The Bank Executive of the Future: Agile and Focused on Talent


bank-executive-1-23-17.pngToday’s bank leader remains under more pressure than at any time since the financial crisis. Tangible skills still matter, such as commercial credit experience, risk management and strategic planning.

Nevertheless, the real challenges may lie in developing the key leadership requirements for institutional success, and in the navigation of the managerial challenges which lie ahead. Here are three intangible but particularly important qualities for the future bank leader’s success.

Cultural Agility and Adaptability
Let’s face it: while middle-aged white men still dominate the C-suite in banking, the growth markets—and new and future employees—do not fit this profile. Consider these points:

  • Women today constitute a majority of bank employees in many institutions, with rising penetration in senior management roles.
  • Non-Caucasian children are now a majority of births in this country.
  • More new businesses are started by women and minority members of our communities than by Caucasian males.

What this says about our bank’s future opportunities for growth is that bank leaders and line personnel need to develop a true appreciation for the varied needs of different customer constituencies. And employees will likely need additional training to be in a position to service a wider array of customer profiles.

Bank leaders, then, need to lead this charge. It takes training to be able to meet differing customers at their comfort level, rather than expecting potential clients or prospective employees to relate to us. After all, your future team members will be just as diverse as your future customers.

Workforce Flexible
The nature of today’s multigenerational workforce is no secret.

Here’s a recent statistic from Gallup and highlighted by the American Bankers Association: of the four current workforce generations, millennials were notably the least engaged, with only 29 percent feeling connected to their employers. Furthermore, according to research from private equity firm Kleiner Perkins and the industry association Independent Community Bankers of America, the millennial generation seeks meaningful work, high pay, a sense of accomplishment, training and development as well as flexibility—in that order. Yet this same generation is known for being empathetic, humanitarian, environmentally concerned and generally caring. So, how do banks connect with these future leaders to attract them and keep them in the fold?

Here’s where I believe banks hold a hidden advantage over many other industries. There is no industry that is more community-minded or supportive of local organizations with time and money than community banks. Yet too often we take this proud and locally minded commitment for granted, when we should be shouting it from the rooftops, especially when we are recruiting up-and-coming talent or even rookies straight from college.

We also need to make sure that banks have revisited the traditional timelines of career advancement that former bankers like me grew up with. While some veteran bankers may disdain the up-and-comer who expects rewards and recognition much faster than previously provided, we need to accept that times are simply different. As a technology-enabled, team-oriented, community-minded industry, we need to reinforce that “this is not your grandfather’s bank” in our recruiting messages and performance feedback.

Talent Focused
Despite the continued consolidation of the industry, the ranks of folks who can capably lead a bank in today’s climate is simply not keeping pace with the need to replace retiring CEOs and C-level executives.

In the battle for new loans in crowded markets, the banks with more and better lenders on the street will win. Remember that stars have the most options as to where they will deploy their talent. “A” players will usually choose an opportunity where they are working with or for a well-known leader, and where they feel they are best set up for success.

Top talent wants to work with other top performers, and a bank CEO who can attract top players gains a significant competitive edge.

Banks that choose to play it safe with regards to talent—whether in the executive ranks or in the hiring of revenue generators—do run the risk of being penny-wise and pound-foolish. Don’t skimp on getting as many difference-makers on your team as possible.

Summary
The difference between banks that will be able to grow and remain independent may come down to the soft skills of their leaders—how the bank adapts to changing employee and customer markets, navigates the different workplace expectations of its up-and-comers, and whether the bank approaches the talent market strategically. Failing to shift focus to these factors may come at a very high price.

Poll: Bankers Sound Off on Election


election-10-19-16.pngA majority of bankers believe that Republican presidential candidate Donald Trump will have a more positive impact on the nation’s economy than Democratic nominee Hillary Clinton if he’s elected to the Oval Office on November 8, although many professional economists disagree. And he’s probably got their vote, too, according to Bank Director’s 2017 Bank M&A Survey, sponsored by Crowe Horwath LLP. However, fewer say they support Trump, compared to bankers who said they’d vote for Mitt Romney in 2012.

