Why Some Banks Purposefully Shun the Spotlight


strategy-8-9-19.pngFor as many banks that would love to be acquired, even more prefer to remain independent. Some within the second group have even taken steps to reduce their allure as acquisition targets.

I was reminded of this recently when I met with an executive at a mid-sized privately held community bank. We talked for a couple hours and then had lunch.

Ordinarily, I would go home after a conversation like that and write about the bank. In fact, that’s the expectation of most bank executives: If they’re going to give someone like me so much of their time, they expect something in return.

Most bank executives would welcome this type of attention as free advertising. It’s also a way to showcase a bank’s accomplishments to peers throughout the industry.

In this particular case, there was a lot to highlight. This is a well-run bank with talented executives, a unique culture, a growing balance sheet and a history of sound risk management.

But the executive specifically asked me not to write anything that could be used to identify the bank. The CEO and board believe that media attention — even if it’s laudatory — would serve as an invitation for unwanted offers to acquire the bank.

This bank in particular has a loan-to-deposit ratio that’s well below the average for its peer group. An acquiring bank could see that as a gold mine of liquidity that could be more profitably employed.

Because the board of this bank has no interest in selling, it also has no interest in fielding sufficiently lucrative offers that would make it hard for them to say “no.” This is why they avoid any unnecessary media exposure — thus the vague description.

This has come up for me on more than one occasion in the past few months. In each case, the bank executives aren’t worried about negative attention; it’s positive attention that worries them most.

The concern seems to stem from deeper, philosophical thoughts on banking.

In the case of the bank I recently visited, its executives and directors prioritize the bank’s customers over the other constituencies it serves. After that comes the bank’s communities, employees and regulators. Its shareholders, the biggest of which sit on the board, come last.

This is reflected in the bank’s loan-to-deposit ratio. If the bank focused on maximizing profits, it would lend out a larger share of deposits. But it wants to have liquidity when its customers and communities need it most – in times when credit is scarce.

Reading between the lines reveals an interesting way to gauge how a bank prioritizes between its customers and shareholders. One prioritization isn’t necessarily better than the other, as both constituencies must be appeased, but it’s indicative of an executive team’s philosophical approach to banking.

There are, of course, other ways to fend off unwanted acquisition attempts.

One is to run a highly efficient operation. That’s what Washington Federal does, as I wrote about in the latest issue of Bank Director magazine. In the two decades leading up to the financial crisis, it spent less than 20% of its revenue on expenses.

This may seem like it would make Washington Federal an attractive partner, given that efficiency tends to translate into profitability. From the perspective of a savvy acquirer, however, it means there are fewer cost saves that can be taken out to earn back any dilution.

Another way is to simply maintain a high concentration of ownership within the hands of a few shareholders. If a bank is closely held, the only way for it to sell is if its leading shareholders agree to do so. Widely dispersed ownership, on the other hand, can invite activists and proxy battles, bringing pressure to bear on the bank’s board of directors.

Other strategies are contractual in nature. “Poison pills” were in vogue during the hostile takeover frenzy of the 1980s. Change-of-control agreements for executives are another common approach. But neither of these are particularly savory ways to defend against unwanted acquisition offers. They’re a last line of defense; a shortcut in the face of a fait accompli.

Consequently, keeping a low media profile is one way that some top-performing banks choose to fend unwanted acquisition offers off at the proverbial pass.

While being acquired is certainly an attractive exit strategy for many banks, it isn’t for everyone. And for those banks that have earned their independence, there are things they can do to help sustain it.

Exclusive: How KeyCorp Keeps Diversity & Inclusion in Focus

Banks large and small are focusing more sharply on diversity and inclusion as a way to attract and retain the best talent, regardless of gender, race, ethnicity or sexual orientation.

One bank demonstrating a robust D&I program is $141.5 billion asset KeyCorp, headquartered in Cleveland, Ohio. It’s perhaps no coincidence that it’s the largest bank led by a woman: CEO Beth Mooney, who took the reins at the superregional bank in 2011 to become the first female CEO of a major U.S. financial institution.

Heading KeyCorp’s D&I efforts since 2018 is Kim Manigault, who joined Key in 2012. She previously served as the chief financial officer in the bank’s technology and operations groups; before that, she spent 12 years at Bank of America Corp. in similar roles.

