Will More Banks Form this Uncommon Board Committee?


committee-2-22-19.pngIt wasn’t in response to a cybersecurity event or a nudge from regulators that prompted Huntington Bancshares’ board to create a Significant Events Committee in early 2018.

Instead, says Dave Porteous, lead director at the $108 billion bank based in Columbus, Ohio, it was old-fashioned governance principles that drove Huntington’s board to establish the ad hoc committee responsible for responding to the biggest risk faced by banks today: cybersecurity threats.

“Particularly over the last 10 years, the world is changing so quickly it has really become incumbent upon all boards, in my view, to continually be evaluating their governance structure and whether or not they need to make adjustments … to how the world is changing,” Porteous says.

Ask any bank executive or director right now to name the things that cause them to lose sleep at night and cybersecurity will almost invariably be at the top of the list.

Millions of personal records have already been compromised globally, and it can cost even a small bank millions of dollars to rectify a single cyber event. Yet, while it is a common topic in boardrooms, it hasn’t yielded widespread governance restructuring at banks across the United States.

Bank Director’s 2018 Technology Survey found that 93 percent of the 161 chief bank executives, senior technology officers and directors said cybersecurity is an issue of focus by their board.

But a 2018 analysis by Harvard Law School found that just 7 percent of all S&P 500 companies have separate technology committees, though 29 percent of large public bank holding companies above $10 billion in assets have set up just such a thing. This is significant because, as the study noted, cybersecurity is often the responsibility of the technology committee.

Significant events have over time produced mandated changes in corporate structure, like the requirement in Dodd-Frank requiring banks above $10 billion in assets to have a separate risk committee, or the requirement in Sarbanes-Oxley that an audit committee oversee a bank’s independent auditor.

But Porteous argues that banks should not wait for changes in the law to force them into structural changes. The changes should emerge instead from ongoing conversations at institutions about new trends and threats.

“To me the critical thing is constantly be assessing and challenging yourself as a board on the way in which you govern and not to be afraid to make adjustments,” Porteous says. “In other words, create committees to address the current or upcoming issues that enhance the focus (of the board).”

For Huntington, the establishment of the Significant Events Committee was years in the making, but finally came after the board realized it was having similar discussions about the same topic at the board level and in separate committees.

It was a natural thing for us to take these discussions we were having, both at the board meeting and various committee-level meetings, and then decide that we were spending a significant amount of time in those discussions that it was going to be critically important,” Porteous says.

When formed, the committee included Huntington CEO Stephen Steinour, who chaired the committee; the lead director; the chairs of the technology, risk and audit committees and the “lead cyber director,” the 2018 company proxy said. The committee has since been folded into the broader Technology Committee because of overlapping skill sets, Porteous says, but the bank can reestablish it or other ad hoc committees as necessary.

One such committee was Huntington’s Integration Committee, created when the bank acquired FirstMerit Corp. in 2016. The committee met three times in 2017 after the acquisition and was later dissolved.

But it’s not just cybersecurity or M&A that should qualify as a significant event worthy of a board’s attention. Recurring natural disasters, for instance, including hurricanes in the Southeast and wildfires in the West are examples that might merit a similar response.

Whatever the issue, Porteous suggests boards continually assess their governance structure through annual board-level assessments or just paying attention to what’s in the newspaper every day.

“It’s critical to make those adjustments or adapt to the changing world,” Porteous says.

Enhancing Shareholder Value



Bank stocks have taken a dive in late 2018, and bank boards play a key role in the strategic decisions driving shareholder value. Scott Sommer and Steve Williams of Cornerstone Advisors explain the issues impacting shareholder value in 2019, including technology.

  • Bank stock trends
  • Focus on fintech
  • Board decisions

Why Directors Should Not Fear Board Evaluations


governance-1-23-19.pngIn governance circles today, the conversations about board performance and evaluations continue to advance.

Governance advocates, proxy advisors and institutional investors encourage varying approaches to evaluating directors, assessing board effectiveness, and raising the bar on expectations for director contributions and performance.

