Chain of Command

Paul Budlino, a director of the $700 million Riverbend Bank and Trust, received a Friday afternoon phone call from a long-time friend and bank client. It seems that on a recent visit to their community branch, the caller and his wife were treated rudely by the new accounts representative, and they wished to voice their annoyance with their close friend who is on the board. The call upset and embarrassed Budlino. Afterward, he immediately arranged a meeting time with the branch manager to confront him with the problem. On Monday morning, however, as he passes through the branch doors, he debates whether a one-on-one meeting with the manager is the best approach for dealing with the incident. Director Budlino has good reason to feel concerned about his imminent meeting with the branch manager. His visit will create curiosity and speculation with the entire branch staff. After he leaves, they will be distracted from their primary purposeu00e2u20ac”providing good service to their customersu00e2u20ac”and will likely spend valuable time and energy defending their team member from his criticism. In addition to creating a disruption at the office, the director also has missed an opportunity to communicate his concern for quality customer service with the bank`s senior management. He could have asked about initiatives to assure top-notch service, like performance standards, shopping surveys, and training classes. He also might have learned what positive and negative consequences are associated with the level of service afforded to customers. Most important, he could have turned a personally embarrassing incident into an opportunity to reinforce a key value that should differentiate a community bank`s service: providing personal, caring attention to each individual, no matter who it is or who the customer might know. The director would have become an advocate for all customers, not just for his personal or business acquaintances. Directors have an important responsibility to all stakeholders of the bank. Sharing their observations and concerns directly with senior management helps ensure that such issues are addressed appropriately for the benefit of the customers, the staff, and the shareholders. Susan Mullineaux

Mullineaux Management Services

Lexington, Kentucky

Budlino should not deal directly with the branch manager regarding this incident. Directors have a duty of care that they owe to the bank and its shareholders. This duty of care applies both to the decision-making function and the oversight function of directors. Directors must exercise reasonable care to see that company executives carry out their managerial responsibilities and comply with the law. Directors are not required to be, nor should they become, involved with day-to-day bank operations. Generally, senior officers are responsible for the daily administration and management of a bank. If a director becomes aware of a situation that requires the attention of bank management or the board of directors, the director should, to fulfill his or her duty of care, bring the situation to the attention of the proper individual: either a bank officer or the board chairman. In this situation, rather than meeting with the branch manager, director Budlino should report the incident to the appropriate bank officer. That officer should then discuss the problem with the branch manager. Director Budlino should, however, follow up at a later date on the issue by speaking with the bank officer who dealt with the situation. Frank M. Conner III

Financial Services Group

Alston & Bird LLP

Washington, D.C. Being the president of a locally owned and operated community bank, I certainly hope I will not be confronted with this situation. Building relationships with our clients and offering the best and friendliest customer service is the backbone of our organization. However, I am sure we could be faced with a similar situation and, most important, the way it is handled could have a tremendous impact on the bank`s reputation and image within the community. If this were to happen, I hope any one of our bank directors would feel free to give me a call and discuss the matter as soon as the incident occurred, rather than waiting over the weekend. This would allow me the opportunity to talk with our customer service representative, hear that side of the story, and find out what the customer was trying to accomplish during the bank visit, giving me much-needed information before contacting the customer. I would then call the customer myself, listen to his or her complaint, and try to offer a solution. If the customer service representative had acted unjustly or if it was a miscommunication, I would apologize. Last, I would follow up with our director, thank him for bringing this incident to my attention, and ask him to contact me immediately should he ever experience further problems with the bank or its staff. After all, directors are the eyes and ears of our bank! Diane West

President

Premier Bank

Brentwood, TennesseeWhy would a director and investor of a community bank have second thoughts about going in and chewing out a manager or new accounts person for poor performance? The CEO has plenty to do and doesn`t need to be distracted with this kind of incident. From my personal experience, it is very effective when a director communicates in person that he or she is not happy with the level of service being provided by a branch or employee. Sometimes I think business executives worry so much about protocol or people`s feelings that nothing gets done. I`m not sure my opinion is shared by management or all the directors at my bank, but woe to the employee that embarrasses me by being rude. Name withheld upon requestWhile the scenario laid out is a real life dilemma for many bank directors, it must be managed with great care. It is understandable that Paul Budlino would be concerned over his friend`s experience at the bank`s branch office. After all, as one of the bank`s directors, it was his responsibility to oversee the well-being of the bank and its reputation in the community. However, as directors we must remind ourselves about what specific responsibilities we should involve ourselves in and which responsibilities should be left to the bank`s management to execute. If I were Paul Budlino, while I hold great regard for my relationship with my poorly treated friend, I would not involve myself with the branch manager. To involve yourself as a director deep in the management ranks when you do not have the responsibility to hire or fire appears to be a conflict that bank directors should avoid. This is clearly a misstep into the arena of micromanaging. In this case, I believe it would be more appropriate to interface with the bank`s CEO, where the responsibility rests to operate the bank with the mission, policy, and goals set forth by the board of directors. The board`s responsibility is to set policy and management`s responsibility is to execute policy. If everyone fulfills his or her role, harmony will exist. If directors cross the line and interfere with management`s responsibility, they will void the meets and bounds for which the bank`s management should be held responsible. Todd L. Johnson

President

Reuben Johnson & Son Inc.

Superior, WisconsinEvery bank needs to be concerned about rude representatives, and director Budlino was right to bring the problem to the bank`s attention. In most cases, however, a bank director`s best approach to this type of situation probably would not entail a complaint to the branch manager. A bank, at least in Delaware, is managed by a board of directors that acts only through meetings. While individual authority can be delegated through the bylaws or by board resolution, individual directors who are not also officers usually do not have individual authority to act on their own.Paul Budlino apparently is not an officer of Riverbend Bank and Trust, and his visit to the branch manager is not in the context of any board action. Although the interpersonal management dynamic is different at every institution, I suspect that many bank CEOs or presidents would feel aggrieved by directors who bypassed them and complained directly to branch managers. Presenting the complaint at a board meeting or to a top officer would be more appropriate. As a regulator, however, my primary concern about a bank`s board of directors is that it operates the bank in a safe and sound manner. This particular scenario does not seem like the sort of problem that normally attracts regulatory scrutiny; thus my comments do not represent an official pronouncement. Robert A. Glen

State Bank Commissioner

State of Delaware

Dover, DelawareThis director has good intentions but is exercising incredibly poor judgment. To be sure, director Budlino is about to cross the line and step (more like jump) into management`s domain. He probably is saying to himself: “I`ve identified a problem. Its solution is simple. And I know I can correct it without delay and without involving others.” Wrong! The negative consequences of making direct contact with the branch manager are obvious, and director Budlino should refrain from taking action in this crude manner. Interestingly, his behavior reveals how little he understands or takes seriously the role of the board and where it should stake its claim. Unfortunately, the issue here may run much deeper. Why wasn`t this matter initially turned over to the CEO? Are there other, similar incidents of directors bypassing the chain of command? If so, the CEO may be at fault for permitting the line between management and the board to become blurred. This situation may prove to be a litmus test for a CEO who is overly compliant with directors. Smart and savvy CEOs know how to inform and continually remind well-meaning and spirited business and community leaders when they venture too close to the edge. In the case of Riverbend Bank and Trust vs. director Budlino, the underlying problem may have more to do with the CEO. Dale F. Falcinelli

Director

Vista Bancorp. Inc. Phillipsburg, New Jersey

Principal

D. F. Falcinelli, Inc.

Easton, Pennsylvania