Using the Succession Plan to Evaluate Talent

Boards have many duties, from overseeing the long-term strategy of the institution, to approving executive pay packages, to vetting and approving the budget. But one job that they often leave for another day: succession planning. Yet, for forward-thinking banks, having a process for succession not only can strengthen the organization in the future, but also build talent today.

Brian Moynihan, chairman and CEO of Bank of America Corp., recently spoke about this very fact. Despite not having plans to leave the institution he’s led since 2010, the 62-year-old Moynihan explained that the bank reworks its succession plan twice a year.

We have a deep succession planning process that we go through every six months [on] the board that alternates between the senior most people and then … I do it multiple levels down so we’re always looking,” said Moynihan in an interview last December with CNBC’s Closing Bell. “The board will pick somebody. My job is to have many people prepared.”

Such a clear process makes Bank of America unique, in some regards. While surveys over the years have tried to pinpoint how many companies have formal succession plans, organizations often avoid outlining it to investors, leaving it an open question. The Securities and Exchange Commission revised disclosure rules in November 2020 to encourage companies to outline human capital resources, like diversity rates, employment practices, and compensation and benefits. Of the first 100 forms filed by companies with $1 billion in market capitalization, only 5% of the companies added any additional detail to the succession planning process, according to researchers working with Stanford University and corporate data provider Equilar. Bank Director’s 2019 Compensation Survey found 37% of bank executives and board members reporting that their bank had not designated a successor or potential successors for the CEO.

So much of a bank’s long-term success has to do with having a clear plan if the head of the business must leave. This becomes especially true if the CEO must step aside suddenly, like for a health concern or other emergency. It’s on the board to lead this search. But when done right, it can also become a powerful tool to prepare internal and external talent, a process embraced by the current CEO. 

David Larcker has studied CEO succession planning as a professor at Stanford Graduate School of Business, where he leads the school’s Corporate Governance Research Initiative. “One of the two key things that boards do is hiring and firing the CEO,” says Larcker. Many boards, though, “do not put in enough time and effort in succession,” he adds.

By not taking an active approach to this part of the job, it can lead to the wrong hire, resulting in years of poor management. Larcker says one of the reasons for a lack of proper succession plans is often because it’s one of the least exciting roles a board undertakes, so it gets put to the backburner. Plus, since you rarely replace the CEO, it’s not always a priority.

Larcker and his research team sought to identify what occurs when a board lacks a succession plan. They looked at scenarios where the CEO left abruptly, either because the person resigned, retired or made other transitions. These are often the reasons disclosed to the public; in reality, the company may have fired a CEO without stating that fact. Out of the various scenarios, the researchers identified situations where the board and CEO likely parted ways due to performance. 

Out of all the media citations, 67% of the time the company named a permanent successor in the announcement; in 10% of the cases, it appointed a permanent successor but after a delay; and 22% of the time it named an interim successor. Those moments of upheaval provide investors with the clearest insight into whether the board took a proactive approach to succession, since the plans aren’t often public.

When a company named an interim successor, that was one of the clearest signs that the organization fired the CEO without a plan in place, and the stock performance of the company performed the worst after the announcement. Also, it’s worth noting that 8% of the time, the company named a current board member to the CEO role. When that occurred, the company’s stock price often performed worse than when internal or external candidates were chosen. 

What separates the organizations that can name a successful permanent successor from those that can’t? Often, it’s the organizations that have a clear line to the talent that’s growing inside and outside of the bank.

John Asbury knows all too well the need for this line of succession — it’s how he got the head role at Atlantic Union Bankshares, Corp., a $20 billion public bank based in Richmond, Virginia.  When Asbury was tapped as CEO in 2017, he followed G. William Beale, who had helmed the bank — then known as Union Bankshares Corp. — for almost 25 years. The bank had done a full executive search starting two years before Beale stepped away. Now, despite not having any plans to retire, Asbury, 57, takes the job of building succession within the entire organization seriously. 

“There are too few people in the industry who understand how the bank actually works or runs front to back,” Asbury says. “Oftentimes they have their area of specialty and not much else.”

Asbury, who sits on the board of directors as well, works with his human resources and talent evaluators to identify those within the organization who can fill executive roles. In addition to empowering them as executives, he gets them face time with the board. This provides the board with the ability to interact and know the talent that the bank has in the stable. 

“We want these folks to understand how the organization works, and we want them at the table to talk about not just strategy for their business unit, but the bank strategy as well,” Asbury says.

Asbury recently showed this leadership style in a public way by announcing that President Maria Tedesco would add the role of chief operating officer, and he would hand over managing many of the day-to-day operations to Tedesco. This isn’t a succession plan put in place. Instead it’s giving Tedesco the ability to have 85% of the organization reporting to her, while she and other executives at the bank continue to report to Asbury. 