“I’ve had lots of different opportunities at different organizations, but I’ll say in coming to Key, what I realized here is a really firm and demonstrated commitment to creating opportunities for women as well [as men] in our senior ranks,” Manigault told Bank Director Vice President of Research Emily McCormick, who interviewed her as part of the cover story for the 2nd quarter 2019 issue of Bank Director magazine. (You can read the story, “A Woman’s Place is in the C-Suite,” by clicking here.)

A strong D&I strategy isn’t solely the domain of big banks. In this transcript—available exclusively to members of our Bank Services program—Manigault delves into KeyCorp’s intentional and deliberate focus on diversity and inclusion, and shares the tactics that work within the organization.

She also discusses:

  • Components of KeyCorp’s D&I program
  • Measuring Success
  • Creating a Culture of Inclusion

The interview has been edited for brevity, clarity and flow.

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 Download transcript for the full exclusive interview

A Woman’s Place is in the C-Suite

As a young girl in Arkansas, Natalie Bartholomew always knew she wanted to be a banker. She collected credit card applications at department stores and deposit tickets from her grandfather, a banker, so she could “play bank” at home. She joined a junior bank board in high school and was employed as a teller by her senior year.

Today, Bartholomew is the chief administrative officer at Grand Savings Bank, a $455 million asset community bank based in Grove, Oklahoma. But as she was promoted through the ranks at a succession of Arkansas-based community banks, and began attending industry networking groups and conventions, she noticed something. “It was just a boys’ club,” she says. This isn’t an anecdote from banking’s yesteryears: Bartholomew is in her 30s. “Oh my gosh: This is the industry I’m in,” she thought at the time. “There are no other young females, and no wonder they don’t want to be here, because this is the road you have to go down, this is the hill to climb … these guys have ruled the roost for so long, then why would a young woman want to even attempt to conquer this industry?”

Women are ready, willing and able to lead in today’s C-suites and boardrooms: Forty-five percent of working women aspire to hold an executive role, according to Gallup’s research on women and the workplace. Yet, corporate America remains dominated by men. Fewer than 5 percent of S&P 500 companies are led by a female chief executive officer, including two financial services companies—Beth Mooney of KeyCorp and Margaret Keane of Synchrony Financial. Women hold just 21 percent of senior leadership roles, according to Catalyst, a nonprofit focused on promoting gender inclusion. In fact, the nonprofit claims there are fewer female leaders in the U.S. than there are men named John.

Too frequently, executives and boards assume women aren’t willing to work as hard or put in the long hours that can be required to advance through the ranks. That’s a misconception, says Teresa Tschida, a senior practice expert at Gallup. “Our research would say that, for women [who] want to move up to those senior roles, they are just as willing to work long hours.”

A gender-diverse leadership team can also strengthen strategic decisions. While individual strengths vary widely, women are generally better at relationship building, according to Gallup’s research, along with structure, routine and planning. “They do work smarter—they’re more efficient,” says Tschida.

A study examining the effect of gender diversity on profitability, published in 2016 by the Peterson Institute for International Economics, found “the correlation between women at the C-suite level and firm profitability is demonstrated repeatedly.” And the proportion of female executives and female board members is instrumental, which “underscores the importance of creating a pipeline of female managers and not getting lone women to the top.”

“Diverse teams bring different life experiences and different perspectives and function better,” says Deborah Streeter, a Cornell University professor who leads the Bank of America Institute for Women’s Entrepreneurship. Unfortunately, most companies have a “leaky pipeline” when it comes to female talent. “The pool of women, by the time you get to the C-suite level, is too small,” she says.

The gender-diverse executive team at $1.3 billion asset First United Corp., based in Oakland, Maryland, generates a positive reaction among its employees and community. Four executives on the seven-member senior management team are women, including the chief executive and chief financial officer. People “will comment to me how inspiring it is for them to see that the company provides opportunity equally,” says CEO Carissa Rodeheaver. “It’s really representative of the fact that you can do whatever you set your mind to, and it doesn’t matter what your gender is in moving through a company. It’s all about your ambition, it’s all about your skill sets, it’s all about your desire, it’s all about your passion to continue to move forward, whether you’re a man or a woman. We will recognize that—we’ll foster that, and we’ll help you to grow.”