Many community bank directors, however, are reticent to go down the board assessment path, fearing that the process will somehow result in their removal from the bank’s board. The goal of any evaluation, however, should not necessarily be to weed out directors, but rather to highlight areas for board and director improvement, and encourage continual forward movement on good governance.

In our view, there are three general types, or levels, of board evaluation to consider:

Level 1: A general assessment of the board overall and how the group is functioning. This evaluation might include areas such as:

  • Do we have the right committee structure, leadership and meeting frequency?
  • Are we as a board focusing our time on the correct and critical topics?
  • Do we have an appropriate and valuable range of skills and experiences around the board table to govern effectively in today’s industry climate?

Level 2: This typically involves an element of “self-assessment,” focused on what individual directors believe they contribute. This analysis highlights contributions of a technical, industry, business, community or other relative area. Self-assessments also aggregate the collective skills sitting in the boardroom, and help to inform the board about where there are critical gaps in the needed skills.

Level 3: This is where some trepidation arises—the individual evaluation. This assessment involves each director providing confidential feedback on their fellow directors, and should always be facilitated by a third party. Using an outside resource to review and compile the data provides a level of professional insulation between directors, and ensures anonymity of the assessments.

Peer evaluations can serve an important function by informing directors as to how their peers view their contribution. When viewed in conjunction with self-assessment output, it can provide a comprehensive, objective look at how each director views their contribution relative to how their contribution is viewed by their colleagues.

Many board members fear an assessment will expose shortcomings as a director. However, the goal of evaluations is to highlight areas for improvement and strengthen governance—not necessarily cull the herd. There are plenty of examples of directors whose contribution had slipped a bit due to personal or business distractions without realizing this shift occurred. In these instances, peer feedback was instrumental in helping that director return to highly engaged participation.

It’s also common to see individual feedback highlight areas where directors needed updated training or a refresher course in bank operations or oversight, often resulting in additional training for all directors.

One of the hallmarks of the most effective boards is a desire for continuous improvement, and striving to become a “strategic asset board.”

To be sure, board members whose contributions have declined considerably and remained below expectations for an extended period might need a “tough love” conversation. A board seat is a precious thing, and every director must bring current and valuable skills and experiences to the board table.

Directors whose lengthy tenure or legacy contributions are simply not up to current needs and governance standards—and who lack the fortitude for improvement—should ask themselves whether the bank would be better served by a different individual in that seat. It takes real maturity, self-awareness and a view for the “greater good” for a director to make such a determination.

Boards have long held to age limits more than term limits as a vehicle to repopulate their boardroom. Yet as directors age, many institutions are raising or waiving the age requirements to retain experienced directors. Good reasons exist to keep veteran directors, but a board seat should be earned through performance. Seats should not be “institutionalized“ to an individual or family if those representing select interests are not qualified to contribute in a meaningful way and put the institution’s interests above their own.

The highest performing boards make it a policy to conduct some form of evaluation on a regular if not annual basis. Whether though a general, self or peer assessment process, more informed boards make better decisions around board composition and continued director service.

Boards with the strongest, most capable and engaged directors will have the greatest ability to survive and thrive in a consolidating industry. Boards that utilize some form of assessment are more likely to be among the survivors going forward.

One Tool To Get a Better Grasp on Cybersecurity Risk Oversight


cybersecurity-11-26-18.pngAs new types of risk – and new regulatory requirements – are introduced, bank directors play an instrumental role in making sure the executive team is properly addressing cybersecurity risks.

This can be an especially challenging responsibility as it is rare for board members to have the technical background or expertise to appropriately assess an entity’s cybersecurity risk management program without external resources. In many instances, directors find themselves in the uncomfortable position of relying primarily on management reports or the advice of third-party providers to meet their oversight responsibilities.

Annual scorecards from management and vulnerability assessments from third-party providers have value, but can make it difficult to compare and assess risk management programs with confidence.

To address this challenge, boards can consult new guides that offer ways to explore and dig into potential cyber risk management issues and other technical matters.

