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.

2018 Technology Survey: Enhancing Board Know-How


tech-survey-8-27-18.pngTechnology and strategy are inextricably linked in today’s evolving digital economy. Unfortunately, bank boards—tasked with the oversight of the bank, including its long-term performance in a changing competitive environment—continue to struggle to wrap their hands around technological change and its implications. Seventy-nine percent of directors and executives say their board needs to enhance its level of technological expertise, according to the 2018 Technology Survey, sponsored by CDW.

Sixty-three percent indicate the board should better understand how to tie technology to bank strategy, and 60 percent say the board should better understand how the bank should invest in technology—a key concern, given rising budgets and an increasing number of technology vendors working with banks.

But the survey also indicates that directors have made strides in their focus on technology, both personally and as a board. Half say the board focuses on technology at every board meeting, up from 42 percent two years ago.

And the directors and executives participating in the survey indicate that they’re better users of their bank’s technology. More than three-quarters say they personally use their bank’s mobile and online channels, compared to 51 percent three years ago. With the onus on banks to enhance customers’ digital experience in the age of Amazon, a better understanding of digital through personal experience can only serve to improve these banks’ strategic direction.

The 2018 Technology Survey is comprised of the responses of 161 directors, chief executive officers, high-level technology executives and other senior executives at banks above $250 million in assets.

Additional Findings:

  • Sixty-five percent believe their bank has the products, services and delivery methods to meet the needs and demands of today’s customers.
  • Eighty-three percent say improving the user experience on digital channels is a goal for their bank over the next two years, followed by improving account onboarding (73 percent) and adding more features to the bank’s mobile app (71 percent).
  • Despite the buzz around Amazon’s Alexa, just 21 percent say integrating with that or a similar external platform is a near-term goal.
  • Forty-five percent say they plan to add more branches that will be smaller in size. Thirty-seven percent plan no changes to their bank’s branch footprint. More than half plan to update technology used in branches over the next two years, and 47 percent plan to add more technology in the branch. One-third plan to upgrade ATMs.
  • At least half of respondents indicate a need for significant improvement in their bank’s use of data analytics and business process automation.
  • Sixty percent indicate their bank has been increasing the number of staff focused on technology and innovation, and 55 percent have a high-level executive focused on innovation.
  • Sixty percent say their management team and board are open to working with newer technology startups. The typical bank, according to the survey, works with a median of seven technology vendors, including its core processor.
  • Sixty-one percent say their board has brought in relevant bank staff to better educate itself about technology. Twenty-nine percent have a board-level technology committee that regularly presents to the board.
  • Cybersecurity remains the top issue focused on by the board, at 93 percent.

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

Aligning Risk With Strategic Growth



The banking industry is experiencing change like it never has before. Digital delivery channels will have a profound effect on the typical bank’s business model, and further change is coming through regulatory relief. Both can offer new opportunities and new risks. KPMG’s David Reavy details what you need to know about these changes and how boards should focus on today’s risks.

  • The Future Bank Business Model
  • Regulation and Industry Change
  • Expectations for Boards

Talent Strategy: Fueling the Future



A tight labor market could be big risk if your bank lacks the talent to fuel its future. How can bank boards and management teams manage this risk? In this video, Julia Johnson of Wipfli shares why your bank should conduct a human resources review and provides tips to help banks tackle the talent challenge.

  • Four HR Areas Bank Leaders Should Be Watching
  • How Boards Can Better Understand HR Portfolio Risk
  • The Impact of Today’s Economic Environment

Gender Pay Equity and Board Gender Diversity – Is Your Board Prepared?


governance-8-1-18.pngGender pay equity and board gender diversity are two areas of focus for both the media and investors. Lately, many large institutional investors have turned their attention to environmental, social and governance (ESG) issues, where board diversity has taken center stage and questions around gender pay equity are increasing. Boards and management should proactively gain an understanding of their current position and any concerns on these fronts to avoid adverse reactions from employees and/or shareholders.

