the request, because he was, as he had hoped to join a bank board someday. At the same time, however, he had not planned to assume a director’s role so early in his life, when some of his fellow directors were three decades or more his senior and had lived through the last two full credit cycles.
Although Gravel knew little about the business of banking when he joined Provident’s board in August 2017, he knew enough to know that he had a lot to learn.
“I was prepared to get prepared,” Gravel says.
Running a bank is no simple task, and neither is overseeing that process from the boardroom. No matter the professional pedigree, knowledge or skill set of the newest addition to a bank’s board, they are bound to face a steep learning curve.
Why? New and incoming bank directors are assuming their roles at a time of immense change on multiple fronts, from the growing risk posed by cybersecurity threats, to understanding and navigating the shifting regulatory framework, to the inevitable shift in the economic cycle.
There are also a multitude of expectations heaped on directors by the prudential regulatory agencies, each of which imposes a unique set of expectations and maintains a separate labyrinthine library of resources.
Cobble this together, and it’s not as simple as Vince Lombardi’s simplistic, “gentlemen, this is a football” approach to preparing his players for the National Football League.
The expectations for bank directors, and the potential legal liability associated with sitting on a bank board, have grown over time. In the late 1980s and early 1990s, the Financial Institutions Reform, Recovery and Enforcement Act of 1989 (FIRREA) and the Federal Deposit Insurance Corporation Improvement Act of 1991 (FDICIA) increased the liability for outside directors found personally liable for gross negligence, or conduct that demonstrates a major disregard of a duty of care. The Dodd-Frank Act of 2010 only added to this, imposing heavier penalties on even independent directors found to be sufficiently inattentive to bank affairs.
Despite the gravity and distinction of serving on a bank board, there is no clear formula for preparing a new director to take their seat. As a result, each bank tends to chart its own course.
At Provident, Mansfield meets informally with new directors before introducing them to the rest of the board, also informally. It’s only after those introductions that the process gets structured. Each new director is enrolled in an online training program offered by Bank Director, given the book “Basics for Bank Directors,” published by the Federal Reserve of Kansas City, and sent to state banking association conferences that are hosted in conjunction with the FDIC.
Other banks, like Park National Corp., a $7.5 billion asset bank holding company with a “family” of 10 distinct subsidiary bank brands mainly in Ohio, has built a sort of pro-baseball-like farm system of advisory boards that can prepare directors to take a seat at the holding company level. While the bank also has used professional recruiting firms to fill board seats at the holding company, this sort of proving ground is not an uncommon strategy, and offers a potential model for growing companies to consider as operations and geography become more complex.
Lakeland Financial Corp., the holding company for $4.8 billion asset Lake City Bank in Warsaw, Indiana, is in the process of building out a formal education program after it welcomed a new director in the fourth quarter of 2018, though it has long held to one principle favored by regulators, which is to use the assets they already have.
“We want you to bring your whole brain to work every day,” says Mike Kubacki, chairman and former CEO at Lakeland. “We want you thinking. We want people who are curious, engaged and certainly committed to the mission of our bank … Our whole strategy is day-to-day excellence-how can we be excellent today.”
Lakeland added Darrianne Christian to its board in October 2018. Christian had previously worked at the Central Intelligence Agency and as an information technology consultant in the private sector, but she had no banking experience. Kubacki says that’s not necessarily a problem because Lakeland can teach the banking aspect, he says. What Lakeland looks for instead are directors who can apply their own unique industry knowledge and experience right away to benefit the bank. The banking knowledge can come later.
“We think that focus on today, making it fun, making it rewarding, is how the bank has been successful, so we really need the directors to think more broadly than that,” Kubacki says, which could include the product offerings of the bank, its target constituencies or simply what lies ahead.
When Gravel took his board seat at Provident a year and a half ago, his welcoming experience sounds similar to others. Still in his early 30s, Gravel does not have the career longevity of many of his counterparts. But his experience working for GraVoc Associates, a Peabody, Massachusetts-based technology consulting firm that advises about 150 community bank clients on cybersecurity, made him an essential piece of the puzzle for the future mapped out by Mansfield.
Gravel was recruited because of his skills in the realm of cybersecurity, but his limited experience elsewhere was immediately evident.
“There’s so much more to risk management than just operational and IT risk. My head was spinning after the first deep dive on the financials and the asset-liability that we saw,” Gravel says. “I thought I had a lot of acronyms in technology and information security-it was like alphabet soup for me.”
Experiences like this are not uncommon, even for directors with previous banking experience or otherwise extensive corporate resumes.
Irma Loya Tuder joined the board of $7.5 billion asset ServisFirst Bancshares in October 2018. With three decades of experience in both private and public accounting, and as a chief executive and board chair of her own company, which was acquired in 2007, she brings a skill set and experience that would make her an immediate contributor to an acquisitive and quickly growing bank.
Birmingham, Alabama-based ServisFirst has been growing rapidly since its formation as a de novo bank in 2005, most recently expanding into the Atlanta market. Tuder joined the board from an advisory director position, having served since 2009 in that role, which she described as primarily focused on business development and helping the bank grow.
“Although we do look at performance, our primary focus is how do we grow the bank and how do we enhance the producers,” she says, a very different role than her new position at the holding company level.
Even knowing a lot about the bank, its customers, the CEO and other directors, her first board meeting was overwhelming, if only because of the sheer volume of new information about the bank.
“I was drinking from a fire hose,” Tuder says. “I couldn’t keep up.”
Park National has a similar structure as ServisFirst, which operates 10 subsidiary bank brands across southeast Ohio and Kentucky, as well as a new presence in North Carolina, first in Charlotte and soon Asheville, one of the fastest growing areas in the country.