In most cases, a leaky talent pipeline isn’t the result of outright discrimination, but rather relying on outdated approaches to leadership development and corporate culture.

Building diversity on leadership teams—in the C-suite and on the board—doesn’t happen by accident. It’s the result of intentional practices and strategies that reward women as well as men, and programs that help banks better identify and promote their best employees—regardless of gender.

“We’re not specifically aiming to have more women in our workplace. We’re aiming to be inclusive and have top talent, and we recognize that that talent comes in all shapes and sizes,” says Kim Manigault, the chief diversity and inclusion officer at Cleveland, Ohio-based KeyCorp, with $140 billion in assets. “That doesn’t happen by accident. That happens when you have a very direct and deliberate and committed focus on diversity and inclusion across all the programs and policies within your organization.”

Diversity can’t be achieved overnight. “It’s a long-term process of cultivating candidates inside the company,” says John Daniel, chief human resources officer at $41 billion asset First Horizon National Corp., based in Memphis, Tennessee.
A number of banks, including First Horizon and KeyCorp, have leadership development programs in place. “Women who get development—of any kind—actually show a greater confidence than the men who go through the same program in their ability to apply their skills, because they felt supported, and they got that development, and they worked on leadership skills,” says Stephanie Neal, a senior research consultant at the talent management firm Development Dimensions International, based in Pittsburgh, Pennsylvania.

Focusing on developing female leaders is paying off at Fifth Third Bancorp, says Chief Administrative Officer Teresa Tanner. Female employees at the $146 billion asset Cincinnati, Ohio-based bank were working hard but staying under the radar. So, the bank created a program—tailored to women—to address development gaps. “We really felt that doing a gender-specific program that could really talk about those skills that women need at an executive level, creating a safe space with other women to stretch and grow, would be a great investment,” she says. One-third of the program’s graduates have already received promotions or taken on new responsibilities. “It has far exceeded my expectations,” she says.

Personalized development plans can enhance development, especially for female employees. “It helps [leaders] to target where they put their energy and then, of course, they see greater results,” says Neal. Women, in general, tend to have specific development needs, including “building confidence, knowing how to build stronger networks, and knowing how to create greater influence in an organization, especially when the status quo works against them,” she says.

Fifth Third’s program works on building soft skills that may not be as readily developed among female talent—confidence in promoting oneself, for example, and learning how to network. “Things that we haven’t historically been so overt about teaching women how to do, and I’ve seen it pay off,” says Tanner.

Personalized development appeals to men and women—particularly to millennials. “We find this desire for the culture of coaching, and about growth and development, is coming from some of the younger generation in the workplace today,” says Tschida.

Individual development plans play a key role in developing executives at First United. “Every person in the company has an individual development plan, and it talks about areas where they feel that they are strong and want to continue to grow in, or areas where they have an opportunity to improve,” says Rodeheaver. The bank introduced a “skip-a-level” approach this year that has Rodeheaver reviewing all development plans for employees who report to her direct reports, so she can better understand where coaching is needed, which she sees as vital to succession planning.

“Succession doesn’t just happen at the executive level—it really needs to happen throughout the company,” Rodeheaver says. “This gives me the opportunity to look one layer below my direct staff to see, who do we need to continue to develop for succession in the future.”

Women are less likely to receive feedback on their performance, according to a study conducted in 2016 by McKinsey and LeanIn.org—underscoring the important role mentorship programs can play in developing female leaders.

Rodeheaver says she benefited personally when former CEO Bill Grant took her under his wing. “He opened doors for me, he introduced me to people in the industry,” she says. “If you look at our organization, we have a lot of women in leadership positions, so he was an excellent mentor for all of us and, I think, he really was a champion for women in the bank, not because he set women apart—because he didn’t set women apart.”

Unfortunately, women often don’t receive the same mentorship opportunities as men. There are a few reasons for this. First, few banks have a formal mentorship program in place. Just 15 percent of executives and directors said their bank offered a mentorship program in Bank Director’s 2018 Compensation Survey. Men hold the majority of executive positions, so informal programs tend to exclude women.