The Center for Audit Quality (CAQ), recently released a new publication, “Cybersecurity Risk Management Oversight: A Tool for Board Members.” The tool, like other emerging frameworks, is designed to help board members probe more deeply, challenge management assertions from a position of knowledge and understanding, and make more informed use of independent auditors.

Asking the right questions
In addition to offering board members a high-level overview of cybersecurity risk management issues and board responsibilities, the tool offers a series of probing questions board members can use as they engage in discussions about cybersecurity risks and disclosures with management and with independent financial auditors.

The questions are organized into four groups:

  1. Understanding how the financial statement auditor considers cybersecurity risk. These questions help board members understand the auditor’s approach to cybersecurity-related risks, and how such risks get addressed in the audit process.
  2. Understanding the role of management and responsibilities of the financial statement auditor related to cybersecurity disclosures. These questions help board members explore compliance with current SEC guidance, as well as other regulatory and disclosure requirements.
  3. Understanding management’s approach to cybersecurity risk management. These questions look beyond financial reporting and compliance, and begin to probe broader cybersecurity-related issues, including the governing framework, policies, processes, and controls the bank has in place to manage and mitigate cybersecurity risk.
  4. Understanding how CPA firms can assist boards of directors in their oversight of cybersecurity risk management. These questions help board members learn about additional offerings CPA firms can provide to assist them, and what factors to consider when engaging outside auditors to perform readiness assessments and examinations.

Starting the conversation
The CAQ says the cybersecurity oversight tool is not intended to be a comprehensive, all-inclusive list of questions for board members to ask. It also cautions against using the questions as a checklist for board members to use.

Rather, board members should look at the questions as conversation starters, examples of the types of issues they should raise with management and financial statement auditors. The purpose of the questions is to spark a dialogue to clarify responsibilities and generate a conversation and help board members develop a better understanding of how the company is managing its cybersecurity risks.

Expanding CPAs’ capabilities
As noted, one group of questions is designed to help board members learn more about other cybersecurity assurance services offered by CPA firms. One example of such services is the new System and Organization Controls (SOC) for Cybersecurity examination developed by the AICPA.

The information within the report provides management, directors or clients a description of the organization’s cybersecurity risk management program and an independent opinion on the effectiveness of the controls in place.

As concerns over cybersecurity risks in banking continue to intensify, directors will find it increasingly necessary to be capable of effectively challenging executive management and financial auditors. This tool is one guide alongside other evolving frameworks and services, that can help boards fulfill their responsibilities while also adding significant value to the bank and its shareholders.

Future Banking Leadership Formula: Talent, Technology and Training


talent-11-1-18.pngIt’s an old phrase but still rings true today: An organization thrives when you get the right people in the right jobs.

That’s easy to say, but not always easy to do. Future leadership in banking is of great concern to boards today. And while there are myriad methods of finding good people, three key considerations in finding the right people include talent, or a transitioning generation in leadership; technology, or a heightened need for new and better ways to get the job done; and training, or existing employees looking for that golden career opportunity.

Talent: Transitioning Generations
Understanding generational differences is critical if a bank is seeking to attract young talent. Failure to understand these differences will only result in frustration. For example, boomers and millennials may not see eye to eye on a number of things. Older workers talk about “going to work” each day. Younger workers view work as “something you do,” anywhere, any time. If you’re looking for younger talent, whether on your board or within your bank leadership group, take the time to understand these generational classes. The more you know about their needs, expectations, and abilities, the easier it will be to attract them to your organization, resulting in growth that thrives on their new talent.

For younger talent, the hiring process needs to be short and to the point, with quick decision making. Otherwise, they’re quickly scooped up by competitors. Another key area is a greater focus on company culture. Millennials, for example, are sensitive to the delicate balance between work and life. Some may easily turn down a decent paying job for one that provides more control over his or her schedule and life.

Take the time to read, learn, understand, and seek out that younger talent you believe will move your organization to the next level.