Dan DeLawder, the chairman at Park National and its former CEO, says the bank has cultivated this system deliberately to achieve geographic diversity, but it has also functioned as somewhat of a farm system for directors to elevate to the holding company level, preparing them for that next level of leadership.
“That gives our advisory directors a depth of experience before they might consider coming on the holding company board,” DeLawder says.
This has not always been the case at Park National, however. When DeLawder joined the board in 1992, there was no formal training program for incoming directors. In 1999, DeLawder became CEO, and over that time began developing a more structured orientation that now includes materials about the structure of the bank, its geographic markets and other information, all aimed at helping the bank maintain its performance.
Gravel and Tuder had similar experiences when they joined their boards in the sense that both found the amount of information they were confronted with to be overwhelming. But their experiences have proven to be different in other ways.
Mansfield shared reading materials with Gravel and sent him to workshops offered by the Massachusetts and New Hampshire banking associations, the two states that Provident calls home. Gravel also attached himself to Charlie Cullen, the bank’s former CEO and chair of its risk committee. They’ve met at the coffee shop across the street from the bank’s headquarters and often run into each other elsewhere. Gravel will ask questions about what they’ve just discussed in the boardroom, and “the conversation just goes from there.”
“There is a camaraderie and agreement that we’re there for the mission and vision,” Gravel says.
Tuder’s orientation to the board was “very high level,” she says, covering such things as the length of meetings, which reports are provided in advance, what directors serve on what committee-as well as what the bank’s primary challenges are and even some legal issues. Despite the volume, Tuder says the orientation was relaxed and not as structured as she had expected, which she describes as a product of the leadership style of ServisFirst’s CEO and founder, Tom Broughton.
Gravel was given a list of titles to read, including the Kansas City Fed’s directors book and numerous materials published by the Office of the Comptroller of the Currency and the FDIC. Mansfield, like other CEOs, encourages new directors to read those pieces because they’re valuable and help to accelerate the learning curve.
At Park National, DeLawder says the boardroom dynamic is “not the CEO speaking or the chair speaking,” but rather a conversation. Such an environment has been helpful to new board members who lack the intimate background knowledge of someone like DeLawder, who spent his career in banking. Corporate board meetings don’t often follow Robert’s Rules of Order, for instance, which might be different from the experience a new director might have had serving on a nonprofit board. That change could be jarring, but also helpful in putting the director at ease to ask questions in the moment, or simply inquire, “Why do we do that?”
“I don’t mind exposing my lack of knowledge if it’s going to help me,” Gravel says.
Park National is supervised by the OCC at the bank level and the Federal Reserve at the holding company level, and those agencies expect that new directors will be adequately trained.
“(Examiners) get a pretty good understanding-I’m saying that with a smile on my face,” DeLawder says. “You can’t pull the wool over their eyes. They get it. They expect us to educate our directors, they expect us to get up the learning curve, and they expect us to stay current with trends and conditions.”
Tom Curry, who served as Comptroller of the Currency for five years until 2017, says the materials from the supervisory agencies are helpful because they are structured in such a way that they offer a breadth of opportunities to educate new board members.
“Regulators are looking for directors who are active and informed, and being informed also means having a basic knowledge of banking and bank regulation,” Curry says. “I think anybody is going to be overwhelmed unless they were a banker or a bank regulator. That’s a common concern or situation.”
Curry notes, however, that regulators also want to be “humane” and not put any undue burden on new directors despite the expectation they learn and become active quickly, ideally within six months.
But the regulators are all different, providing different materials in different formats. The Fed has an online learning tool for new directors that includes the book published by the Kansas City Fed, in addition to an online learning tool and other materials produced by other supervisory agencies.
“The OCC doesn’t look at risk the same way the FDIC does,” says Don Musso, CEO of FinPro, a bank consulting firm that offers a new director education course.
The FDIC hosts regional Directors Colleges across the country in conjunction with state banking associations, and posts materials from prior events online to review and download.
Curry advises bank boards to be proactive by requesting resources and information before any incoming director takes their seat, and to have a little humility. Bank regulations alone are a lot to learn and remember, and any incoming director is bound to be overwhelmed unless they were a regulator themselves.
“There’s never really any dumb question,” he says. “Just because you’re a good banker doesn’t mean you’re good at bank regulation.”
Musso, a former banker himself, says there is an abundant number of risks that new directors must learn about. This can be particularly challenging at institutions with less than $1 billion in assets, which accounts for a majority of the banks in the U.S. Many of the new or incoming directors of those banks lack an understanding about interest rate risk, cybersecurity or the Bank Secrecy Act, for instance.
“They’re plumbers, they’re farmers, they’re manufacturers-but they’re not bankers,” he says.
Taking advantage of the free resources that regulators offer should be a no-brainer, Musso says, but the online resources available through FinPro and others, including Bank Director, can be valuable, especially as the economy continues to shift and banks assume more risk and make more lending exceptions in the wake of the recent tax cuts and regulatory reform.
“As we see this economy shifting, we’re beginning to see more and more policy exceptions on the loan side,” Musso says. “And if you haven’t trained the board members [on] the risk of policy exceptions, you have regulatory risk, but you also have a legal risk.”
That enhanced level of risk can become a liability if the board member is unable to explain how or why the exception was made to approve a loan that ultimately failed. And if those exceptions become commonplace at thousands of banks around the country, there’s a potential for serious economic consequences.
“I’m hopeful that this time is different, but that’s the eternal optimist coming out of me,” says Musso, referring to the financial crisis. “Most of our clients, we’re talking to them about an anticipation of an economic downturn. It could be one, two or three years from now, but we still need to prepare for that, and we can learn from what happened in ’07, ’08 and ’09.”