  • Fifty-five (55) percent believe that a Trump presidency would be best for the United States economy.
  • Fifty-eight (58) percent plan to vote for Trump, compared to 10 percent for Clinton. Twenty-one percent are unsure which candidate, if any, has their vote.
  • Sixty-six (66) percent believe that Trump is more likely to reduce the industry’s regulatory burden.

More than 200 bank executives and directors participated in the survey. Bank Director’s survey was conducted in September, before the debates took place and allegations of sexual assault surfaced against Trump. During the survey period, Real Clear Politics, which aggregates poll averages across the country, had Clinton polling ahead of Trump by 0.9 to 3.9 percent. The news outlet predicts a Clinton victory at this time.

Economists are not all in agreement about the impact that a Trump presidency would have on the U.S. economy, in part due to his ideas on taxes and trade. Several have predicted a dire outcome if Trump prevails on Election Day. The advisory firm Oxford Economics, based in Oxford, England, predicted in September that the economic policies outlined by Trump could shrink the U.S. economy by $1 trillion by 2021. The rating agency Moody’s Analytics stated in June that a Trump administration will isolate the U.S. economy, incur more government debt and result in the loss of 3.5 million jobs. A month later Moody’s predicted that Clinton’s economic policies would “result in a somewhat stronger U.S. economy.”

In contrast, David Woo, head of global interest rates and currencies research at Bank of America, told Bloomberg in September that in a Trump presidency “the U.S. economy would probably take off in a big way,” due to the candidate’s proposed fiscal policies, including extensive spending on infrastructure and tax cuts.

Richard Hunt of the Consumer Bankers Association says bankers don’t put a lot of faith in these sorts of wonkish pronouncements. Bankers see an experienced CEO in Trump, not a career-long politician like Clinton. “[Clinton would be] a continuation of [President] Obama’s policies, and a lot of bankers are frustrated,” says Hunt. The CBA doesn’t endorse a specific candidate for the nation’s top office.

Trump’s statements indicate a consistent distaste for regulation. “Dodd-Frank has to be either eliminated or changed greatly,” Trump told CNBC in May 2016. “The regulators are running the banks.”

Clinton plans to defend the Dodd-Frank Act. Her campaign also advocates new reforms for the financial sector, including a so-called “risk fee” for big banks that would scale higher for banks with larger amounts of and riskier forms of debt, compensation rules to curb risky behavior and a strengthened Volcker rule. Breaking up big banks is also on the table.

Bankers aren’t as in love with Trump as with past Republican nominees. In a survey conducted in advance of the 2012 election, Bank Director found that 79 percent supported Mitt Romney, compared to 8 percent for President Obama and 13 percent undecided. Support for Romney was 21 points higher than for Trump. It’s not that Clinton is seeing significantly more support—more bank executives and board members are unsure of whom to support, if anyone, compared to four years ago.

In a recent twist for the industry, this year’s election could be crucial to the future of the Consumer Financial Protection Bureau. On October 11, a federal appeals court found the bureau’s structure to be unconstitutional, and ruled that its directorship should fall under the control of the president, a decision that could be appealed by the Obama administration. If that decision isn’t overturned, it’s likely that a Clinton presidency would strengthen the agency. A Trump administration is likely to weaken the CFPB.

“It has to be Trump,” says Blair Hillyer, the chief executive officer at First National Bank of Dennison, a $221 million asset community bank in Dennison, Ohio. He’s a lifetime Republican that isn’t thrilled with either candidate, but he believes that Dodd-Frank has been too damaging to the industry. Under Hillary Clinton, “the regulation would continue, and we’ll continue to lose community banks,” he says.

The complete results of the 2017 Bank M&A Survey will be available on BankDirector.com in November.

Bank Succession Planning Made Simple


Succession-10-17-16.pngAccording to a recent Bank Director survey, 60 percent of those surveyed expect their bank’s CEO and/or other senior executives to retire within the next five years. The survey also revealed that most banks are unprepared for those coming changes. Only 45 percent have both a long-term and emergency succession plan in place for the CEO and all other senior executives. Does your bank have a plan? Will the plan actually work should the trigger be pulled?

There are a lot of moving parts in a bank’s management succession plan. That’s why we have highlighted the following three key steps to consider that have repeatedly surfaced in our experience working with bank boards and CEOs around the topic of management succession planning.