Technology: An Opportunity to Rethink What People Do
In the time it takes to write, publish and read this article, the technology target for banks has moved exponentially. Keeping up requires a great deal of focus, investment and thinking outside the box. And because of the pace of change in technology, a chief technology officer (CTO) is a critical part of today’s banking leadership team.

The qualities needed in an effective CTO include the ability to challenge conventional wisdom, move decisively toward objectives and flexibility. Since long-term growth and expense management quite often are dependent upon the right technology, the CTO plays a major role in management’s long-term strategic planning for the bank. Even now, technology is performing the work entire departments used to do just a few years ago.

An effective CTO will help ensure the bank is ready to move into new growth phases of the business, including internet banking, enhanced mobile banking, cybersecurity, biometrics, and even artificial intelligence.

Training: The Value of Existing Employees
While utilizing online recruiting systems can help you find good people, there could be gems right down the hall. Growing talent from within is too often overlooked. Traditionally, boards have felt this is a job for the CEO or human resources. But some have argued that a lack of leadership development poses the same kind of threat that accounting blunders or missed earnings do. This lack of leadership development has two unfortunate results: 1) individual employees seeking to make a greater contribution never get the opportunity to shine and 2) the bank loses a potential shining star to the competitor down the street.

Lack of an effective development program is shortsighted and diminishes the value of great employees. Today’s boards must take specific steps in becoming more involved in leadership development. First, encourage your executive team to be more active in developing the leadership skills of direct reports. Second, expand the board’s view of leadership development. Take an active role in identifying rising stars and let them make some of the board presentations. In this way, the board can assess for itself the efficacy of the company’s leadership pipeline. And meanwhile, the rising stars gain direct access to the board, gleaning new perspectives and wisdom as a result.

As boards consider their duties and responsibilities, identifying future leadership should be at or near the top of the list. Organizational growth depends on it and the bank will be better able to embrace an ever-changing generational, technological and business environment.

Fueling Future Growth


2017-Compensation-White-Paper.pngOver the past year and a half, there’s been a lot of good news for the banking industry. New regulators have been appointed who are more industry-friendly. Congress managed to not only pass tax reform, but also long-awaited regulatory relief for the nation’s banks. And the economy appears to remain on track, exceeding 4 percent gross domestic product (GDP) growth in the second quarter of 2018, according to the Bureau of Economic Analysis.

Bank Director’s 2018 Compensation Survey, sponsored by Compensation Advisors, a member of Meyer-Chatfield Group, finds that the challenges faced by the nation’s banks may have diminished, but they haven’t disappeared, either.

Small business owners are more optimistic than they’ve been in a decade, according to the second quarter 2018 Wells Fargo/Gallup Small Business Index survey. This should fuel loan demand as business owners seek to invest in and grow their enterprises. In turn, this creates even more competition for commercial lenders—already a hot commodity given their unique skill set, knowledge base and connections in the community. Technological innovation means that bank staff—and boards—need new skills to face the digital era. These innovations bring risk, in the form of cybercrime, that keep bankers—and bank regulators—up at night.

For key positions in areas like commercial lending and technology, “banks have to spend more,” says Flynt Gallagher, president of Compensation Advisors. “You have to pay top dollar.”

But a solid economy with a low unemployment rate—dropping to 3.8 percent in May, the lowest rate the U.S. has seen in more than 18 years—means that banks are facing a more competitive environment for the talent they need to sustain future strategic growth.

And regulatory relief doesn’t mean regulatory-free: With the legacy of the financial crisis, along with the challenges of facing economic, strategic and competitive threats, all of which are keeping boards busy, there’s more resting on the collective shoulders of bank directors than ever before, and boards will need new skill sets and perspectives to shepherd their organizations forward.

For more on these considerations, read the white paper.

To view the full results to the survey, click here.

The Avoidable Mistakes that Acquirers Make


acquisition-9-17-18.pngFor many bank boards of directors and senior management teams, an acquisition will be the most important deal they ever make. Unfortunately, even experienced acquirers make mistakes that can have a negative—and sometimes even disastrous—impact on the outcome. And they are all avoidable.