Asbury thinks the move was needed to allow him the freedom to focus on growing Atlantic in other ways. But it also provides Tedesco with hands-on training in managing the organization. Despite the move, Asbury says that it doesn’t prevent him from working with the board on succession plans. 

The compensation committee, which Asbury does not sit on, also runs succession planning at Atlantic Union Bank. Sometimes boards may be hesitant to discuss succession if the current CEO views the discussion as antagonistic. But Atlantic Union undergoes an emergency succession plan evaluation once a year — currently, Tedesco would step in as interim CEO if something unexpected occurred to Asbury. She even sits in on every board meeting except when the executive team is being discussed. 

It’s a conversation that boards cannot be afraid to have. “If the CEO is on the board, that committee or board, has to own the process,” Larcker says.

What doesn’t work when it comes to succession planning? Having the new CEO step into the company while the outgoing CEO continues to helm the business for a few months to a year, added Larker. This design creates confusion from both the leadership and the staff on who they should listen and report to. “Ultimately, it’s a bad sign,” Larcker says.

Asbury knows that all too well. When he took the Atlantic Union role, Beale held the CEO position for three months while Asbury got acquainted with the organization. Within a few weeks, though, Beale let Asbury know that he would clear out the office and Asbury could call him if any questions arose. “Shorter is better in terms of transition,” Asbury adds. 

That can only happen with a plan in place.

Margin With a Mission

Darrin Williams didn’t become CEO by getting promoted through the management ranks of the banking industry. In fact, as a lawyer, he spent some of this time suing banks and publicly traded companies before later serving in the Arkansas House of Representatives. But his passion for lifting his community through financial education led him to the $2 billion Southern Bancorp in Arkadelphia, Arkansas, one of the largest Community Development Financial Institutions in the country. Williams talks about his early influences and the influx of support for the CDFI industry following the murder of George Floyd. 

Additional episodes of The Slant Podcast are now available on Spotify and Apple Music!

Evaluating Your CEO’s Performance

If a core responsibility of a bank board of directors is to hire a competent CEO to run the organization, shouldn’t it also review that individual’s performance?

In Bank Director’s 2021 Governance Best Practices Survey, 79% of responding board members said their CEOs’ performance was reviewed annually. However, 15% said their CEOs were not reviewed regularly, and 7% said the performance of their CEOs had been assessed in the past but not every year.

The practice is even less prevalent at banks with $500 million in assets or less, where just 56% of the survey respondents said their CEOs were reviewed annually. Twenty-eight percent said they have not performed a CEO performance evaluation on a regular basis, while 16% said their boards have evaluated their CEO in the past but not every year.

Gary R. Bronstein, a partner at the law firm Kilpatrick Townsend, regularly counsels bank boards on a variety of issues including corporate governance. “It doesn’t surprise me, but it’s a problem because it should be 100%,” he says of the survey results. “One of the most important responsibilities of a board is having a qualified CEO. In fact, there may not be anything more important, but it’s certainly near the top of the list. So, without any type of evaluation of the CEO, how do you gauge how your CEO is doing?”

A CEO’s effectiveness can also change over time, and an annual performance evaluation is a tool that boards can use to make sure their CEO is keeping pace with the growth of the organization. “There are right leaders for right times, [and] there are right leaders for certain sizes,” says Alan Kaplan, CEO of the executive search and board advisory firm Kaplan Partners. “There are situations that sometimes call for a need to change a leader. So, how is the board to know if it has the right leader if it doesn’t do any kind of formal evaluation of that leader?”

One obvious gauge of a CEO’s effectiveness is the bank’s financial performance, and it’s a common practice for boards to provide their CEOs with an incentive compensation agreement that includes such common metrics as return on assets, return on equity and the growth of the bank’s earnings per share, tangible book value and balance sheet.

Bank Director’s 2021 Compensation Survey contains data on the metrics and information used by bank boards to examine CEO performance.

But just because a CEO hits all the targets in their incentive plan, and the board is satisfied with the bank’s financial performance, doesn’t mean that no further evaluation is necessary. Delivering a satisfactory outcome for the bank’s shareholders may be the CEO’s primary responsibility, but it’s certainly not the only one.

A comprehensive CEO evaluation should include qualitative as well as quantitative measurements. “There are a lot of different hats that a CEO wears,” says Bronstein. “It probably starts with strategy. Has the CEO developed a clear vision for the bank that has been communicated both internally and externally? Other qualitative factors that Bronstein identifies include leadership — “Is the CEO leading the team, or is the CEO more passive and being led by others?” — as well as their relationship with important outside constituencies like the institution’s regulators, and investors and analysts if the bank is publicly held.