Slow progress on gender diversity in the boardroom has led many large investors to push for an increase in the number of women on boards. Several influential institutional investors such as Blackrock, State Street Global Advisors and Vanguard have added diversity stipulations to their engagement and voting policies, citing studies that link increased female representation on boards with improved shareholder returns. More specifically, these institutions may vote against, and proxy advisory firms such as Institutional Shareholder Services (ISS) and Glass Lewis may recommend voting against, the nominating and governance committee members if there are not a least one or two women on the board. These voting policies have been very impactful, and we have seen a dramatic increase in women serving in board roles at the largest organizations.

Compensation Advisory Partners (CAP) researched the 15 largest public diversified financial services companies in the Fortune 100 and found that approximately 50 of companies had at least three women on their board and an additional 20 percent had at least two. As a comparison, CAP researched the board composition of 90 smaller financial services companies with assets between $5 billion and $20 billion and found approximately 15 have at least three females on their board and an additional 15 have at least two. Similar to other compensation and governance trends, we expect smaller financial organizations to catch up with the increased external pressure.

In addition, initiatives such as the NYC Comptroller’s Boardroom Accountability Project 2.0, focus on enhancing disclosure of board composition through a skills matrix. California is now the first state considering a bill to require a minimum number of women on all boards of the state’s more than 400 companies. These initiatives are driving heightened attention to the diversity and competencies of the board as a whole.

While information on director composition and profiles is public, this is not the case with gender pay equity across an organization. In the U.K. there is a requirement to disclose gender pay statistics for organizations with at least 250 employees, but that does not currently exist in the U.S. Even so, we have observed some institutional investors use shareholder proposals to pressure large organizations to provide public reports on gender pay.

Several financial institutions have been under scrutiny for a lack of female representation in senior roles despite a majority of their employees being female. Unlike the U.K., where all employees must be included in the sample, shareholder proposals in the U.S. focus on a comparison of “like-for-like jobs.” Over the last three years, companies recommended shareholders vote against the proposal, and support averaged around 15 percent. Only 5 proposals (compared to 14 in 2017) have gone to a vote in 2018, none at financial services companies (compared to 7 in 2017), since several large financial organizations such as Citigroup, Bank of America, JPMorgan Chase & Co., and Wells Fargo & Co. were able to have these requests withdrawn from their annual proxy statement and in exchange agreed to publish their gender pay. In all cases, the reports have shown almost no gap, but the approach by company can vary.

These two movements have put a spotlight on the underlying issue of equal representation in the boardroom and pay equality across organizations. The push for board equality has already resulted in progress especially at larger organizations. Boards are reviewing nominating and governance committee charters and adopting policies to promote diversity in the board recruitment process. On the gender pay equity front, even though disclosure is not required in the U.S., momentum and pressure are building from institutional investors for companies to disclose gender pay gaps.

We expect boards of all companies to start asking management if a gender pay gap exists, and what they should be doing to address any gaps that do exist. Conversations on both these topics should be an agenda item in all boardrooms today.

A New View for Deposit Strategies



As rates continue to rise, now is the time for bank boards and management teams to consider deposit strategies for the future. In this video, Barbara Rehm of Promontory Interfinancial Network sits down with H.D. Barkett, senior managing director at Promontory Interfinancial Network, who shares his thoughts on what banks should consider in today’s environment.

Barkett discusses:

  • Balance Sheet Advice for Today’s Banks
  • Impact of Regulatory Relief on Reciprocal Deposits

For more information about the reciprocal deposits provision in the Economic Growth, Regulatory Relief and Consumer Protection Act, please visit Promontory Interfinancial Network by clicking here.

How to Recruit Younger Directors


recruirment-6-22-18.pngA stagnant board is an ineffective one. While some directors can serve long tenures and continue to be actively engaged in the affairs of the bank, some directors grow less effective. What’s more, a board composed of directors who have served together for a number of years, or even decades, can grow complacent in their approach to bank strategy and oversight. This isn’t in the best interest of shareholders, employees or customers.

So how can boards fight complacency? Bring on some new blood. “That’s the attraction of bringing a young person in,” says Ben Wynd, a 40-year-old director at Franklin Financial Network, a $4.1 billion asset bank holding company headquartered in Franklin, Tennessee. He joined the board in 2015 and is an accountant with public company reporting expertise. “I have a desire to grow my practice. I have a desire to grow and become successful individually. I have energy, and I ask a lot of questions.”