Be Able To Say Why
One of the most common missteps is to pull the trigger on a deal without having a clear rationale for why a particular acquisition target—as opposed to other possible candidates—is the best strategic fit. “Some acquirers tend to be more opportunistic and try to assess on the fly whether or not the deal is a good fit, as opposed to knowing before hand that they really want to acquire institutions that have certain parameters,” says Rick Childs, a partner at the consulting firm Crowe LLP. “It may be that they make a certain level of money, or do a certain type of lending, or operate in a desirable geography.”

In almost every instance, doing no deal is better than doing the wrong deal. Says Childs: “My dad used to tell me a long time ago, when I would say that something was on sale, ‘Son, a bargain isn’t a bargain if you don’t need it,’ which is to say if it doesn’t really fit, you’re better to walk away from that and focus on… opportunities that would really advance your cause as an organization and produce the returns you need for your shareholders.”

Cultural Compatibility
Having a well-developed a well-defined set of criteria in advance enables the acquirer to then assess critical elements such as the target’s culture—which is important because misaligned cultures can lead to significant problems after the deal has closed and the banks need to be integrated. “I find that many times buyers don’t take the time to learn whether the organizations are compatible,” says Gary Bronstein, a partner at the law firm Kilpatrick Townsend. “And this is especially important when the seller will become a significant part of the merged organization. Too often, says Bronstein, buyers fail to focus on this issue until the integration process begins. “And it becomes [apparent] that perhaps the cultures of the two organizations in terms of how hard they work, how customers are treated, what the philosophies are in terms of how they operate, might not be compatible and it makes it very difficult to integrate under those circumstances.”

Clear, Consistent Communication
Bronstein also finds that acquirers sometimes fail to place a high enough emphasis on the importance on effective and honest communication with people at the acquired bank. “That is particularly [true] among CEOs of the two organizations,” he says. “I’ve seen many deals fall apart or deteriorate pretty quickly due to bad communication, or lack of thoughtful communication.” Candor is an especially important element of the communication process, Bronstein says. “I’ve seen situations where a buyer CEO will say one thing but then do another thing, and that just alienates people in the process. And it’s critically important to develop a… rapport early, because if things deteriorate early it’s hard to get back,” he cautions.

Consider The People
Many acquirers also tend to wait too long to make critical people decisions that can impact the outcome of a merger. Bronstein divides these important people decisions into three categories. “Category number one is, who do you need long term, and [in] what positions?” he explains. “Who do I need for this larger organization, and what positions can I spot them in? The second category is, who do I need short term to get me through the transition? The common timeline for transition is the technology conversion, which will usually happen somewhere between three and six months after the transaction is closed. And the final thing is, who are the people that are closest to the customers that I really need to lock up with a non-compete so they don’t go next door and compete with me?”

Childs also stresses the importance of communicating these important personnel decisions throughout both organizations. Staffers at either bank who ultimately will not be part of the combined organization once the integration process has been completed should be informed “as quickly and as compassionately as you can,” he says. It’s equally important that employees who will be going forward with the new bank know that their jobs are secure. “Uncertainty breeds angst and anxiety that is going to affect how people treat their day-to-day job, and taking that away and reassuring them is really job number one for the CEO and the management teams.”

The “But” in the Conversation Among Bank Boards, CEOs


strategy-9-13-18.pngJamie Dimon, CEO of JPMorgan Chase & Co., has now been infamously linked to his declaration that the “golden age of banking” is upon us, though bankers and directors often follow that celebratory tone with a caveat, whether they’re speaking about technology, growth or governance topics.

This dynamic became clear at Bank Director’s 2018 Bank Board Training Forum, held Sept. 10-11 at the Four Seasons Hotel Chicago, where nearly 200 directors, chairmen, lead directors and chief executives discussed how the favorable economy has also added pressure and challenge in a range of areas on the priority lists for bank boards, including governance, technology, risk and, of course, growth.