Additional qualitative elements in a comprehensive CEO assessment, according to Kaplan, could include such things as “development of a new team, hiring new people, opening up a new office [or starting] a new line of business.” An especially high priority, according to Kaplan, is management succession. If the current CEO is nearing retirement, is there a succession process in place? Does the CEO support and actively participate in that? If this is a priority for the board, then including it in the CEO’s evaluation can emphasize its importance. “Grappling with succession in the C-suite and [for] the CEO when you have a group of senior people who are largely toward the end of their career should be a real high priority,” Kaplan says.

Ideally, a CEO evaluation should involve the entire board but be actively managed by a small group of directors. The process is often overseen by the board’s compensation committee since the outcome of the assessment will be a critical factor in determining the CEO’s compensation, although the board’s governance committee could also be assigned that task. Other expected participants include the board’s independent chair or, if the CEO is also chair, the lead director.

“I think it should be a tight group to share that feedback [with the CEO], but all the directors should provide input,” says Kaplan. Once that has been summarized, the chair of the compensation or governance committee, along with the board chair or lead director, would typically share the feedback with the CEO. “I think the board should be aware of what that feedback is, and it should be discussed in executive session by the full board without the CEO present,” Kaplan says. “But the delivery of that feedback should go to a small group, because no one wants a 10-on-one or 12-on-one feedback conversation.”

Another valuable element in a comprehensive assessment process is a CEO self-assessment. “I think it’s a good idea for the CEO to do a self-evaluation before the evaluation is done by a committee or the board,” says Bronstein. “I think that can provide very valuable input. If there is a discrepancy between what the board determines and what the self-evaluation determines, there ought to be a discussion about that.”

CEO self-assessments are probably done more frequently at larger banks, and a good example is Huntington Bancshares, a $174 billion regional bank headquartered in Columbus, Ohio. In a white paper that explored the results of Bank Director’s 2021 Governance Best Practices Survey in depth, David L. Porteous — the Huntington board’s lead director — described how Chairman and CEO Stephen Steinour prepares a self-evaluation for the board that examines how he performed against the bank’s strategic objectives for the year. “It’s one of the most detailed self-assessments I’ve ever seen, pages long, where he goes through and evaluates his goals, he evaluates the bank and how we did,” Porteous said.

Porteous also solicits feedback on Steinour’s performance from each board member, followed by an executive session of the board’s independent directors to consolidate its feedback. This is then shared with Steinour by Porteous and the chair of the board’s compensation committee.

Bronstein allows that not every CEO is willing to perform such a detailed self-assessment. “If the CEO is confident about his or her position with the board and with the company, they should feel comfortable to be open about themselves,” he says.

“The Best Strategic Thinker in Financial Services”


strategy-7-19-19.pngThe country’s most advanced bank is run by the industry’s smartest CEO.

Co-founder Richard Fairbank is a relentless strategist who has guided Capital One Financial Corp. on an amazing, 25-year journey that began as a novel approach to designing and marketing credit cards.

Today, Capital One—the 8th largest U.S. commercial bank with $373.2 billion in assets—has transformed itself into a highly advanced fintech company with national aspirations.

The driving force behind this protean evolution has been the 68-year-old Fairbank, an intensely private man who rarely gives interviews to the press. One investor who has known him for years—Tom Brown, CEO of the hedge fund Second Curve Capital—says that Fairbank “has become reclusive, even with me.”

Brown has invested in Capital One on and off over the years, including now. He has tremendous respect for Fairbank’s acumen and considers him to be “by far, the best strategic thinker in financial services.”

I interviewed Fairbank once, in 2006, for Bank Director magazine. It was clear even then that he approaches strategy like Sun Tzu approaches war. “A strategy must begin by identifying where the market is going,” Fairbank said. “What’s the endgame and how is the company going to win?”

Fairbank said most companies are too timid in their strategic planning, and think that “it’s a bold move to change 10 percent from where they are.” Instead, he said companies should focus on how their markets are changing, how fast they’re changing, and when that transformation will be complete.

The goal is to anticipate disruptive change, rather than chase it.

“It creates a much greater sense of urgency and allows the company to make bold moves from a position of strength,” he said.

This aggressive approach to strategy can be seen throughout the company’s history, beginning in 1988 when Fairbank and a former colleague, Nigel Morris, convinced Richmond, Virginia-based Signet Financial Corp. to start a credit card division using a new, data-driven methodology. The unit grew so big so fast that it dwarfed Signet itself and was spun off in 1994 as Capital One.

