Getting Away From It All: The Effectiveness of Board Retreats

When asked whether it matters that bank board retreats be held in a local hotel conference room or over a weekend at a snazzy resort, Scott Sommer, president and CEO of Cornerstone Advisors Inc. in Scottsdale, Arizona, replies quickly: “We always prefer the snazzy resort.”

As a facilitator of retreats, he may have ulterior motives, however.

Howu00e2u20ac”or whetheru00e2u20ac”a bank plans an annual retreat probably depends on its culture. Some community banks feel their boards are sufficiently close-knit and well informed that retreats are extraneous. Others see the retreat as a source of camaraderie, as well as a type of reward, for their directors.

Consultants, who attend as guests as well as facilitate dozens of retreats each year, say they are invaluable. George Freibert, chairman of Professional Bank Services in Louisville, Kentucky, says his company’s research has shown a correlation between top-performing banks and banks that hold regular board retreats.

“I have been personally preaching for years that retreats are one of the best methods for promoting company strategy, fostering teamwork and a feeling of ‘family’ within the organization,” Freibert explains.

And, he says, the format and structure of the retreat can affect how productive and successful the program is. “The more professionally it’s produced and the more that outside directors can tell there was a lot of work put into it, the more they’ll put into it,” says Freibert. He also suggests the inclusion of spouses whose support, he says, increases the attentiveness of directors.

No matter the format, the annual retreat has been used to discuss strategy, both short and long term, for many years. Issues regularly tackled include management and board succession, director ethics and responsibilities, mergers and acquisitions, and compensation. This year other topics are also appearing with some frequency. The Sarbanes-Oxley Act and headline-grabbing corporate scandals have been an overwhelming issue for publicly held banks to grapple with. The need for board members who can serve on audit committees and the new scrutiny of banks’ corporate governance guidelines are ripe fodder for director retreats. Bank security and privacy issues are also considered key topics for board members to address. Moreover, the quailing stock market has driven many investors to less volatile bank stocks which, says Steve Williams, managing director of strategic services for Cornerstone, has persuaded boards to take their eyes off the short-term profits and turn to planning for the long haul again.

Because of the increased heat on directors in the highly charged business environment today, Bank Director thought it would be interesting to talk to executives at a handful of financial institutions of various sizes about how and why they use director retreats. Their stories follow:

Community First Bank

Meticulous Planning Leads to Results

It was a whopper.

One could see the strategic planning process of Community First Bank of Fargo, North Dakota as a monumental task, divorced from the director retreat. But it was precisely the enormity of the groundwork laid by this $5.7 billion institution that defined the nature of the board retreat.

“The market development officer and I talked about what we could do to really come away with something significant,” says Mark Anderson, CEO of the bank, which reported a 22.26 ROE in the second quarter of 2002. “There was a huge timeline. It involved a lot of steps. We worried that we were biting off more than we should have.”

Community First’s plan included several outside consultants, reams of surveys and opinion papers, and a three-day weekend at a site where managersu00e2u20ac”and later directorsu00e2u20ac”would be afforded no recreation.

The bank stimulated managers by bringing in an expert on vision, values, and purpose. Afterward, each senior manager was asked to submit a statement of what he or she believed the bank’s purpose and objectives were. These were affectionately titled Big Hairy Audacious Goals, or BHAGs.

Two other experts, one whose strength was strategic planning and technology and another with broader, nonfinancial expertise, were co-facilitators.

Among the copious materials were workbooks created by four management groupsu00e2u20ac”human resources, market development, technology, and delivery model. There were vision-to-action white papers churned out by a set of mid-level managers, part of the bank’s Leadership Institute. Included in the packet were the hefty results of a survey conducted by one of the facilitators covering all of the issues that senior managers thought needed to be part of a strategic planning process. The survey was followed by individual interviews with the respondents. And finally, the tome included a detailed market analysis, assembled weeks before the retreat, identifying opportunities, market growth, and performance in each of the bank’s markets.

When the day finally came for the management retreatu00e2u20ac”as with the later board retreatu00e2u20ac”participants were required to carpool to their sequestered spot to ensure more time together, working out the issues of the bank.

The result of this flood of information and discussion was a strategic plan that had been thoroughly chewed and digested, complete with assigned responsibilities.