It is clear that a strong economy has kicked earnings into high gear, which draws headlines when buybacks or 30-percent growth in earnings per share is announced on quarterly earnings calls. But at the same time, transition and new challenges are presenting themselves in front of bank leaders regardless of size, location or whether the company is public or private. The industry is shifting, and so does the conversation when bankers and directors discuss anything from growth strategies to technology.

Banks must embrace and leverage the capability of technological advancements, but…
The cost and risk associated with such integrations are, and will remain, a challenge.

In a closing panel of three successful chief executive officers, Scott Dueser, CEO of First Financial Bankshares in Abilene, Texas, Dorothy Savarese, CEO of The Cape Cod Five Cents Savings Bank in Southeastern Massachusetts, and Dave Mansfield, CEO of The Provident Bank in Amesbury, Massachusetts, all said cybersecurity and technological improvements are top-of-mind for their companies, but finding a balance between convenience and value are challenging.

“We’re using technology to enhance—take away the menial tasks. We have to deliver value. We’re not going to do that with just technology,” Mansfield says.

Fintech disruption will continue, but…
“This is not a time to be scared,” says Ed Kelley, vice president of sales for TransCard Payments, LLC, who, along with Ahron Oddman, area vice president at nCino, Inc., billed themselves as “the face of fintech” to the audience.

Payments and small-business lending, which Oddman discussed, highlight two areas where the agility of fintechs enables them to attract more business. Kelley noted that while a challenge, “there’s also a good bit of opportunity” to partner with fintechs to be competitive.

“In order to be competitive, you have to spend money. And in order to spend money, you have to be competitive,” Kelley says, noting the paradox.

Competition among community banks is intense, but…
It’s not seen as coming from the major financial institutions despite their ability to attract low-cost deposits.

Most bankers suggest their competition remains other community banks, credit unions and fintechs, not the largest institutions. Joe Bower, CEO of CNB Bank, a $3 billion bank based in Clearfield, Pennsylvania, says those large institutions “are actually really good for us,” because they often have little interest in the tier of commercial customers a bank similar to his would have, and instead are interested in large-scale commercial real estate clients.

Regulations are beginning to relax, but…
The pressure on sound governance is increasing, both in oversight of bank management and internal governance.

Board refreshment is drawing greater scrutiny as the average age of directors is increasing, according to Alan Kaplan, founder and CEO of Kaplan Partners, a sign that refreshment and diversity remain tough topics for many boards.

A show of hands among attendees indicated that while evaluation is consistent, peer evaluation is less common, though proxy advisory firms like ISS and Glass Lewis are ramping up pressure on boards to evaluate their performance with greater frequency.

Regulators are also placing greater scrutiny on board oversight, highlighted by “direct finger pointing” at the board of Wells Fargo & Co. by the Federal Reserve and legal actions against loan committees in the wake of the financial crisis.

M&A is increasing in number and “red hot,” but…
Traditionally hot metropolitan markets are becoming scarcer in terms of potential targets, and some banks are considering alternatives to traditional deals.

Jonathan Hightower, an M&A attorney in Atlanta with Bryan Cave, points to WSFS Financial Corp.’s $1.5-billion deal to acquire Beneficial Bancorp Inc., which will result in the new $13 billion bank pouring investments into technology.

Despite an active market, Hightower says boards should carefully vet any potential deal, because “if it doesn’t offer opportunity for growth, what’s the point.” Hightower also notes that banks should consider alternative growth strategies, like an initial public offering, that can provide a different path to raise large amounts of capital.

The financial crisis is firmly in the rearview mirror, and the industry is the healthiest it has been in almost a generation by many metrics. But that should not stop banks from planning for the next downturn, or how they can maintain a competitive advantage against their peers.

“This is the way we compete, we think about these things futuristically,” said Jennifer Burke, a partner with Crowe LLC.