It can be difficult to naturally develop cross-gender relationships, so formalizing the process helps level the playing field between men and women to ensure the bank is developing the best employees, regardless of gender. “Leaving things to be more chance, more informal really puts those powerful mentorships for women at risk,” says Neal.

At KeyCorp, 450 employees participated in mentoring last year, says Manigault. Seventy percent of those mentor/mentee matches included a woman. “We had a significant component of those groups that were multicultural as well, meaning you can get guidance, coaching, development from somebody who doesn’t look like you, or who isn’t in the line of business you’re in or who hasn’t had the experiences you’ve had. It’s all about where you are going to get the guidance, coaching and development that’s the best for you.”

Employee resource groups, deployed at organizations like KeyCorp and First Horizon, also play an important role. “We have a population of women in our organization [who] want to come together, rise and grow through the ranks together, from junior level to executive level,” says Manigault.

Managers are particularly hesitant to provide constructive feedback to their female reports. Streeter refers to this lack of feedback as “ruinous empathy,” and despite the best intentions on the part of managers, it does more harm than good.

“Nobody can grow without feedback,” she says. Ruinous empathy cheats employees—particularly women—out of opportunities to improve and grow.

And rather than indirectly punishing talented female employees by declining to mentor them, male executives who feel nervous about interacting with women in the #MeToo era should rethink their approach. “Male leaders now say, ‘Look, I am worried, I don’t want to take a young woman to lunch at a restaurant, because I’m worried that I’ll be a target,’” she says. “If that’s true, don’t take either men or women for lunch at a restaurant, use a different method for interacting with them.” 
Reconsider other practices too, like networking on the golf course. That could be another practice that more frequently rewards men over women.

“Provide a safe structure, so people can become sponsors—it’s one of the major things that women lack in many environments is access to mentors and sponsors,” says Streeter. And executives should be responsible for developing potential successors. “Mentoring and sponsoring both women and men has to be part of the way that leaders are also evaluated by the board.”

Bartholomew found herself looking outside for mentors, and building that support system led her to create her blog, “The Girl Banker.” Women in banking are hungry for these connections—and they want advice, she says. “There [are] always a lot of questions about additional education and resources to help further them in their career,” says Bartholomew. Work/life balance is also a hot topic, and one of her most popular blog posts discusses so-called mom guilt. “Working moms, they love their children, they love their family, and they love their career, and they don’t want to be held back by either one,” she says.

Motherhood plays a big role in delaying or even derailing women’s careers, but banks can provide perks that benefit both men and women in the company, including expanded paternity/maternity leave benefits and flexible schedules.

At First United, flexibility can be as simple as giving employees—no matter their family situation—time to spend on what matters to them, whether that’s attending PTA meetings or coaching their child’s soccer team—or something else entirely, says Rodeheaver. That can mean working some hours from home as well, if the position permits it. “I don’t mind where you work, as long as the work’s getting done,” she says. “It’s very common for me to have my staff send me an email and say, ‘One of the kids is sick, I’m going to be working from home today.’ And it’s having that trust that they’re going to be able to pull that off.”

Some banks are rethinking the benefits they offer employees so they can better retain women or attract them back into the workforce. The “Career Comeback” program at the Swiss financial services company UBS Group offers permanent positions to men and women worldwide who want to reenter the workforce, along with the education and mentorship they need to make the transition.

Fifth Third has focused its efforts on retaining women through its maternity concierge program. “We were seeing women at mid-career leave the workforce at a much higher rate—it was almost double the turnover rate of a typical employee,” says Tanner. Employees who wanted to stay on to build their careers struggled to balance the demands of work and family. The solution? “We basically give someone their own personal assistant,” she says, to run errands, from getting groceries to planning a baby shower to helping buy a car seat. “They give them that extra set of hands that they need so that they can worry about work and continue in their career, but let somebody help them through this huge transitionary change in their life.” It’s had an impact on Fifth Third’s ability to retain these employees: Women who used the program were 25 percent more likely to stay on the job.

Women have access to the maternity concierge program until their child’s first birthday. After that, they can use the bank’s general concierge program, a similar perk offered to both men and women.