The company’s evolution since then has been driven by a series of strategic acquisitions, beginning in 2005 when it bought Hibernia Corp., a regional bank headquartered in New Orleans. Back then, Capital One relied on Wall Street for its funding, and Fairbank worried that a major economic event could abruptly turn off the spigot. He sought the safety of insured deposits, which led not only to the Hibernia deal but additional regional bank acquisitions in 2006 and 2008.

Brown says those strategic moves probably insured the company’s survival when the capital markets froze up during the financial crisis. “If they hadn’t bought those banks, there are some people like myself who don’t think Capital One would be around today,” he says.

As Capital One’s credit card business continued to grow, Fairbank wanted to apply its successful data-driven strategy to other consumer loan products that were beginning to consolidate nationally. Over the last 20 years, it has become one of the largest auto lenders in the country. It has also developed a significant commercial lending business with specialties like multifamily real estate and health care.

Capital One is in the midst of another transformation, to a national digital consumer bank. The company acquired the digital banking platform ING Direct in 2011 for $9 billion and rebranded it Capital One 360. Office locations have fallen from 1,000 in 2010 to around 500, according to Sandler O’Neill, as the company refocuses its consumer banking strategy on digital.

When Fairbank assembled his regional banking franchise in the early 2000s, the U.S. deposit market was highly fragmented. In recent years, the deposit market has begun to consolidate and Capital One is well positioned to take advantage of that with its digital platform.

Today, technology is the big driver behind Capital One’s transformation. The company has moved much of its data and software development to the cloud and rebuilt its core technology platform. Indeed, it could be described as a technology company that offers financial services, including insured deposit products.

“We’ve seen enormous change in our culture and our society, but the change that took place at Capital One’s first 25 years will pale in comparison to the quarter-century that’s about to unfold,” Fairbank wrote in his 2018 shareholders letter. “And we are well positioned to thrive as technology changes everything.”

At Capital One, driving change is Fairbank’s primary job.

Community Bank Succession Planning in Seven Steps


succession-6-25-19.pngSuccession planning is vital to a bank’s independence and continued success, but too many banks lack a realistic plan, or one at all.

Banks without a succession plan place themselves in a precarious, uncertain position. Succession plans give banks a chance to assess what skills and competencies future executives will need as banking evolves, and cultivate and identify those individuals. But many banks and their boards struggle to prepare for this pivotal moment in their growth. Succession planning for the CEO or executives was in the top three compensation challenges for respondents to Bank Director’s 2018 Compensation Survey.

The lack of planning comes even as regulators increasing treat this as an expectation. This all-important role is owned by a bank’s board, who must create, execute and update the plan. But directors may struggle with how to start a conversation with senior management, while executives may be preoccupied with running the daily operations of the bank and forget to think for the future of the bank without them. Without strong board direction and annual check-ins, miscommunications about expected retirement can occur.

Chartwell has broken down the process into seven steps that can help your bank’s board craft a succession plan that positions your institution for future growth. All you have to do is start.

Step 1: Begin Planning
When it comes to planning, there is no such thing as “too early.” Take care during this time to lay down the ground work for how communication throughout the process will work, which will help everything flow smoothly. Lack of communication can lead to organizational disruption.

Step 2: The Emergency Plan
A bank must be prepared if the unexpected occurs. It is essential that the board designates a person ahead of time to take over whatever position has been vacated. The emergency candidate should be prepared to take over for a 90-day period, which allows the board or management team time to institute short- and long-term plans.

Step 3: The Short-Term Plan
A bank should have a designated interim successor who stays in the deserted role until it has been satisfactorily filled. This ensures the bank can operate effectively and without interruption. Often, the interim successor becomes the permanent successor.

Step 4: Identify Internal Candidates
Internal candidates are often the best choice to take over an executive role at a community bank, given their understanding of the culture and the opportunity to prepare them for the role, which can smooth the transition. It is recommended that the bank develop a handful of potential internal candidates to ensure that at least one will be qualified and prepared to take over when the time comes. Boards should be aware that problems can sometimes arise from having limited options, as well as superfluous reasons for appointments, such as loyalty, that have no bearing on the ability to do the job.

Step 5: Consider External Candidates
It is always prudent for boards to consider external candidates during a CEO search. While an outsider might create organization disruption, he or she brings a fresh perspective and could be a better decision to spur changes in legacy organizations.

Step 6: Put the Plan into Motion
The board of directors is responsible for replacing the CEO, but replacing other executives is the CEO’s job. It is helpful to bring in a third-party advisory firm to get an objective perspective and leverage their expertise in succession and search. When the executive’s transition is planned, it can be helpful to have that person provide his or her perspective to the board. This gives the board or the CEO insight into what skills and traits they should look for. Beyond this, the outgoing executive should not be involved in the search for their successor.