At many retreats, Anderson says, “there are missing ingredients for the agenda,” which prevent the board from producing anything meaningful. But Community First, Anderson says, will endure none of the shoe scuffling and wasted words that occur when directors are asked to make decisions based on insufficient groundwork. And there will be plenty of face time. Community First’s directors will be stuck together for a several-hours drive to and from the retreat. They will hear a meticulous explanation of the strategic plan managers devised. They will have the benefit of an industry overview presented by the same investment banker who enlightened managers. Then the directors will be broken into small, working groups and given nearly a half hour to provide input on various aspects of the strategic plan.

In the end, Anderson anticipates, there will be some changes. Though he believes management came up with a quality strategic plan, it may have weaknesses. For example, he says, it may be too aggressive.

While Anderson emphasizes that the board’s job is ratification and fine-tuning of the plan, he doesn’t want directors to be passive.

“We expect them to challenge management,” Anderson says.

Kentucky Bank & Trust
Combining Work and Leisure

Every year, Kentucky Bank & Trust based in Ashland, Kentucky takes its directors to a resort on the South Carolina coast for three days of work and play. The recreation, says C. Ronald Christmas, president and CEO of the $130 million bank, serves as an incentive for directors who only get paid $400 a meeting. And the time shared on the golf course, as well as in meetings, helps build solidarity.

“It’s not that great an expense,” Christmas says. And the bank is getting roughly 14 hours of work from these directors for far less than they would be paid for in their respective jobs.

Spouses are invited and entertainment is provided for them, which Christmas believes reduces any resistance to spending time away from home.

At last year’s retreat, the featured entertainment was a Jimmy Buffet impersonatoru00e2u20ac”a big hit, according to Christmas.

Of course, the retreats aren’t all play.

The directors’ arrival Thursday evening is followed by two days of work and some recreation. A regular board meeting is held, albeit a short oneu00e2u20ac”about an houru00e2u20ac”on Friday. The executive committee meets separately to confer on compensation issues.

After the regular board meeting, the board tackles potential changes and capital expenditures for the bank, which reported a 12.9 ROE during the second quarter of 2002.

This year the board discussed strategic issues, such as expansion, mergers and acquisitions, revenue enhancements, and planned capital expenditures. The first day, Christmas says, is dedicated to the issues that impact the coming year. For example, because the company’s trust department is performing well, Kentucky Bank is planning to add online trading to its product line.

The second day, Christmas says, is devoted to longer-range planning issues such as whether the company should sell insurance. “Saturday we look at new directions for the company.”

For Kentucky Bank, the annual strategic planning process is simplified by the fact that the bank focuses on strategic planning all year.

Each week, says Christmas, when senior officers convene, they’re required to bring to the table one idea about how to improve the bank and its profits and five prospective customers to call on. A number of the directors take a lively interest in this ongoing process, since half of them are major shareholders of the closely held bank. At the retreat, a block of time is reserved for discussing what the board can improve upon and on recognizing those directors who have gone above and beyond to bring in business for the bank.

Saturday afternoon is reserved for leisure. Sunday morning before dismissal, directors meet one last time to recap and to make sure there are no loose ends.

Christmas says this formula has worked well for about 15 years. Because they’ve done it so many times, he says, they don’t require an outside facilitator. The senior management team decides what needs to be accomplished at the retreats and then Christmas’s administrative assistant makes all the arrangements.

Having three days to work, Christmas says, helps avoid the risk of unfinished business. And the mixture of work and fun “creates a lot of camaraderie. It’s a way to rejuvenate directors, as part of the team, to go out and work for the bank.”

Heritage Financial Corp.

Conference Retreat Allows Best of Both Worlds

Most years, the 12 directors of $600 million Heritage Financial Corp. in Olympia, Washington meet for an overnight at a resort hotel in the Seattle area.

But in 2001, after Chairman and CEO Donald V. Rhodes had attended several Acquire or Be Acquired annual M&A conferences sponsored by Bank Director magazine, he decided it would be a good idea if his whole board could hear, firsthand, what he was hearing. So last year, the board’s retreat took place in Phoenix, at the 2002 M&A conference.

The best part of the retreat, according to director Daryl Jensen, were the private meetings the magazine staff arranged with Bank Director publisher and former FDIC chairman L.William Seidman and management guru Alex Sheshunoff. “I felt really rewarded by having them come and do that,” says Jensen, chairman of the audit committee, who has been on the board more than a dozen years.