Access to expanded maternity perks and flexible scheduling can have a big impact on employees, but companies should also ensure they’ve removed any cultural stigmas around using these benefits, advises Cathleen Clerkin, a senior research faculty member at the nonprofit Center for Creative Leadership. If applicable, ensure that men and women are using the benefit equitably. For example, she says that women say flexibility is important to them, but research suggests men are more likely to receive this benefit. “Women might not want to ask what the options are, for fear of backlash,” she says.

Setting transparent policies around flexible scheduling and similar benefits can help combat this concern. “When there is fuzziness, that’s where you see implicit bias sneak in,” says Clerkin.

Implicit or unconscious bias—the unconscious stereotypes held by the average person—are perhaps the trickiest issue to tackle when creating an inclusive culture that rewards and advances all, rather than some, employees.

We all hold some form of unconscious bias. Most of us just don’t know it.

“For the most part, people really mean well, and they really want to support women,” says Clerkin. But leaders often make assumptions that don’t align with a talented female employee’s actual goals. It’s a pattern of behavior called protective hesitation, and results in fewer opportunities for women to grow as leaders. They may be passed up for a challenging assignment, for example, or a promotion that requires the employee to relocate. “There’s this protective hesitation around trying to do the right thing, [which] can actually prevent women from getting through the pipeline,” says Clerkin.

She recommends a simple solution. “It sounds so simple, but just asking women, ‘What do you want, how can I advocate for you, what kind of feedback do you need, what kind of positions do you want,’ instead of trying to guess what the best decisions are, I think is something that would really make a difference.”

At Fifth Third, the management committee—comprised of the bank’s top 100 leaders—recently spent two hours with a neuroleadership expert to learn more about bias and diversity. “We have to model it from the top, and we have to continue to educate and challenge the way we think about this,” says Tanner.

Streeter recommends a saying to weigh your own unconscious bias: “Detect, inspect, reject.” Detecting the bias requires being aware of the problem. From there, leaders should inspect whether a decision—who should be promoted to fill a key role, for example—is based on facts or influenced by bias. Based on that, the leader can then accept or reject a decision. 
First Horizon counteracts bias by conducting multiple panel interviews to determine who will be accepted into its leadership development program or fill senior roles. “Bias operates on individual decision making,” says Daniel. “If you’re working in a group, and you have what I would call real factors—competencies that are used as an assessment tool—the group selection process counteracts and helps offset a lot of the bias.”

Relying on personal networks tends to reward the male-dominated status quo, so a diverse slate of candidates must be considered before filling key positions. “Our search guys [are] told, ‘You will present us a diverse slate, and we will pick the best candidate,’” he says. “It’s not an accident that the last two hires that we made were both female.”

Transparency and measurement are crucial elements in a bank’s battle against unconscious bias. Relying on relationship-building over quantitative measures will ensure that a bank maintains the status quo—a primarily white, male C-suite with a couple of token diversity hires sprinkled in.

KeyCorp shares the progress it’s making on its diversity goals to anyone who visits its website. “We are very frank about our numbers,” even when those numbers make some uncomfortable, says Manigault. Monitoring and measuring helps KeyCorp understand what’s working and what’s not, and meet the diverse talent needs of business line leaders.

“Any time you can track who’s applying for positions and who’s getting them, what kind [and] how much resources people are getting—any time you can track metrics, it helps us find out where our blind spots are,” says Clerkin.

Are women advancing and developing at similar rates to men? Is there a wage gap between genders? These are the types of metrics companies can monitor, in addition to the composition of the leadership team and board, says Streeter. And set specific goals—just like you would for a line of business. “Nothing will happen if you don’t set a goal that is measurable, and then track it and work your way toward it,” she says.

And when performances are evaluated based on quantitative measures, rather than gut instinct or personal relationships, women fare better. And focus on the quality of the performance, not face time or hours spent in the office, says Tschida. “If you tell [women] what the outcome is, and you allow their more natural inclination to structure and discipline in their own right, they can be efficient, and they can hit that outcome in different ways,” she says. “Men would like that, too.”

Focusing on the employee’s outcome, rather than gut instinct, means the organization is advancing its best talent. That’s better for the bank.