Step 7: Completion
Once the new executive is installed, it is vital to help him or her get situated and set up for success through a well-planned onboarding program. This is also the time to recalibrate the succession plan, because it is never too early to start planning.

One Thing That Will Make You a Better Bank CEO


leaders-9-11-18.pngThere’s a reason great leaders also tend to be better than the average Joe and Jane at forecasting the future. As multiple conversations with participants on the first day of the 2018 Bank Board Training Forum in Chicago reveal, effective leadership and accurate predictions seem to derive from the same underlying trait.

For a long time it was believed that forecasting was about as accurate as throwing darts at a dartboard with a blindfold on. It’s common knowledge and running joke, after all, that economists have predicted nine out of the past five recessions.

But a growing body of research, spearheaded by Philip Tetlock, the Annenberg professor at the University of Pennsylvania’s Wharton School of Business, has found not only that some people are better at forecasting than others, but also that certain traits make some better at predicting the future than others.

What’s that important trait?
Tetlock refers to it as perpetual beta—“the degree to which one is committed to belief updating and self-improvement.” In other words, if you’re dedicated to constantly learning and accumulating knowledge, chances are you’ll be better at predicting the future than an ordinary person.

Perpetual beta isn’t just slightly more important than other traits; it’s vastly more important. “It is roughly three times as powerful a predictor as its closest rival, intelligence,” Tetlock wrote in his book Superforecasting: The Art and Science of Prediction.

This is interesting in and of itself, but what makes it more interesting is this idea of constant improvement and knowledge accumulation also happens to be one of the most robust commonalities of great bankers.

Bank Director CEO Al Dominick noted this in his opening remarks at this year’s training forum, when he talked about the three traits of top bank boards. No. 2 was cultivating curiosity—embracing a learner’s mindset.

It was also a theme that coursed through the keynote conversation with Katherine Quinn, vice chairman and chief administrative officer of U.S. Bancorp, the fifth-largest commercial bank in the country and long one of the best-performing companies in the industry.

Quinn took it one step further, connecting the dots between diversity, knowledge and decision-making. The more diverse your employee base is, she explained, the wider the spectrum of ideas your organization will be exposed to, making it more likely you’ll arrive at the optimal solution to whatever issues you need to address.

The connection between constant learning and effective leadership was also a point that Tom Brown, the founder and CEO of Second Curve Capital, a hedge fund that invests in publicly traded financial services companies, made in a conversation on the sidelines of this year’s training forum.

Brown would know. Walk into the corner office of most superregional or major money center banks and the chances are good that, at one time or another, he has been there.

So, how do you pursue knowledge and get others in your organization to follow suit? You have to read—a lot. It sounds simple, but it’s incredibly powerful.

Asked once for advice on how to become a successful investor, Warren Buffett, the chairman and CEO of Berkshire Hathaway, pointed to a stack of papers: “Read 500 pages like this every day. That’s how knowledge works. It builds up, like compound interest. All of you can do it, but I guarantee not many of you will do it.”

You’ll hear the same thing from other extraordinary bankers.

Michael “Mick” Blodnick, the former CEO of Glacier Bancorp, the second best-performing bank of all time based on total shareholder return, spent years staying up late reading about banking. And anyone who worked with Robert Wilmers, the late chairman and CEO of M&T Bank, the top-performing bank of all time, will tell you he was a voracious reader.

And it’s not just about reading either, a point Bank of America chairman and CEO Brian Moynihan made in a recent interview with Bank Director magazine, which will appear in the fourth quarter.

“Reading is a bit of a short-hand for a broader type of curiosity,” said Moynihan. “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.”

Ideas like this can sound trite—a point great CEOs will readily acknowledge—but after hearing it enough times from enough of them and you can’t help but conclude that what’s trite also often tends to be true.

Seven Secrets of Succession Success


succession-1-19-18.pngOne of a bank board’s most vital responsibilities is overseeing the plan of succession for the CEO. Whether driven by a looming retirement or change in the incumbent’s personal timeline, a well-orchestrated plan of succession and leadership continuity reassures employees, investors and communities. Unfortunately, too many bank boards still take a passive approach to CEO succession, rather than acknowledging that as directors, they are responsible for the selection and ongoing evaluation of CEO performance.

Good succession planning for any executive role starts with understanding the potential succession timeline and the bank’s strategy. These seven steps will help to guide the board and incumbent CEO in developing a solid succession plan.

