The Consultants: Wisdom and Experience For Hire

The frontier is open: Where do you want to go? That’s the first question the principals in a strategic consulting firm are likely to pose to your board when their services are engaged. The answers today can be diverse: an acquisition, a product line development, a structural overhaul, or perhaps higher returns. In any case, once the direction for the bank is determined, the consulting firm can help chart a course to fulfill the bank’s desire to maximize shareholder value and sustain its viability.

Bank Director’s posse of consultants includes eight firms: four known for their work with large financial institutions and four that have carved out their place working with community banks. In the profiles that follow, we’ve tried to highlight each firm’s style and expertise to help boards that are looking for a strategic partner with the right cultural fit.

Alex Sheshunoff Management Services L.P.
Headquarters: Austin, Texas
Key contact: Alex Sheshunoff, president

Number of offices: 1
Years in business: 25
Specialties: profit management, risk management, executive education, technology, CRM, investment banking
Website: www.ashesh.com
Alex Sheshunoff calls it “intelligence from the front.”

Every year, Alex Sheshunoff Management Associates runs a CEO affiliation program in which CEOs from 600 institutions meet twice a year for three days in groups of 20 and talk about what they’re doing. They discuss the greatest challenges facing their institutionsu00e2u20ac”what’s working or what isn’t.

The breadth of information they collect gives the strategic planning consultants at Sheshunoff an edge in helping clientsu00e2u20ac”which currently number more than 1,250u00e2u20ac”with their strategic planning efforts.

“I think that a lot of banks might be able to do this themselves, but we offer a broad perspective on what’s going on in the industry. We’re not just focused on a specific aspect. The CEO is focused on running his bank. So it can be difficult for the CEO to facilitate the plan,” says Sheshunoff Regional Manager Geri Forehand.

In helping banks sort through their options, Sheshunoff’s consultants look at four business disciplines: technology and operations; human resources; sales, service, and marketing; and financial.

The board and senior management set the course for the bank, and senior management develops an action plan. But sometimes, that’s as far as it goes. Says Sheshunoff: “Because of the importance regulators place on planning today, banks place a greater emphasis on planning and a lesser emphasis on implementation.”

Sheshunoff, though, isn’t content with a “beautifully bound” plan. He wants the bank to see results. After the plan is drafted, Sheshunoff consultants have each member of the board sign off on it to seal the commitment, according to Forehand. This is especially useful when political factions have erupted among management or the board.

“There are some people out there who just want to circle and never land,” Sheshunoff says. “Everybody can be good at planning, but some never want to put it into place because that can be scary.”

Sheshunoff consultants follow up to find out what level of acceptance has been reached after the action plan has been created with specific timelines and responsibilities.

“They’re not accountable to us, but we assist them. We don’t expect the board to review all their actions but rather to make sure that there is a monitoring process that goes on,” Forehand explains.

At the end of the day, a bank that is executing on a well-conceived plan is in a much better position to choose its destinyu00e2u20ac”whether that means staying independent or partnering with another institution. It’s also in a better position to deal with a burning issue for many institutions these days: management succession.

“That’s something 45-year-old executives really want to talk about,” says Forehand.

Austin Associates LLC
Headquarters: Toledo, Ohio
Key contacts: R. Hal Nichols, chairman; Craig J. Mancinotti, principal; Richard F. Maroney, Jr., principal; Robert J. Morgan, principal
Number of offices: 1
Years in business: 30

Specialties: Investment banking and consulting; financial management
Website: www.austinassociates.com

When Austin Associates undergoes the task of helping with a bank’s strategic planning, it puts in a lot of hours on the front end to analyze the institution. Every planning engagement, says CEO Hal Nichols, is unique. And Austin Associates, launched in the late 1980s when several executives purchased the company from consultant Douglas Austin, prides itself on customizing its services to the needs of its clients. Today, the Toledo-based firm provides a wide range of consulting services and specialized investment banking expertise to financial institutions primarily in the Midwest, Northeast, and Southeast. Developing a niche and getting to know its clients has helped Austin stay successful. “It’s important for us to understand who the players are,” says Nichols. “A dominant personality can drive the direction the company is going.” Before setting up a meeting, Austin consultants send out written questionnaires and conduct phone and onsite interviews. They review the bank’s last strategic plan. They try to understand the bank’s strengths and weaknesses and how risk tolerant the institution and its directors are.

The board members identify the bank’s strong points and needs from their viewpoints and help the process by defining acceptable performance and shareholder value. Later the board helps monitor progress through quarterly reports by management.