Who “Owns” Succession Planning?
The chairman or a board committee is the overall “owner” of management succession planning, specifically for the chief executive role and board of directors. In turn, senior management succession is owned by the CEO, with regulators now requiring most sized banks to have detailed succession plans in place for senior management. The big question quickly becomes; will those succession plans actually work, given the velocity of change in bank business models, regulatory demands, flat margins and the lack of viable growth options? Banks with well developed succession plans will clearly be in the driver seat. If your bank has a weak plan or no plan, here are three practical steps bank board, CEO and management teams should take.

Step One: Emergency Plan
In the event of an immediate leadership void, we recommend an emergency 90-day plan for each key position with no clear internal successor. Putting someone from the board or management team into the slot for 90 days buys time to consider the best short-term and long-term options. Appointing an interim person gives the board or CEO a chance to “test drive” the new leader while at the same time, considering external options. For public banks, it’s the fiduciary responsibility of the board to consider external options so as to compare and contrast to the internal candidate. However, based on our experience and observations, more often than not, the internal candidate gets the nod with minimal disruption and a high level of success.

Step Two: Internal Plan
Based on a recent Bank Director management survey, more than 50 percent of banks still do not have a formal succession plan for senior management. Shareholders are more active in bank succession and demand a written plan. Either way, regulators will soon be requiring formal succession plans across all asset sizes of banks. Clearly, succession requirements are moving down to the community bank level with all speed. Clients we serve with strong succession plans have taken the time to codify each senior management position, including the timeline to retirement and then review who in the bank could take on that role if necessary. Unfortunately, many banks simply don’t have a backup internal option. Either the bank can’t afford the extra overhead cost of a successor or the age and timeline of the backup option does not align for succession purposes. If your bank is in that predicament, move to step three immediately.

Step Three: External Plan
Being ever mindful of the internal succession plan is key when it comes to considering and evaluating potential external options. We have seen clients go to the extreme and develop a list of external succession options for all senior management positions. Since banks can’t predict when they will have a departure, which very well could happen before the internal successor is ready, it is wise to think and identify those whom it would make sense to recruit. Clearly knowing your competition and developing relationships in advance makes recruiting an executive easier, plus the culture fit can also be assessed early, thereby increasing a successful integration.

A practical three step plan can provide the board more detailed insights into the depth and reality of the company’s succession plan. A formal review by the bank board should be conducted annually to test succession plans and make adjustments where necessary.

Visit chartwellpartners.com/financial-services to download our simple succession planning guide.

Investing in Formal Leadership Development and Succession Planning


succession-6-14-16.pngAs the baby-boomer exodus from the workplace grows in the coming years, many banks will find themselves with a groundswell of leadership positions to fill. Yet a 2015 Crowe Horwath LLP survey of banks found that only about 23 percent of respondents have established a formal leadership program. Without a well designed internal development and succession plan, banks will be forced to scramble.

Building Versus Buying Talent
With banks facing consolidation, regulatory expectations, and similar challenges, leadership planning hasn’t been a priority for many institutions. Twenty-one percent of respondents to Bank Director’s 2016 Compensation Survey say they have no long-term succession plan in place for the CEO, and another 16 percent say they have no plan for the other senior executives.

Some banks have been content to simply buy talent as needed, hiring experienced executives from outside of the organization, rather than take the time to build talent from within. It might seem like a luxury to put an individual in a management position as a development opportunity—better to keep experienced, productive people in their positions as long as possible and then look outside for equal experience when the time comes.

While understandable, this perspective is short-sighted. Promoting from within is far less costly and eliminates business continuity risk. Internal development also helps a bank maintain and reinforce its unique culture and makes it easier to retain high performers and those employees with high potential.

Of course, the board of directors also can present an obstacle to pursuing formal development and succession processes. Boards at banks frequently are populated by members of the traditionalist generation that precedes the baby boomers. They tend to believe that “the cream rises to the top” or in so-called “survival of the fittest”— in other words, those that deserve leadership positions will find their way to them without formal programs nurturing them. But regulators have begun impressing on bank boards the importance of approaching things like succession planning in a more formal way than has been done in the past.