It is rare for a bank to bring on a director aged 40 or younger as Franklin Financial has done. The 2018 Compensation Survey, conducted in March and April, finds that a whopping 84 percent report their board lacks any directors in this age group.

But boards like that of Franklin Financial, as well as $1.8 billion asset ESSA Bancorp in Stroudsburg, Pennsylvania, and $2.4 billion asset Sierra Bancorp in Porterville, California, are finding a way to attract young professionals to their board. Here’s how.

Actively seek prospective younger directors.
Your board can’t count on a skilled, young professional just falling out of the sky, so at least one director on the board should be advocating for the addition of younger perspectives and identifying potential board members. The more directors serving as advocates, the better.

Wynd says Paul Pratt Jr., a director who served on the Franklin Financial board since its 2007 founding, was just that sort of advocate. (Pratt’s term expired in 2018, but he continues to serve on the bank board.) “Any time I see a great talented young person, I try to engage them” and understand their goals, Pratt says. “There’s a lot of supreme young talent out there that needs to be on bank boards helping make critical decisions on how the bank grows.”

Board members can also leverage friends and family to identify prospective board members.

“A member of the board lived in my community and is friendly with my parents,” says Christine Gordon, 42, a director at ESSA since 2016, who has a background as a lawyer and experience as the deputy chief compliance officer at Olympus Corp. of the Americas, as well as deep connections in the community. “He approached me and asked whether I’d be interested in joining the board and talked to me a bit about what it would entail.”

Similarly, Vonn Christenson, a 38-year-old attorney who was appointed to Sierra Bancorp’s board in 2016, says he was approached by a Sierra director who was his parents’ friend and neighbor. “The bank had been expanding, had been acquiring other banks and was looking to expand more. Their board members were aging, so they were looking to add some members.”

Communicate the benefits of serving on a bank board.
Prospective younger directors with the skill sets that bank boards need are in demand, and not just within the banking industry. “In all honesty, I probably have more opportunities [to serve on boards] than I have time and than my wife is willing to allow me to, so I’ve had to be selective in what I am involved in,” says Christenson. Make sure that the busy young professionals you seek as board members understand the benefits of serving on the board, as well as the bank’s growth trajectory.

And as much as long-term bank directors say that serving on a board is not about the money—just 14 percent of survey respondents indicate that offering a competitive director compensation package is a top challenge relative to their board’s composition—it could be the factor that leads an in-demand professional to pick your board over another.

Christenson says he had the opportunity to serve on the board of a local hospital but turned it down in favor of the bank. The bank “is a local success story in many ways, so there’s some more prestige that goes with it,” he says. Christenson also knew more members of the bank’s board, and “there’s compensation on the bank board, whereas it was voluntary on the hospital board.”

Ease the time burden.
Juggling the professional demands of younger directors may necessitate rethinking how the board approaches meetings. Gordon has found web conferencing to be effective in allowing her to participate in ESSA’s board meetings when she’s traveling for work. And using technology like a board portal can help streamline board materials, making them easier to digest. “They’ve got a real nice platform to produce materials and keep them organized for future reference,” says Gordon. The board provided tablets to directors, so they can easily access the board portal.

Invest in creating a successful board.
New directors, particularly younger ones, won’t be up to speed about the issues facing the banking industry, or even the fundamentals. “Educating new board members is very important. You join a bank board where folks have been there for years and years,” says Gordon. “I’ve been a board director for a couple of years, and I’m still learning.”

New directors should also meet with key members of the executive team, as well as one-on-one with board members. At ESSA, the management team teaches new directors about the bank and its primary areas of focus, says Gordon. The board also brings in speakers about specific topics, which can be vital to director education for old and new board members.

Investing in external training can be beneficial as well. But also expect to field a lot of questions from engaged new directors. And remember, those questions can benefit the board as a whole by leading if they lead to an examination of the bank’s practices and strategy. That’s the benefit of a fresh perspective, after all.

Ensure there’s a process to make room for new board members.
Age diversity goes both ways—the board benefits from the views of young professionals as well as older, established directors who better understand the banking industry and have a historic perspective of their markets.