  1. Understand the succession timeline. What is the intended horizon for the incumbent leader to remain at the helm? This timeline is often fluid, which can create a challenge for the board. It is natural for many healthy CEOs to struggle with stepping out of a role that has been so closely tied to their personal identity. Yet, boards must insist on some understanding of the timing in order to maximize the development of potential internal contenders and to avoid frustrating executives who are waiting in the wings.
  2. Strategy informs profile. One of the most critical elements of planning for CEO succession is the bank’s strategic plan. The direction of the bank going forward should help to clarify the skills and attributes required in the bank’s next leader. Given the massive transformation of the industry over the past decade, the old maxim—what got you here may not get you there—may truly apply. Directors need to align around the bank’s strategy to develop a profile for the bank’s next CEO.
  3. Identify key skills. There are countless technical and industry skills needed in a bank leader today—so many, in fact, that it is virtually impossible to find an executive with all of the ideal requisite experiences. So, prioritize the specific banking skills that the bank must have versus those the board would like to have. Key experiences such as commercial credit skills, regulatory experience, balance sheet management, board experience and risk management are often considered critical to success as a bank CEO today.
  4. Determine critical attributes. What are the most important elements of a potential leader’s personal style and leadership philosophy that are necessary at this time for the institution? For example, most community banks see a CEO’s community presence and visibility as critical for success, as well as creating and achieving a strategic vision. Strong communication skills, cultural agility and the ability to attract top talent also rank high these days.
  5. Develop a process. Successful succession at the CEO and other executive levels involves a robust and thoughtful process, not just putting together a list of who the board knows or who the incumbent leader suggests. Boards today not only need to select a superior executive as their next leader, but are often called upon to defend their decision—and how they made it—to investors, customers and their communities. This does not mean that an external or formal search is always warranted, but it does mean that there needs to be a genuine effort to source, screen, assess and validate serious contenders, which ultimately adds credibility to the board and the selected leader.
  6. Make your bank attractive to star talent. Despite the declining number of banks in the country today, the crop of qualified bankers available to fill the growing ranks of retiring CEOs is not deep enough. Thus, the market is competitive for top bankers, and relocating someone to a new and potentially smaller market remains a challenge. Star bankers will ask tough questions of the board and will want to understand the bank’s strategy, as well as the level of support, engagement and strategic value they can expect from the bank’s directors.
  7. Prepare for an emergency. As most boards know, the bank should plan for the best and prepare for the worst. Reviewing and updating the bank’s emergency succession plan on a regular basis is a must for good governance and regulatory satisfaction. There have been too many instances where this backup plan has been called into action. Having a scenario ready to keep the train on the tracks during an unexpected situation is critical to keeping the institution moving forward.

There is no greater responsibility for a bank’s board of directors than ensuring that the organization has the right leader in place. While there are many important elements to successful CEO succession, the most important point is to maintain the topic of leadership succession as a regular and ongoing board-level discussion.

Does Your Bank Have a CEO Succession Plan?


succession-10-11-17.pngMedian-CEO-image.pngIn the Bank Director 2017 Compensation Survey, sponsored by Compensation Advisors, a member of Meyer-Chatfield Group, 48 percent of bank directors and executives say their bank does not have a successor to replace the chief executive officer when that person leaves. While some responders indicated they did not have a designated successor because their CEO did not plan to retire soon, there are other unforeseen events that could prompt the need for a successor sooner than expected. Starting early on a good succession plan is one of the keys to a successful transition event.

Succession planning is an ongoing practice that is focused on the organization’s strategic vision and identification of the leadership and managerial talents that are necessary to carry out that idea. Recruiting, developing and retaining individuals who have or who can develop those skills is an integral part of the process.

Maintaining a succession plan will promote a healthy organization and mean a great deal to stakeholders. It’s a shared responsibility that requires a strong partnership between senior management and the board of directors.

The best time to discuss a leadership transition is when it isn’t imminent. Establishing an environment that supports open and ongoing discussions about succession and leadership development will reduce the anxiety that executives and board members may feel.

A comprehensive plan must also take into account what happens when the potential internal candidates are either not ready to assume the needed role or have not been through a sufficient grooming process. There are three key planning processes your institution should embrace:

1. Anticipate Emergency Situations
Emergency succession planning focuses primarily on the unanticipated departure of a CEO. You may be given a few weeks’ notice, a few days, or possibly no notice at all. An emergency succession plan ensures the uninterrupted performance of essential executive functions and outlines the steps necessary for the appointment of an acting CEO.

This interruption in leadership may be short term or permanent. Regardless, planning for the event is absolutely critical to maintaining a successful drive toward the institution’s long-term business objectives.