The Role of Generational Differences
Attracting talent and planning for succession is more challenging than ever. Banks that long have depended on the wisdom and work ethic of their senior teams now must attract, develop, and retain millennials (generally, those born after 1980), while engaging their Generation X employees (born 1965-1980), and adapting to the accelerating loss of boomers.

Banks might realize that the exit of boomers will produce a rash of leadership openings, but some don’t seem to grasp that a one-size-fits-all approach to recruiting, retention and leadership development is doomed to fail due to generational differences. For example, millennials have different expectations for their employers and careers than their boomer and Generation X colleagues. They often express a desire for jobs that allow them to help society and maintain a healthy work-life balance. To attract such workers, banks might need to emphasize their community involvement efforts, which could be of less interest to older employees.

Leadership development and succession planning processes also must recognize and reflect generational differences. Millennials, for instance, can be very open to receiving mentoring from their boomer colleagues because they’ve largely had close, positive relationships with their parents. Generation Xers, on the other hand, might have had rockier parental relationships. Gen X workers also came into the job market at a time of downsizing and outsourcing. As a result of these experiences, they can be more resistant to authority figures.

While research has found some distinct generational differences, similarities certainly exist, too. Strong management and leadership appeal to all generations. The good news is that these skills can be effectively taught, mentored and modeled with the assistance of formal processes.

Act Now
A wave of leadership openings is on the horizon, and banks can’t afford to take a reactive stance—they need to plan for the transition to the next generation of leaders. Forming a succession plan and building a pipeline of talent requires time, so institutions should take the first steps now.

This article first appeared in the Bank Director digital magazine.

Hot “Banking” Jobs: As Banking Changes, So Are the Job Titles


banking-jobs-5-16-16.pngBanks today must adapt to a world where “digital”, “cyber risk” and “fintech” are the new business lexicon. As the bulk of the workforce shifts from baby boomer to millennial, there is an increased need to attract talent from outside traditional financial services. Below we highlight some changing and emerging roles and a few strategies banks can use to attract top talent.

Emerging Skills and Roles

Chief Technology Officer/Chief Digital Officer
Banks today are pressured to enhance mobile capabilities and compete with fintech companies such as Lending Club, Square and Circle. These new competitors have disrupted traditional financial services offerings, which is forcing banks to adapt their product offering and service platforms to remain competitive. This new competition and technology focus have also led banks to reach outside their typical talent pool to attract candidates with new skills.

Chief Risk Officer/Chief Compliance Officer
Since the financial crisis, regulators have significantly increased the requirements for banks to manage and mitigate risk practices. Add to that the increased threats of cyber risk and it is clear that risk and compliance officers are critical members of the senior leadership team.

Chief People Officer/Chief Culture Officer
As a service related industry, people are a critical asset. And as more millennials enter the workforce, traditional banking environments may need to change. Talent development, succession planning and even culture will be differentiators and expand the traditional role of human resources.

Chief Strategy Officer/Chief Innovation Officer
Part of the transition in the banking industry involves shifts in customer profile, competitors and new products. As banks emerge from the financial crisis and focus on growth and profitability, many are turning to innovators from outside the banking industry to help find creative M&A opportunities, new products and a new customer base.

Do’s and Don’ts

Attracting and retaining non-traditional banking talent can create both challenges and opportunities.

Do:

  • Think strategically: Assess the talent, skills and capabilities you need to execute your strategic plan (new regions, new products, new capabilities). What skill “gaps” need to be filled? Do you need to go outside or can you offer nontraditional career paths and transition current leadership into different roles? How should the leadership structure and team evolve? Create a leadership strategy that supports your business strategy.
  • Think outside the industry: Many of the roles discussed above are outside the norm for the traditional banking industry. Technology roles may be filled from start-ups or Silicon Valley firms and culture or innovation roles may be filled by ex-consultants or top talent from other industries. If you do recruit from outside of banking, you may need to access different sources of talent (e.g. recruiters) and different benchmark data than you typically use.
  • Be creative: If you fear you can’t “afford” talent from other industries, think beyond traditional compensation solutions. Compensation is only a part of a total rewards package and there are other important factors such as development and growth opportunities, as well as company culture and lifestyle. Be open to new work environments and career opportunities that will appeal to new (and current) staff.
  • Reward and retain: In the race to attract the “best” it can be tempting to offer large up-front compensation packages and buyouts of existing unvested awards to acknowledge that the executive is taking a risk to change jobs. While there are reasons to provide these usual pay components, if not designed right, they can be short-lived. A well-designed new hire package and ongoing compensation program should allow the bank to attract top talent, reward performance and create powerful retention.