7 Things Bank Boards Should Focus on in the Year Ahead


board-9-10-18.pngThe world of corporate governance today has a brighter spotlight on boards of directors than ever before. While bank regulatory relief has provided a long-awaited respite, bank examiners seem to be zeroing in on governance, director performance and board succession. Here are 7 things directors should have on their radar screens in the year ahead:

  1. Defining Innovation. Digitization and innovation are the buzzwords, but truly embracing the transformations taking place all around us can be daunting.  Pondering how technology has altered our client relationships and acquisitions means thinking out of the box, which may be a challenge for some directors and bank executives. A refresh of the bank’s website is not an innovation—it is table stakes.  True innovative thinking requires more proactivity and planning, and likely some outside perspectives as well. Boards should encourage management to craft a plan to address to these challenges, which are key to remaining relevant.
  2. Talent Management. Historically, boards viewed talent management as the purview of executive leadership and the CEO, except when it came to CEO succession. In today’s talent-deficient environment, though, boards need to hold the CEO and senior team much more accountable for developing the next generation of leaders and revenue generators. If your bank wants to perform above the mean, then the senior team must be composed of very strong players well suited to execute your strategic plan. A true linkage between the business strategy and human capital strategy has never been more critical for success and survival.
  3. Revisiting Compensation Strategies. Balancing the tradeoffs between enhanced compensation packages and performance/accountability has become a significant challenge for compensation committees and CEOs. In this competitive talent climate, banks need to make sure that their compensation practices properly reflect the bank’s market and goals, motivate the right behaviors, and incentivize key players to both perform, and remain, with the institution. Fresh board thinking in this area may be appropriate, particularly for banks that have been less performance driven with their incentive programs, or do not have the currency of a publicly listed stock as a compensation tool.
  4. Enhanced Accountability and Self-Assessment. Just as boards need to truly hold their CEO accountable for institutional performance, boards need to hold themselves accountable as well. Governance advocates are pushing for boards to assess their own performance, both as a group and individually. Directors should have the fortitude to evaluate their peers—confidentially, of course—to identify areas for improvement. Directors should be open to this feedback, and work to improve the value they bring to the institution.
  5. Onboarding New Directors and Ongoing Training. Plenty of data reinforces that new executives as well as board members contribute more rapidly when there is a formal approach to ramping up their knowledge of the company. Expectations of new directors should be clear up front, just as any new employee. A combination of information and inculcation into the institution provides context for decision-making; clarifies the cultural norms; and often reveals the hidden power structures, including the boardroom. A strong onboarding program forms the foundation for ongoing board education. There should be an annual plan for each director’s education to maintain currency, refresh specific skills, and to stay abreast of leading governance practices.
  6. Board Refreshment. Are we truly building a board of diverse thinkers with the range of skills needed to govern appropriately today? Age and tenure have become flashpoints around continued board service, in reality they avoid dealing with declining contributions and underperforming directors. Every board seat is a rare and precious thing, and needs to be filled with someone who broadens the collective skills and perspectives around the board table. Board nominating and governance committees need to manage accountabilities for existing—and particularly for prospective—directors, and be willing to make the tough calls when needed. Underperforming directors should be encouraged to raise their game or be asked to step aside.
  7. Leading by Example. In today’s information-driven society with endless social media channels and instant visibility, C-Level leaders and board members are under the microscope. Lapses in judgment, breaches of policy or inappropriate behavior, once validated, must be dealt with quickly and decisively. The company’s brand reputation and credibility are always at risk. The board itself—along with the CEO, of course—must set the standard for ethics and compliance and lead from the front. Every day.

Bank Boards will continue to be under scrutiny no matter the environment. More importantly, a bank’s board must be a strategic asset for the institution and provide strong oversight and advice. The expectations of good governance have never been higher, and successful boards will raise their own performance to ensure success and survival.

Traits That All Strong Bank Boards Share


governance-9-7-18.pngFor years, I’ve shared one of my favorite proverbs when talking about the value of high-performing teams: to go fast, go alone; to go far, go together. Now, as we prepare to welcome nearly 200 people to the Four Seasons Chicago for our annual Bank Board Training Forum, this mindset once again comes front and center.