It’s also the job of the consultants to size up the jobu00e2u20ac”to ascertain if they are actually going to be conducting a planning meeting or if the engagement will result in an sort of arbitration meeting, as it sometimes does.

“There are times where you know you are going in and there are differences of opinion about a sensitive issue where you almost play an arbitrator role,” says Craig Mancinotti, managing director and principal. For example, he says, “We had one planning project where the entire meeting came down to whether the board thought there should be a mandatory retirement age.”

Banks’ approaches to strategic planning can widely vary. One may be content to conclude the process with a summary memo listing the three or four most important issues with broad objectives for growth and profitability. Others want a comprehensive, detailed action plan.

“Banks that have never done planning in the past want to start small and walk before they run,” says Nichols. “If this is beneficial and management buys into it, they’ll go into more detail.”

Management succession is one of the hottest issues of the day and one that many banks have a difficult time tackling without an outside perspective, according to Nichols. In the past, he says, a lot of banks had strategic questions about technology. Now most community banks are more interested in stable growth and an increase in earnings.

To conclude the strategic session, consultants will use a baseline forecast based on the bank’s historical growth and earnings and then create a new forecast using the results of the planning meeting. It provides the bank executives and directors with a clear picture of what the institution is trying to accomplish and why.

Says Mancinotti, “Community banks that have survived in last 12 years have a real clear picture of what they want to be.”

Booz Allen Hamilton
Headquarters: McLean, Virginia

Key contact: Paul Kocourek, managing director, financial services practice
Number of offices: 110
Years in business: 88
Revenues: $2.1 billion (fiscal-year 2002 ended 3/31/02)

Specialties:strategy; organization and strategic leadership; operations; information technology; technology management; and e-business strategy and implementation.
Website: www.bah.com

With offices in six continents, Booz Allen Hamilton bills itself as a global leader in management and technology consulting, providing services to major international corporations via a staff of 11,000. Founded in 1914, the private corporation is headquartered in McLean, Virginia, and at its helm is chairman and chief executive officer Ralph W. Shrader. The firm’s financial services practice is headquartered in New York City.

Booz Allen has deployed its industry-specific knowledge in banking and capital markets to advise large financial institutions worldwide in a variety of strategic situations. On the wholesale banking front, Booz Allen has examined critical success factors in more than 30 wholesale banks that offer clients electronic banking. In one recent case, the firm has analyzed the potential impact of multimedia applications, such as just-in-time banking, for a major German bank.

In the consulting business, Booz Allen’s management firmly believes creativity is a necessary factor. For its retail banking clients, the firm has created a cost model for Internet retail banking services based on using a bottom-up approach to compute cost per transaction for various transaction types. It also designed a retail banking architecture for a Latin American banking institution and helped define a long-term strategic plan for one of Korea’s top three conglomerates. Booz Allen does not take a cookie-cutter approachu00e2u20ac”it uses its experience to ferret out what will be most useful to each client’s needs.

Booz Allen’s financial services executives say that three critical questions underscore the strategic consultation process. These are: Where are the opportunities? What are the pitfalls? How do we keep our mission clearly in focus and deliver on it? In the retail and commercial banking arenas, ascertaining the answers to such questions helps Booz Allen reach its goal to help clients align business models as closely as possible to their customers’ needs so the banks can create value for shareholders.

Darling Consulting Group Inc.
Headquarters: Newburyport, Massachusetts
Key contact: George K. Darling, CEO
Number of offices: 1
Years in business: 27
Specialties: strategic planning, balance sheet management, education, asset/liability management
Website: www.darlingconsulting.com

George Darling honed his methods in the 1960s when he worked for IBM, helping its bank clients develop strategies and apply technology solutions. He plied these same skills when he implemented strategic planning solutions for Cooper’s & Lybrand’s New England bank clients. So it was a natural turn when he created Darling & Associates, the forerunner of Darling Consulting Group, in 1976. Today, Darling’s core business is working with banks to increase their earnings through balance sheet management. Darling Consulting’s clients range in asset size from $20 million to more than $20 billion and are located throughout the United States, Puerto Rico, and the Pacific Rim.

Like many other strategic planning consultants, Darling begins by taking stock of the institution from the outside, immersing himself in information about the bank and its market. He meets with senior management and the board to craft a mission and vision statement for the bank that will hold for the next three to five years. This is vital, he says, because “you’ve got to decide: How do you want to be viewed by stockholders, customers, employees, the community, and regulators?”