2. Developing Leadership
Leadership development is an ongoing process that identifies the core competencies, skills and knowledge needed by the institution over the next five years or so, including a plan to develop those competencies in your existing leadership team. If the board feels that such qualities are not inherent in the current team, you’ll need a plan to recruit new talent.

Creating a strategy for leadership development will help ensure that your organization will survive a required leadership change, whether expected or unexpected. Some of the key questions to address in this step include:

  • How do future opportunities for the organization impact our leadership needs?
  • Where are the future leadership gaps?
  • Is the board developed to its full potential?
  • Who are the natural internal leaders in the organization and how can we nurture them?

3. Seamless Transition
When a leadership change needs to be made, the transition process is not automatic. To ensure a seamless, problem-free transition, a defined course of action should be executed. One question to address is: How much time do you have?

If the departure is anticipated, such as a future retirement, it’s important that the departing executive establishes a clear and unchanging end date so that the organization can work diligently to prepare for that day. Otherwise, it is likely the organization and board will be unprepared and the transition will inflict greater stress on the firm. For unanticipated departures, the transition period will be brief, so having a clear plan of action at the ready is all the more critical.

Proper communication to stakeholders and executives can be one of the most essential tasks in succession planning. Your stakeholders will want to know what contingency plans are in place. And your management team will want to know of anticipated changes in their roles and responsibilities. Losing other key members of the leadership team in this process only makes the board’s job that much more difficult. So be strategic about your communication, which means listening, speaking the truth and helping everyone understand what is taking place.

Click for more information from the 2017 Bank Director Compensation Survey sponsored by Compensation Advisors, a member of Meyer-Chatfield Group.

The Bank Director of the Future: Diversity of Experiences and Skill Sets Matter


bank-director-2-22-17.pngWhile the requirements needed in a bank leader today continue to evolve, the same can also be said for bank directors. Boards of directors today are under more scrutiny than ever before, whether from governance advisors, shareholders, Wall Street analysts, activist investors, community leaders and customers. Even mutuals and privately held institutions face more visible scrutiny around corporate governance from their regulators and key constituents. Serving as a bank director today may still have a certain amount of prestige (depending on whom you ask), but the expectations for director performance and engagement have never been higher.

Community banks in particular tend to have long tenured board members—in many cases with decades of service. Continuity can be a good thing, provided the director skill sets continue to be relevant and the board does not become too close to the CEO, compromising objectivity. However, many bank boards have begun to focus more on the “collective skills” represented around the board table, and have started to emphasize a skill-based approach in making director retention and recruiting decisions.

There are certain skills sets which nearly every bank board likely needs more of; first and foremost in technology. So-called cyber or digital skills are paramount in today’s industry, from both risk and growth perspectives. Likewise, we often see high demand for new board members to serve as qualified financial experts—particularly in public companies—and for directors who bring risk management, strategic planning, marketing/branding, human capital or prior CEO experience to the board table. Depending on the ownership structure, many publicly traded banks are also interested in directors with prior exposure to best practices in public company governance.

However, the real place for improvement in the boardroom is often around how the board behaves. Research from numerous sources validates that how a board operates is the most critical factor of whether a board is a truly valuable strategic asset for the company. Director willingness to discuss the truly vital issues—such as strategy, CEO and board succession, transactions and risk—in an open and candid manner is an important ingredient for institutional success. CEO succession in particular can be an Achilles heel for banks if they are unwilling to deal with the elephant in the room.

One of the other weaknesses in the boardroom involves the underperforming director. According to audit and consulting firm PwC, 35 percent of directors think someone on their board should be replaced. Yet the percentage of community banks conducting peer reviews (compiled by an objective third-party to maintain confidentiality) remains low. In addition, PwC research also suggests that 25 percent of directors come to board meetings unprepared. If we truly believe in building a strategic-asset board as governance best practices would suggest, then boards have an obligation to raise their game and make some tough decisions. A board seat is a rare and precious thing, and not having every director contribute in a currently meaningful way reduces board effectiveness considerably.

The single biggest determinant in board effectiveness is the board’s willingness to address these tough topics head-on, and to do so in a non-personal, collaborative and open manner. Boards that cannot handle straight-talk, or dodge the big issues around director or CEO succession, often prove less effective, in part because they are presenting a status-quo message rather than a forward-thinking viewpoint. Fostering a boardroom culture which enables robust discussions from divergent viewpoints, in order to arrive at the best decisions, remains critical. And, while boards have had to increase their focus on checks and balances in this regulatory climate, it is important to maintain some focus on looking through the windshield and not just the rear-view mirror as well.