In many ways, banks may appear to be on solid footing. Unfortunately, evolving cyber risks, the battle for deposits and pressures to effectively leverage technology make clear that banking leaders have challenges aplenty. Given the industry’s rapid pace of change, one would be forgiven to think the best course of action would be to go fast at certain challenges. However, at the board level, navigating an industry marked by both consolidation and emerging threats demands coordinated, strategic planning.

Our efforts in the days ahead aim to provide finely tailored insight to help a bank’s board go further, together.

This annual forum caters to an exclusive audience of bank CEOs, chairmen and members of the board. It is a delight to have Katherine Quinn, vice chairman and chief administrative officer, from U.S. Bancorp, as our keynote speaker. U.S. Bancorp has the highest debt rating among all banks and consistently leads its peer group in terms of profitability, efficiency and innovation. Bank Director Executive Editor John Maxfield will have a one-on-one conversation with Quinn and cover everything from the qualities of good leadership to diversity to the Super Bowl.

Following her remarks, we explore strategic issues like building franchise value, creating a vibrant culture and preparing for the unexpected. Against the backdrop of this year’s agenda, there are five elements that characterize the boards at many high-performing banks today. Some are specific to the individual director; others, to the team as a whole.

#1: The Board Sees Tomorrow’s Challenges as Today’s Opportunities
Despite offering similar products and services, a small number of banks consistently outperform others in the industry. One reason: their boards realize we’re in a period of significant change, where the basic premise of “what is a bank” is under considerable scrutiny. Rather than cower, they’ve set a clear vision for what they want to be and hold their team accountable to concepts such as efficiency, discipline and the smart allocation of capital.

#2: Each Board Member Embraces a Learner’s Mindset
Great leaders aren’t afraid to get up from their desks and explore the unknown. Brian Moynihan, the chairman and CEO of Bank of America, recently told Maxfield that “reading is a bit of a shorthand for a broader type of curiosity. The reason I attend conferences is to listen to other people, to pick up what they’re talking and thinking about… it’s about being willing to listen to people, think about what they say. It’s about being curious and trying to learn… The minute you quit being educated formally your brain power starts to shrink unless you educate yourself informally.”

You can read more from Bank Director’s exclusive conversation with Moynihan in the upcoming 4th quarter issue of Bank Director magazine.

#3: The Board Prizes Efficiency
In simplest terms, an efficiently run bank earns more money. This allows it to write better loans, to suffer less during downturns in a credit cycle, to position it to buy less-prudent peers at a discount all while gaining economies of scale.

#4: Each Board Member Stays Disciplined
While discipline applies to many issues, those with a laser focus on building franchise value truly understand what their bank is worth now — and might be in the future. Each independent director prizes a culture of prudence, one that applies to everything from underwriting loans to third-party relationships.

#5: The Board Adheres to a People-Products-Performance Approach
Smart boards don’t pay lip service to this mindset. Collectively, they understand their institution needs to (a) have the right people, (b) strategically set expectations around core concepts of how the bank makes money, approaches credit, structures loans, attracts deposits and prices its products in order to (c) perform on an appropriate and repeatable level.

Looking ahead, a sixth pillar could emerge for leading institutions; namely, diversity of talent. Now, I’m not talking diversity for the sake of diversity. I’m looking at getting the best people with different backgrounds, experiences and talents into the bank’s leadership ranks. Unfortunately, while many talk the talk on diversity, far fewer walk the walk. For instance, a recent New York Times piece that revealed female executives generally still lack the same opportunities to move up the ranks and there are still simply fewer women in the upper management pipeline at most companies.

At Bank Director, we believe ambitious bank boards see the call for greater diversity as a true opportunity to create a competitive advantage. This aligns with Bank Director’s 2018 Compensation Survey, where 87 percent of bank CEOs, executives and directors surveyed believe a diverse board has a positive impact on the performance of the bank. Yet, just 5 percent of CEOs above $1 billion in assets are female, 77 percent don’t have a single diverse member on their board and only 20 percent have a woman on the board.

So as we prepare to explore the strong board, strong bank concept in Chicago, keep in mind one last adage from Henry Ford: if all you ever do is all you’ve ever done, then all you’ll ever get is all you’ve ever got.