A Unified Front

Scenario: the board meeting for the State Bank and Trust comes to its last agenda item, there is a buzz around the board table. The topic of discussion is the board’s role in the upcoming strategic planning process and it seems that each director has a different view, ranging from: “It’s management’s job to submit a strategy to the board for its approval” to “Directors aren’t fulfilling their fiduciary duty unless they’re involved in the strategic planning process.” It is Chairman and CEO Bill Johnson’s first year at the bank, and the board is anxious to hear his suggestions on handling the planning process and the steps he’ll take to bring several camps of directors to a unified consensus. In preparation for the task, Johnson sought the counsel of several directors who served on other bank boards. He collected his thoughts and prepared to address the group.

The primary responsibility of board members is to set policy and direction of the bank. Once the board has set direction, it is the responsibility of management to operate the bank on a day-to-day basis. The board and management team must work together for maximum effectiveness and to enhance shareholder value.

Strategic planning is the board’s responsibility and the implementation of that strategic plan is management’s responsibility. The board must monitor the implementation of the plan and report on a monthly basis. So, it takes both the board and senior management working in tandem to develop a plan that can be implemented. Management is accountable to the board for the plan results. If management exceeds the targeted plan results, they must be rewarded; if they fail to achieve the plan results, they must not be rewarded. This is clearly pay for performance.

The board and senior management must work together, preferably with an experienced outside facilitator providing objectivity, in order to provide synergistic leadership and excellent results. Chairman Johnson must explain the roles of the board and management in clear and specific terms. He must then work with the CEO to convene a two-day off-site planning retreat in a location at least an hour and a half-driving time from the bank. The facilitator must be fully prepared ahead of time and work with the Chairman and CEO to gain as much knowledge as possible about where the bank is now and to determine alternative directions for the bank’s future. As Peter Drucker states, “Strategic planning does not deal with future decisions, but with the future of present decisions!”

Bob Calvert
CMC, CSP, CPCM, Calvert Consulting
Roswell, GA

I’ve served on two bank boards and my experience with the board’s role in the planning process has been different, yet successful with both banks. In the first situation, the CEO was a relative of the controlling family and couldn’t even guide himself out of the boardroom. The board played a significant role in making sure that the goals and strategies of the plan were satisfactory because that was the best way for us to monitor what was going on. Not a situation I would wish on any director, but the planning process still worked.

With my current bank, the CEO and staff is very competent with the planning process and the director’s job is relegated to more of a review role than actual participant. I do find myself wanting to play a little larger role in the planning goals, but the chairman/CEO has tight reins on what the board will and will not see. The bank has done very well and this leads me to believe that there is no cookie-cutter formula for all banks.

Name withheld upon request

I think our CEO is a wonderful banker, but the board mostly dictates the vision of where the bank wants to go. If it had been up to our CEO, we would never had made any acquisitions or branched beyond our existing county. These decisions proved beneficial for the bank and shareholders, but were done because the directors were firm on setting the direction of the bank.

If I were CEO Johnson, I would have just told the board in my interview that this is how I handle planning issues and that we should resolve any conflicts before I was hired. He has his job to do and the board has theirs. That wouldn’t work at our bank, but then, no sane bank officer would put up with our board anyway.

Name withheld upon request

My reply is from the perspective of a community-based mutual savings bank. I would advise Chairman Johnson that directors should set the long-term goals for the institution and listen to senior management’s suggestions on how to reach those goals. The board should be determining the following issues: mutual or stock, defining market area, customer focus (commercial or consumer), growth, and general products and services objectives. Once these general objectives are determined, senior management can determine the strategies to meet the objectives.

Kevin Savage
President & CEO, Saco & Biddeford Savings
Saco, ME

Strategic planning is an important element for any organization, including financial institutions. Regulators are demanding strategic plans, particularly in a softening economy. In fact, the latest draft FDIC new bank charter application requires a strategic plan now, as well as a basic business plan. One issue commonly raised by directors is exactly what their role in the strategic planning process should be. Clearly, at a minimum, directors, in the exercise of their fiduciary duties, should review and approve any final strategic plan. Just as importantly, they should monitor management’s implementation of the plan and hold them accountable.

There is no one way to develop a strategic plan, just like there is no one way to run a bank. Clearly, a great deal of the impetus and legwork should come from management as the paid professionals charged with the day-to-day operation of the bank. However, we have seen the strategic planning process made more effective and interactive when the board is involved with setting the goals and direction of the bank up front. For example, management might prepare an outline of a proposed strategic plan and present it to the board as part of a regular meeting. Using the input from that meeting, management could then fill out the outline and develop a draft plan for the board’s consideration at a special meeting or “retreat” dedicated to this important function. In this way, management will have good direction in developing a meaningful strategic plan.

Two final thoughts bear mentioning. First, it may be productive to use an outside facilitator to help organize and act as a catalyst at the planning meeting. Second, it is worth reiterating that monitoring implementation of the plan on a periodic basis is a critical element of the process itself. The use of timelines, with quarterly status reports from management has proven to be a good way of ensuring that the effort that goes into developing the plan is not wasted.

Stephen Klein
Attorney, Graham & Dunn
Seattle, WA

There is no standard for how involved a board should be in strategic planning process. CEO Johnson needs to decide what works best for him and State Bank.

While the directors are responsible for the bank’s vision, strategy, and objectives, there are several ways for them to accomplish this. In most successful banks, the board’s role has evolved from passive approval to proactive involvement that stops short of domination. With that in mind, I would suggest that CEO Johnson prepare the strategic plan with his management team for the board to review, deliberate, and provide counsel.

If he thinks some or all of the directors can really add to the process, he should feel free to invite them to planning meetingsu00e2u20ac”just make sure they know their role: listening, asking questions, and, respectfully, challenging management’s assumptions. The directors should assure that the bank has a strategic planning process that is systematically comparing external opportunities and threats with internal strengths and weaknessesu00e2u20ac”basic SWOT (Strengths, Weaknesses, Opportunities & Threats) analysis.

If he has any doubts about the directors’ understanding of their role, he should discuss it with them before inviting them to roll up their sleeves with him. If a director starts to dominate the process, both the process and the plan will suffer, and he may lose the support of some of his senior people.

As the bank’s “chief strategist,” the board is going to hold him accountable for the process, the plan, and the bank’s performance. He should make sure the team is committed to the plan.

Paul D. Lapides
Director, Corporate Governance Center
Kennesaw State University
Kennesaw, GA

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