“We were talking about our capital,” Jensen says. “A lot of people say we’re overcapitalized and that we need to get our capital down so we have a better return. [Sheshunoff] said it didn’t bother him [that we] have a lot of capital. That was helpful.” Heritage Financial reported a second-quarter ROE of 11.38.

The retreat at the conference gave Rhodes the idea thatu00e2u20ac”every now and againu00e2u20ac”it might be a good idea to hold director retreats at various other banking conferences where his directors would have access to experts who might otherwise be difficult to engage.

Normally, Heritage holds its retreat at the beginning of the fiscal year, usually January, when the previous year’s financial figures are available for analysis. The board spends a Wednesday and Thursday night at a nearby resort hotel and works a half-day Wednesday and Friday with a full day on Friday. The mid-week meeting can present a challenge to some outside directors, but it is planned nearly a year in advance so they have time to arrange to be absent from their businesses.

No recreational activities are planned as a part of the retreat agenda. “If the bank’s going to pay for us to go there and help,” says Jensen, “we need to do as much work as we can.”

The first day the board holds a regular meeting. The next day is devoted to long-range planning, with a presentation by the bank’s accountant or an investment banker. Issues covered include mergers and acquisitions, succession planning, five-year plans, and how stock analysts view the bank, says Rhodes. This year, the board will be taking a hard look at Sarbanes-Oxley.

While many banks work up a strategic plan at senior management levels and present that to the board, Heritage has been known to hand the task to the board at its annual retreat.

“One year, we actually started from scratch. …” says Jensen. “Our board is particularly involved in the bank; more so than you would normally find.” Jensen, who serves on a number of boards, says that when it comes to Heritage, he prefers a hands-on approach.

Rhodes coordinates each year’s retreat with input from the bank’s accountants, attorneys, and directors about subjects that need to be discussed. And he and the board appear to be in concert that time away, where both the working hours and the dinner conversation focuses completely on the bank, is the best formula for making decisions and building fellowship among directors.

“The real benefit is that our retreats are pretty intense,” says Jensen. “There isn’t much time that is not involved in some way talking about the bank.”

Commonwealth Bancorp

Meeting Marathons

Commonwealth Bancorp of Norristown, Pennsylvania doesn’t believe in dribbling its strategic planning work over a long time. Every year, the $1.8 billion bank (recently acquired by Citizens Financial Group for $450 million) sends its directors and its department heads off for an intense session of rehashing last year’s successes and failures and ramping up for the coming year. Not that there aren’t frequent reviews during the yearu00e2u20ac”there are, says director Joanne Harmelin of Harmelin Media, a Philadelphia company that does strategic planning negotiating and media buying.

But in September, everyone travels a couple of hoursu00e2u20ac”usually to a nice hotel in a coastal townu00e2u20ac”where they hold a meeting marathon in order to get their proverbial ducks in a row.

The retreat begins with an overview of the banking industry by an outside expert, such as an investment banker. After that, each department head gives a presentation about the success of the previous year’s strategic plan and plans for the future. Commonwealth reported a second-quarter ROE of 14.3.

“We get to ask specific questions about what is going on,” Harmelin says. “We get to backtrack and ask about what has occurred, why it didn’t go as planned or why it went exceptionally well. We discuss new initiatives, the wisdom of them, how they’re going to be followed through.”

Starting at about eight in the morning and finishing at about five, the group has no time for sightseeing or recreation. Dinner is usually a time to continue learning in a more relaxed atmosphere.

“It’s another opportunity to discuss bank business,” Harmelin says. “If there’s a commercial lending question you didn’t get to ask during the day, you can seat yourself next to head of commercial lending and ask it. You get to know people at the bank a little bit better, to know more about their thinking.”

She also gets to learn a lot about other director’s lives, their families and businesses. “I enjoy listening to them talk about their businesses and their business problems. Everyone shares a lot of the same concerns. You find a lot of camaraderie around the board, besides getting a lot of work done.”

The following day, there’s another round of meetings with department heads, mining them for information. Seldom, says Harmelin, is any drastic change proposed. But strategic plans are only finalized in the days after the directors leave, when department heads remain at the retreat and solidify discussions into a formal plan. Through the rest of the year, they will keep directors apprised about the strides they’re making to complete the plans that managers and directors worked through at the retreat.

“I think every bank needs to do this, needs to get away from the bank and sort of review not only what has occurred but how they could have done better, or if they did very well, why did they do so well,” says Harmelin. “Usually, at a regular board meeting, there are only a certain number of items that can be discussed.”