Lastly, diversity around the board table has become a front burner issue. Many governance experts tout a diversity of thought, perspectives and experiences as critical in order for the board to make the wisest decisions. Yet in order to garner those wider viewpoints, it is usually necessary to move beyond the classic board which still often remains stale, pale and male. Boards will need to become proactive in seeking a more diverse group around the board table, and will likely need to broaden how and from where as they think about sourcing new potential directors.

In summary, the new bank director today needs to be a subject matter expert in an important area, but also a collaborative, communicative, engaged partner in the boardroom. The more willing a board is to tackle the toughest business issues, and encourage and respect divergent views around the table, the more likely the bank will continue to be successful.

Two Bank CEOs that Clearly Understand Fintech


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I originally sat down to write an article about the community banks that were leading the charge into the digital future. As I began to research it however it became pretty obvious to me that I was asking the wrong question. I found no evidence that the early adopter banks were gaining deposits or market share as a result of their whiz bang tech offerings. It occurred to me that the right question to ask was not who were the best early adopters, but rather how are the best banks using financial technology to make themselves even better?

I write about and invest in community banks and talk to a lot of bankers as part of my daily routine. I reached into my research stack and picked out two community banks that I think are doing an excellent job of executing their game plan and offering a higher level of service to their customers. I then spent some time reviewing how they use financial technology to make themselves more competitive in today’s market.

One of the very best community banks is Home Bancshares of Conway, Arkansas. Chief Executive Officer Johnny Allison and his team have taken a one branch bank with about $25 million in assets they purchased in 1998 to a leading community bank with $9.5 billion in total assets and over 140 branches in four states. They have an efficiency ratio of just 35.8 percent, which is well below the industry average of 58.49 percent, so they are getting pretty much the maximum profit from each dollar that comes in the door.

Home Bancshares approach to technology could be summed up this way: Just because we can does not mean we should. The bank has mobile offerings along with all the usual deposit and payment products that customers expect today. Senior executives there feel like their mobile offerings on both the commercial and consumer side are on par with anyone in the industry. Customers are satisfied with the current mobile products and are not beating down the door for some new high tech offering. Banking is shifting towards mobile and this bank has stayed on top of the trends and developed the products they need to keep their customers happy.

Home uses technology on the underwriting side but still relies on the personal touch to develop and process loans. Only 15 percent of the bank’s loan portfolio is in single-family mortgages and in my opinion the commercial lending process is still more people driven. While technology can help get the deal done quicker, it still takes a lot of face-to-face contact to get loans originated and closed.

Home Bancshares stays on top of trends in technology. Their people go to many of the technology conferences and talk to the sales people. They are constantly communicating with their current vendors about their offerings and what vendors see developing in the financial technology space. They listen to their customers about what type of high-tech and mobile offerings they would like to see in place. If they find financial technology products that promise to make the bank more efficient and meet a growing demand, they will consider adding it. If it is untested, unproven and doesn’t benefit the overall banking experience on a profitable basis, they do not.

Another bank CEO who clearly “get’s” financial technology is Jill Castilla at Citizens Bank in Edmond, Oklahoma. Castilla, who has been widely recognized as one of the top CEOs in the industry, joined Citizens in 2009 at the request of her stepfather who was then chairman. Like so many other institutions at the height of the last banking crisis, Citizens was struggling with bad loans and was eventually placed under a regulatory order. Tough decisions and changes had to be made to get the bank back on track. Castilla was a huge part of the turnaround having served as chief credit officer, chief operating officer and chief financial officer during that process. The regulatory order was lifted in 2012 and the focus shifted to growing the bank and preparing for the future.

Castilla was named CEO in 2014 and took on the task of running and growing the bank. One of her biggest tools to restore the bank to profitability was social media. She took to Twitter, Facebook and other social media outlets to spread the bank’s marketing message. She used YouTube videos to boost employee morale and attract customers. She has said that social media allows the bank to interact more favorably with consumers and has even helped the bank attract new talent who want to be a part of Citizen’s culture.

Although the bank is relatively small at just $248 million in assets, Castilla and her team have embraced financial technology. Citizen’s mobile payment and deposit products are on a par with much larger competitors. Castilla has closed money losing branches and replaced them with what she calls interactive teller machines, which allow customers to transact with tellers via video. She has embraced new technology that can enhance the customer experience, attract new customers and make her bank more profitable and it is working very well.

The best banks and best bankers are embracing financial technology that helps them serve their customers more efficiently and more profitably. For the most part they are not reaching for the cutting edge products that generate all the buzz and attention. Banks want to be sure the product works and all the bugs and kinks have been worked out before offering them to their customers. Increasingly, it looks like financial technology is a big part of the future but not the future in and of itself.