Don’t:

  • Rely on compensation surveys: Many banks rely on established compensation surveys and/or peer group data to benchmark roles. However, such data for “hot jobs” is rare or far from perfect. Sample sizes may be small and data is often over a year old. Use multiple data perspectives/views and “triangulate” the information to determine fair and appropriate pay.
  • Over-focus on internal pay relationship: Respect and align with internal relationships but be flexible. In order to attract an executive in one of these “hot” areas, a bank may need to pay outside of the current compensation structure, but there should be a clear path to pay equity among the executive team over time.
  • Rush the process: It is important to undertake a thoughtful process when hiring a new executive, particularly those from other industries or non-traditional areas. The compensation committee should receive background information on the candidate(s) as well as detailed information on the compensation package, contractual arrangements and performance expectations.

Why Not Having an Employment Contract With Bank Officers Will Hurt You


employment-agreement-5-9-16.pngYesterday, John Smith, the president of ABC Bank, announced to the board of directors that he intended to resign to go work for XYZ Bank, a local competitor. Smith also intends to take some of the bank’s most important customers, and several top officers with him to XYZ Bank. Upset and panicked, the chair of the board contacted the bank’s employment attorney to determine what could be done to stop the president from leaving and taking customers and employees with him. “Send me a copy of John’s employment agreement,” the lawyer said. “Employment agreement? The board did not think John needed one. We never imagined he would quit.”

In today’s business environment, officers are heavily recruited by competitors, and these competitors offer opportunities for promotion and higher salaries and benefits. If a bank decides against entering into an employment agreement with its officers, it needs to ask: What are the legal ramifications of an officer departing to work for a competitor when he does not have an employment agreement?

One of the primary benefits of an employment agreement is that it provides for business continuity. Most employment agreements contain provisions for a term of employment, a notice provision regarding the desire to terminate employment (for both parties), and the grounds for termination. The employment agreement can protect the bank’s investment in time and money spent training high level officers and important personnel, and can limit the reasons that an employee can use to leave the financial institution. Of course, an employee cannot be forced to stay with the bank, but having an employment agreement can make an officer think twice before just walking out the door to a competitor, or attempting to start a competing business.

Another benefit to an employment agreement is that it can contain specific covenants that prevent officers from leaving to work for a competitor and taking the bank’s customers and employees. Having a non-compete agreement can prevent competitor institutions from attempting to poach your bank’s top talent. Your institution has a significant interest in protecting its goodwill, time and money spent in building customer relationships, and training employees.

A confidentiality clause is another provision that should be included in an employment agreement. The bank can prevent an officer from taking and using confidential information, such as customer lists and pricing information and disclosing that information to a new employer to the detriment of the bank. The provision can also require that the departing officer return all bank property, documents and information upon termination. Banks should also consider adding in a non-disparagement clause in an employment agreement, which can prohibit an officer from making negative public statements about the bank or its directors, investors and personnel upon departure.

Because the most likely ground for contention in the employment agreement is how the contract can be terminated, an employment agreement should spell out what reasons either party may have to terminate the agreement, and what financial ramifications follow. For instance, does there have to be “cause” to terminate the officer, and what exactly does “cause” mean? Does the officer need “good reason” to terminate the employment agreement, or can the officer just provide two weeks’ notice? If he does not have “good reason,” are severance provisions triggered? Employment agreements are a beneficial method to remove ambiguity and uncertainty surrounding these issues.

Even though our hypothetical bank president does not have an employment agreement, he still has some legal obligations to the bank as one of its officers. For example, he owes the bank a duty of loyalty. Accordingly, while employed by the bank, he is required to act primarily for the benefit of the bank in matters connected to his job. He cannot actively compete with ABC Bank while employed. However, it is important to note that he can prepare to compete while still employed by ABC Bank. Again, this is where having an employment agreement could possibly prohibit such actions.