Darling says brings bank management into the process by allowing them to develop the objectives within which the overall mission is to be accomplished. The bank looks at competitors and assesses its own strengths, weaknesses, opportunities, and threats in light of these stated objectives. For example, he says, “if you want a return equal to nothing less than 15% as an objective, how much can you spend on employees? How much can you spend on annual growth?”

The board of directors sets the vision for the bank, Darling says, but management should have the responsibility to assign specific tasks and plans of action. Over time, Darling monitors progress with strategic planning clients by making quarterly visits to the company. This often entails prodding managers about their “to do” lists and asking tough questions when an objective hasn’t been met.

These days, Darling says he sees two issues continually top the list of board concerns: the quality of senior management and whether it’s the right time to find an ownership partner. Good strategic planning can help the board cope with these issues by making the institutions priorities clear. “The longer you go through the planning process, reaffirm the mission, culture, make little tweaks as you need them, then two or three years into it you get to the real philosophical issues and hard-core problems,” Darling says.

First Manhattan Consulting Group
Headquarters: New York City
Key contact: James M. McCormick, president

Number of offices: 1
Years in business: 20
Revenues: not disclosed
Specialties: commercial and retail banking, mortgage banking, finance, insurance, brokerage, and other diversified financial services consultation
Website: www.fmcg.com

With more than 20 years of experience, First Manhattan Consulting Group is a firm with a proven track record in serving financial institutions on a wide range of top-management issues. An overriding goal and mission of the company is increasing its clients’ shareholder value. Since 1980, First Manhattan Consulting has completed more than 2,500 assignments, including work for 80% of the 70 largest U.S. bank holding companies; major multiline and monoline insurance carriers; major international banks from 22 countries; and many regional and national brokerage firms. Its principals have advised major finance companies, guarantee companies, and diversified financial firms as well as several financial services vendors.

Headquartered in New York, First Manhattan’s command center is lead by the watchful eye of its president and founder, James M. McCormick. According to the firm’s executives, First Manhattan’s mix of strategy, finance, technology, and productivity skills has allowed it to discover new insights into the drivers of shareholder valueu00e2u20ac”one of the chief reasons its clients come for help. Along the way it has also developed benchmarks for key lines of business, including perspectives on achievable return on equity and growth; designed new approaches to calculate capital adequacy and capital allocation; and documented and implemented best practices for post-merger consolidation and bankwide productivity programs.

In the financial institutions arena, the privately held firm boasts expertise in all of the significant lines of business operated by commercial banks, ranging from commercial and retail banking to mortgages and finance. And its clients keep coming backu00e2u20ac”over three-quarters of First Manhattan’s workload typically consists of projects requested by existing clients of the firm. First Manhattan has served at least 50 client institutions more than 10 times and several institutions more than 100 times.

McCormick says the firm’s approach is distinctive in several respects. First, he says, the firm’s specialization in financial services enables First Manhattan to relate to the unique needs of banking-related businesses. Second, all of the firm’s recommendations are driven by a focus on maximizing clients’ shareholder value. Third, McCormick says, First Manhattan has proven management skills that are useful to clients on a broad range of initiatives related to growth and diversification strategies, merger planning and integration, expense control, and line-of-business managementu00e2u20ac”all top-of-mind issues for bank boards today. It’s safe to say, with qualifications like these, First Manhattan won’t be disappearing anytime soon.

Marakon Associates
Headquarters: New York City
Key contact: Ken Favaro, CEO
Number of offices: 5
Years in business: 24
Revenues: 2001 revenues totaled $116 million
Specialties: corporate and business unit strategy; leadership and organizational design; financial policies; customer-value management
Website: www.marakon.com

Marakon Associates is an international management consulting firm that works with CEOs and their executive teams to develop strategies and organizational capabilities that maximize the long-term intrinsic value of those companies. Headquartered in New York, the privately held Marakon also has offices in Chicago, London, San Francisco, and Singapore.

Established in 1978 by three former corporate finance executives at Wells Fargo Bank, along with one member of the academic community, Marakon’s consulting practice has been built on the premise that the long-term interests of all stakeholders are best served when management can create the highest value for investors over time. Three of the four founders, James M. McTaggart, Peter W. Kontes, and William W. Alberts, are still with the firm as co-chairmen and partner, respectively. Chief executive is Ken Favaro, whose particular focus is on increasing long-term growth potential for “mature” businesses. Revenues for 2001 totaled $116 million and the firm employs approximately 375 people.