Establishing a mandatory retirement age can help cycle ineffective directors off the board, but some banks are uncomfortable with the possibility of losing engaged older directors. Providing exceptions for particularly skilled and effective board members, coupled with a mandatory retirement age, can be effective, as can term limits for banks uncomfortable with designating an age cap.

Conducting a board evaluation with individual director assessments and using a board matrix to identify knowledge gaps can be useful tools to create space on the board regardless of age. To be effective, a strong governance chair or similar director should be empowered to have conversations with board members who aren’t pulling their weight.

In the survey, 44 percent of respondents reveal concern about recruiting tech-savvy directors. While youth is no substitute for technology expertise, and technology expertise isn’t limited to the young, it’s important to remember that younger directors are more likely to have an intuitive handle on technology trends, particularly as relates to the bank’s retail and commercial customers.

But youth isn’t synonymous with engagement. New directors should “bring a vision and new ideas to help bring the bank into the future,” says Christenson.

Bank Director’s 2018 Compensation Survey was sponsored by Compensation Advisors, a member of Meyer-Chatfield Group. Click here to view the full results to the survey.

Here’s What Bankers Are Asking About Risk Committees


committee-6-13-18.pngOne of the central topics of conversation at this week’s Bank Audit & Risk Committees Conference hosted by Bank Director in Chicago is whether a bank’s board of directors should have a risk committee separate from its audit committee. And for banks that have already established a risk committee, the question is what responsibilities should be delegated to it.

In one respect, the question of whether a bank should establish a risk committee seems easy to answer because it’s clearly delineated in the regulations. Under the original Dodd-Frank Act of 2010, banks with more than $10 billion in assets are required by law to have one, though that threshold was raised to $50 billion in legislation enacted last month designed to ease the burden of the post-financial crisis regulatory regime on smaller banks.

There is a general consensus among attendees at this year’s conference that a bank shouldn’t base its decision to establish a risk committee solely on a size threshold. “Now that we have a risk committee, I don’t know how we did it without one,” said Tom Richovsky, chairman of the audit committee at United Community Banks, a $12.3-billion bank based in Blairsville, Georgia.

Rob Azarow, a partner at Arnold & Porter, says the decision should be informed by two factors in addition to size. The first is the complexity of a bank, with the presumption being that a bank with a more complex business model should establish a risk committee sooner than a bank with a less complex model. The second factor is dollars and cents—namely, whether a bank has the internal resources at its disposal to essentially split its existing audit committee into two.

It’s worth noting as well, as Azarow points out, that even under the new legislation, the Federal Reserve retains the authority to require a bank to implement a risk committee, irrespective of size. Another point to keep in mind is that even for banks not required as a result of their size to establish a risk committee, once established, it is subject to regulatory oversight.

Approximately half the banks at this year’s Bank Audit & Risk Committees Conference have both types of committees—audit and risk—with many of the others still weighing the pros and cons of establishing both.

Deciding whether to have a risk committee is only half the battle; the other half involves deciding exactly what that committee should do. Should it be vested with all risk-related questions, thereby usurping the authority over those questions from other committees? Or should the other committees retain their authority of relevant risks, while the risk committee then plays the role of overseeing an aggregated view of those risks?

This distinction is clearest in the context of the credit committee, for example. One of the fundamental purposes of a credit committee is to gauge credit risk. It isn’t uncommon, for instance, for a bank to require its credit committee to approve especially large loans. Would the risk committee now handle this?

Generally, the answer is no. The role of the risk committee when it comes to credit risk is broader, focused on concentration risk as opposed to the risk associated with individual credits.

Another place this comes up is in the context of technology and information security. While the audit committee would retain the authority to ensure that current laws, regulations and best practices are being abided by, the risk committee would be more focused on looming threats.

Deciding which responsibilities fall under the risk committee as opposed to, say, the audit and credit committees seems to boil down to the question of whether the issue is backward-looking or forward-looking, tactical or strategic. Issues that are forward-looking and strategic should go to the risk committee, with the rest remaining under the jurisdiction of their home committees.

To be clear, conclusions on when and how to charter a risk committee are far from settled. There are rough best practices, but no overarching consensus in terms of bright lines. Even banks that have established separate risk committees with clearly delineated duties are still in a process of adjustment. They’re happy with their decision to do so, but they recognize that this is more of an evolution than a revolution.