Having an employment agreement with an officer and other key employees is advisable, as it is the easiest way to protect the bank’s interest when an officer departs. With proper planning and preparation, any financial institution can proactively prevent the disruptive event and potential loss of business that can be caused by the announcement of an officer’s resignation. A well-drafted employment agreement can limit the issues in dispute for both sides, minimize ambiguities, and cut down on potential litigation expenses.

Getting Diverse Candidates to the C-Suite


*This video was originally published in Bank Director digital magazine in February, 2016.

U.S. Bank has a diverse workforce. It has a diverse board. But where it lacks diversity is the C-suite. U.S. Bank’s head of human resources, Jennie Carlson, talks about the bank’s strategy to change that.

She discusses:

  • U.S. Bank’s strategy for finding diverse candidates for the C-suite
  • The natural biases that every person has
  • Surprising demographic data that U.S. Bank found

Searching for the Next Generation of Bank Board Leaders


governance-11-4-15.pngCorporate boards have historically been predominantly comprised of men, who are either C-suite executives or major investors. Corporate boardrooms in many circles are referred to as men’s clubs with women representing only one fifth of the 1,210 board seats at 100 of the largest U.S. public companies. Banks however, represent a positive trend in board diversity with 22 percent of board seats held by women at the top 25 banks. A study of 2,360 companies conducted by Credit Suisse found that companies with women board members have a higher return on equity, of 4 percentage points on average, when compared to companies with no women board members. While there is a correlation, companies with diverse leadership are also better able to attract top talent, improve their customer orientation and drive employee satisfaction, which all lead to increased returns and profitability.

Board Diversity
The lack of women in board seats is a direct correlation to the lack of women in senior management or C-suite roles compared to their male counterparts. Several large public companies are making great strides to cast away previous recruiting tactics, bringing in new and refreshing initiatives around diversifying the board makeup. Many believe boards should be representative of a company’s customers and employees, but the statistics show that is just not the case. While directionally there has been a shift, it has taken decades to arrive at this point. Boards of today should embrace diversity in the broadest sense, whether that involves gender, age, culture or ethnic diversity, because the net effect of a broad range of perspectives and expertise is board effectiveness.

The Expertise Trend
Moving away from a narrow representative board and focusing instead on functional needs on boards, where specific members will have functional experience, whether in risk, operations, technology, compliance or audit, is another forward-thinking strategy. Proven C-suite executives bring a wealth of knowledge and experience, but surrounding those folks with functional experts will only add to the success and diversity of the board. Driving diversity in thought and experience will lead to more constructive dialogue inside the boardroom, ultimately driving the effectiveness and success of the board and company as a whole. Diversity at all levels is a driving thought behind board hiring, but the statistics still show that although a focus, boards have significant room for diversity growth whether relating to industry, sector, gender or ethnicity.

Aging Board
The average age of board directors at S&P 500 companies has increased from 60 to 63 years old during the past 17 years. Experience is a critical attribute, but in the changing economic environment of today, companies are forced to take a front window approach. Institutions are setting a mandatory retirement age regardless of performance. In some cases, this might hinder a board in the short term, but potentially drive diversity and enhance the board’s overall effectiveness when boards are forced to replace their older members with newcomers. In PwC’s Annual Corporate Directors Survey, of the 934 directors who responded, age was one of the top three reasons attributed to the lack of performance and the need for replacement. While a great percentage of companies have a mandatory retirement age, there are extenuating circumstances when that is waived. The same is true for term limits. It is good to keep those in the 10- to 15-year range, but once again, they can be waived in certain instances if the board deems it necessary.

Bank board recruiting continues to evolve and many banks are seeking non-banking professionals to complement existing banking boards. Just recently, Boston Private Bank and Trust recruited Kimberly S. Stevenson, the current chief information officer at computer manufacturer Intel to its board. Given the amount of reliance on technology within the financial services industry, her background represents the positive trend towards diversity in gender and industry. Assembling a compatible, diverse and successful board is a challenging goal, but a worthy one where the pay-off is measurable and invaluable. With a rapidly changing workforce, boards will be forced to stay current with the broader trends. There is a need for more diverse boards to complement the next generation of senior management.