Several key principles guide Marakon’s consulting efforts, according to representatives of the firm. Specifically, Marakon seeks to develop a common understanding of the sources and drivers of shareholder value and to establish an executive agenda of the issues that will create the most value to shareholders. Marakon executives make it is a priority to enhance corporate and business-unit strategies that will maximize future cash flows and economic profit growthu00e2u20ac”that is, increase net profit above and beyond the cost of capital. Consulting efforts also aim to build the decision-making processes, standards, and management capabilities of clients to create a sustainable organizational advantage and to develop a sharpened ownership culture.

McKinsey & Company
Headquarters: New York City
Key contact: Rajat Gupta, managing director
Number of offices: 84
Years in business: 76
Revenues: not disclosed
Specialties: commercial banking, investment banking, diversified financial services
Website: www.mckinsey.com

Founded in 1926 when Charles Lindburgh was making headlines, McKinsey & Co. is a venerable firm steeped in tradition, yet it consistently remains on the cutting edge of business strategy and research. The firm is made up of a global partnership serving three of the world’s five largest companies and two-thirds of the Fortune 1000. With 84 offices located in 44 countries around the world, McKinsey operates as one global entity led by its partners, who own the firm. A self-proclaimed “meritocracy” McKinsey prides itself on hiring some of the most talented and intellectual minds in the country. Its research enjoys widespread publicity, yet McKinsey’s principals prefer to stay out of the limelight, as our endeavor to interview them demonstrated.

In its banking and securities practice, McKinsey serves a wide variety of clients in commercial banking, investment banking/brokerage, asset management, consumer finance, securities, insurance, and diversified financial services. The banking and securities practice is organized on a regional basis with three major centers: Europe, North America and emerging markets.

McKinsey’s areas of expertise include growth strategy, business-unit strategy and performance, cost and productivity and sales and marketing effectiveness for retail banking and consumer credit; strategic technology issues; payments strategies; investment and wholesale banking management; and organizational and industry issues embracing all elements of the business system for asset management endeavors.

McKinsey’s philosophy is to bring together consultants with expertise in a specific industry or functional areas. Besides working with clients to address strategic and competitive challenges, each practice conducts unique research to advance understanding on critical trends.

Professional Bank Services
Headquarters: Louisville, Kentucky
Key contact: George Freibert, chairman
Number of offices: 5
Years in business: 24
Specialties: strategic planning, corporate structure and governance, compliance consulting, loan review, mergers and acquisitions, education and training
Website: www.probank.com

Most banks these days have a strategic plan, says George Freibert, chairman of Louisville, Kentucky-based Professional Bank Services (PBS). For some small, rural banks, the plan may be filed in the CEO’s head. Some boards have it written on a piece of paperu00e2u20ac”filed somewhere. Others are detailed, discussed, and followed to the letter. But in nearly every case, no matter how sound the plan, the directors have periodic questions about the bank’s performance.

Directors want to know: How do we stack up compared to competitors and peers? Are we on the right track? Are there things we could be doing better? What are regulators going to be looking at the next time they come in the bank? How can we cut our expenses without harming service? Should we be in insurance, securities? Should we start a trust department? And, more recently, how should our board govern itself in the post-Enron era? There may not be definitive answers to all these issues, but consultants like PBS are there to help.

“A bank is perfectly capable of developing its own strategic plan, but it’s helpful to bounce it off somebody,” Freibert says.

A former bank examiner with the Federal Deposit Insurance Corp., Freibert founded PBS in 1978. Since that time, the firm has developed a practice that includes a wide range of services, including mergers and acquisitions; de novo charters; branching; loan review services; compliance consulting; human resources; profitability consulting; litigation; seminars; and in-house training. PBS has additional offices in New York City, Chicago, Orlando, and Nashville. Freibert, a frequent lecturer with the National Association of Corporate Directors, is known in the industry a straight-shooter and he takes a no-frills stance on strategic planning.

“The plan itself is overrated,” he says. “It’s got to be accompanied by strong adherence to the basics of banking: making good loans and not taking unreasonable chances in the securities portfolio, for instance. If you’ve got a sloppy bank, you’re not going to get anywhere.”

It’s the process of planning rather than the plan itself, he says, that is most valuable. That’s where consultants like PBS can help. And though an outside perspective is at times necessary, Freibert concedes it’s not always welcome. Sometimes, he says, he is faced with the unsavory task of telling the bank that its strategic plan just isn’t going to fly. Cases like that are tough, but Freibert says honesty is what makes his business work.

“We’ve been in business 25 years,” he says, “People hire us because they believe what we tell them.”