Keeping Pace

Mark Fisher is frustrated. The CEO of TriState Bank can`t seem to get a majority of his directors focused on the bottom line. TriState is a small community bank that has grown significantly through acquisitions and a vibrant market area. Today, the same board that formed and governed the bank as it strived to meet the needs of a bedroom community is now at the helm of a 33-branch, three-state holding company that trades on the Nasdaq exchange.CEO Fisher was recruited to improve the bank`s performance. Just one week ago at the board`s special planning meeting, the directors agreed that the bank couldn`t be all things to all people and that the ongoing focus would be directed toward profitable customer segments. Nevertheless, at the regular board meeting yesterday, over half the time was dominated by the directors` concern over the bank`s proposed elimination of the school savings program.The board`s lack of focus on the challenges at hand has senior management concerned about implementing its plan to improve performance. A worried Fisher has arranged a meeting with the bank`s longtime outside chairman.We asked several individuals what advice they might offer this CEO prior to his meeting.By coincidence, I was involved in exactly this discussion at Washington Mutual in the early 1980s. I would advise the CEO this way: 1. The squabble over school savings isn`t the problem; it`s only a symptom. Focus on the problem, not the symptom.

2. The problem is culture shock, and it won`t go away overnight. The cure isn`t a good speech or a couple of days at a board retreat. Brace yourself for a transition that may take a year or more.

3. Try self-examination: Is management doing what it should be doing to focus on the bottom line and create shareholder value, or are there still vestiges of the good old days?

4. Is the board involved in more important matters? Most of these people are successful in their own businesses, and they didn`t get that way by giving away the farm. Are they active on committees that relate directly to bottom-line, long-range strategic activities? Such committees and task forces would include those pertaining to budgets, product development, employee development, acquisitions and mergers as well as divestitures and closures, asset/liability management, and strategic planning?

5. Are the bank`s strategic targets and operating objectives aggressive enough? Are you achieving double-digit growth in assets, deposits, and earnings? Are you increasing market share? Are you hiring away the competition`s better producers? Are you beating the competition to market with innovative products while hacking away at your own nonperforming activities? The bottom line: Get the bank`s earnings growing at a substantial pace and the minor costs of supporting a school savings plan will no longer be significant. Get the board involved with more substantive matters and it will be less likely to dedicate significant time to these more modest activities.Brent A. Orrico


First Washington Bancorp

Walla Walla, WashingtonSince the board has apparently made a management change in an effort to obtain an improvement in the bank`s performance, and given that the bank is publicly traded, there must have been underlying concern over the value of the bank`s stock and the possibility of an unfavorable hostile takeover. In arranging a private meeting with the chairman, I believe that the new CEO has taken the correct first step in attempting to get the board to focus on the implementation of management`s new plan.The meeting should be utilized by Fisher first to convey his concerns over the board`s lack of focus on their previously agreed upon positions and then to obtain the chairman`s cooperation in keeping future meetings directed toward the goal of implementing the new strategic plan developed by management. As the longtime chairman of a board that is apparently intact since the bank`s inception, he should be able to convince the other members of the need to make the difficult decisions necessary to proceed with their prior commitment to change the bank`s business focus.L. Scott Walshaw


Financial Institutions Division

State of Nevada

Carson City, Nevada The banking environment is changing rapidly and those that resist change will be left behind. That is the message that I would suggest the frustrated CEO convey to his board members who do not get it. Today`s community banks face tremendous challenges from many different directions. They have seen their highly valued and profitable product, the residential mortgage loan, transformed into a commodity product by mortgage banking operations, much the same way that mutual funds and the equity markets siphoned off their deposit base. Currently, profit margins are razor thin and technology is challenging the traditional ways of doing business. This has forced them to strategically rethink the way they buy and sell money. For the most part, community banks have done a good job developing strategic plans on how they wish to reinvent themselves. Their vision reflects the need to build bridges to future customers by offering electronic banking and the ease and convenience of other Web-based products and services. However, if they fail to deploy the latest technological advances, to redesign delivery channels and work flow, ultimately they will fail. It takes a concentrated team effort to be a survivor in today`s banking environment. Bank resources are a precious commodity and must be allocated and used judiciously. While school savings is a noble goal, to devote 50% of a board meeting to the subject is irrational considering the other challenges facing the bank. I would suggest to the CEO that the board may need some education on what is happening in the banking world. Perhaps an off-site strategic planning session featuring outside industry experts would be of value. Paul G. Pustorino


Chairman, Financial Services Industry Task Force

Grant Thornton LLP

Boston, Massachusetts CEO Fisher must be candid with the chairman. His basic message should be that the board needs to better understand its role and modify its behavior. He should remind the chairman that the board policy (adopted at its planning meeting) is to focus on profitable segments. Now the board must allow management to do its job-monitoring compliance with board policy but not enmeshing itself in implementation. Fisher should recommend internal reexamination as well as exposure to knowledgeable advisers who can assist in board education. To reinforce the potential consequences of the board`s current attitude, he should discuss the expectations and limited patience of Nasdaq shareholders. These are not local stockholders who enthusiastically support the bank`s community mission; they are sophisticated investors who demand performance. If the board fails to comprehend this, it will soon confront the very real discomfort of shareholder activism from people who have the tools to create serious unpleasantness, ranging from adverse publicity campaigns to proxy contests and lawsuits. CEO Fisher should encourage the chairman to exert leadership. The chairman must control the board meetings to avoid unproductive interference with management`s prerogatives. He also should require formal training to expand the board`s vision; he must seek rejuvenation by recruiting new members (and possibly commencing a mandatory board retirement program); and he should express unwavering support of management. Then, prior to the next board meeting, the chairman should meet individually with the other directors to inform them of the new regime.James M. Rockett


McCutchen Doyle Brown & Enersen LLP

San Francisco, California I would advise CEO Fisher to avoid letting this situation divert attention from the strategic plan as a whole. Obviously, some board members are trying to micromanage the institution. The chairman needs to be gently reminded of the board`s charge. A product or service to be added or eliminated is the decision of management in the context of the strategic plan that the board has approved. Douglas D. Atkins

President and CEO

Commercial & Savings Bank

Millersburg, Ohio I`ve had this situation occur at my bank and to tell you the truth, I`ve found the best way to handle a board that refuses to deal with the important issues is to bring only what is absolutely necessary before them and let the management team handle the rest. I know that is not the favored course of action for a CEO in working with the directors of the company, but today, that is the most effective way for our organization to produce a growing bottom line and happy shareholders. We`re getting to the size that we would consider taking the bank public, and I might feel differently operating in that mode, but it still comes down to performance. If a board can`t lend some meaningful assistance, then it should get out of the way. Name withheld upon request A publicly traded company has no greater responsibility than shareholder enhancement. A publicly traded community bank has the additional pressure of community presence, investment, and support, which can frustrate the best-minded boards, CEOs, and management when balanced against earnings per share. TriState Bank has made several difficult commitments of which CEO Fisher must now determine relative importance. The school savings program is an emotional position of the board. While emotions must be controlled in a business environment, it is also vital that Fisher maintain the confidence of the board, management, and community. He must not sacrifice dollars to save nickels. I would suggest Fisher find a compromise: make the board responsible for the agreed-upon results of the school program. Build specific goals, approved by the board, accept a timeframe, and then report the results to the board, including the related balances. The board must formally agree that, should the program not reach specified goals, it will end. CEO Fisher will need the board`s support on much bigger issues. He needs to pick his fights, and while this one does not appear to be critical, that does not eliminate the board`s responsibility.

Michael Walsh

President and CEO

Eagle Bank & Trust

Hillsboro, Missouri

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