Women tend to get stuck in organizations just below the C-suite. KeyCorp’s total workforce was 60 percent female in December 2017, compared to 27 percent for its executive and senior officers, and 31 percent for its board. At the end of 2016, FifthThird’s workforce looked roughly the same, with 61 percent women overall compared to 31 percent of its board, and 23 percent of its executive and senior team. At the end of 2018, First Horizon reported that 30 percent of its executive management committee was female, compared to 60 percent overall. And this is among banks that are actively working to create a more diverse workforce, rather than being content with the status quo.

All things equal, Streeter recommends hiring the diverse candidate. “When candidates are really quite equal, people will use some gut instinct—they will say something like, ‘She’s just not as good a fit as he is,’” says Streeter. “If all things are equal when you look at the qualifications of people, you’ve got to start opting in favor of diversity, if you lack diversity. That’s not giving women preferential treatment, it’s just saying, our corporation needs to have more diverse leadership, that’s one of our goals and to meet that goal, we have to start looking at environments and opportunities to diversify the leadership.”

That could also mean making the table a little bigger to include women. This enabled First Horizon to add more women to its executive management committee. “The enlargement of the committee was to make sure that we had the opportunity for lots of people to have a seat at the table when corporate decision making and policy making” occurred, says Daniel.

As for the lack of women ready to lead? Fifth Third’s Tanner calls that a cop out. “There are a lot of executive women out in the workforce … Go find them, and bring them to your company, and if they’re deeper in your organization, then develop and bring them up,” she says. “We have to quit with the excuses. If we really want to develop a workforce of tomorrow that is going to lead us into our future generations, we have to fix this, and we can’t do it at the rate we’ve been doing it.”

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.

How One Top-Performing Bank Explains Its Remarkable Success


strategy-10-5-18.pngThe closer you look at U.S. Bancorp’s performance over the past decade, the more you’re left wondering how the nation’s fifth biggest commercial bank by assets has achieved its remarkable success.

Here are some highlights:

  • It was the most profitable bank on the KBW Bank Index for seven consecutive years after the financial crisis.
  • It emerged from the crisis with the highest debt rating among major banks.
  • Its employee engagement scores are consistently at the top of the industry.
  • It has been named one of the most ethical companies in the world for four consecutive years by the Ethisphere Institute.

How has the $461 billion bank based in Minneapolis, Minnesota, accomplished all this?

If you ask Kate Quinn, the bank’s vice chairman and chief administrative officer, the answer lies in its culture.

“There’s a reason that sayings like ‘culture eats strategy for lunch’ are stitched into pillows,” says Quinn.

Quinn doesn’t talk about U.S. Bancorp’s culture from a distance; since joining the bank in 2013 to oversee its rebranding campaign, she has led the charge on articulating and capturing the bank’s culture in a series of value and purpose statements.

“When I was starting to do the work of building the brand, I looked into the history of the company, its genealogy, to figure out our core attributes—the attributes our customers and employees associate with us,” says Quinn. “What I found was this unique thing about us. Any company can say ‘we bring our minds to our customers,’ but there aren’t many companies that can credibly say ‘we bring our hearts to our customers,’ and we can say that. It is real.”

Given that executives at all companies will tell you the same thing, the challenge is to differentiate between companies that pay lip service to these ideals and those that genuinely embrace them.

“The real insight you get about a banker is how they bank,” Warren Buffett has said in the past. “Their speeches don’t make any difference. It’s what they do and what they don’t do [that defines their greatness].”

One way to gauge what a bank does and doesn’t do is to look at its financial performance over an extended period of time. It’s an imperfect proxy, admittedly, but a revealing one nonetheless, as businesses built on unethical or immoral foundations simply aren’t sustainable. At one point or another, the chickens always come home to roost—just ask Wells Fargo & Co.

This is why U.S. Bancorp’s performance, since its current leadership took control of Cincinnati-based Star Banc in 1993, is so significant. It didn’t commit mishaps that caused it to fall prey to a larger competitor in the consolidation cycle of the 1990s. A decade later, it sidestepped the accounting scandals surrounding Enron, WorldCom, Tyco and others that tarnished the images of so many bigger banks. And it steered clear of the worst excesses in the mortgage and securities markets in the lead-up to the financial crisis.

Anyone who knows U.S. Bancorp’s former chairman and CEO Richard Davis will tell you that he embodied principled leadership, adopting an approach that wasn’t only ethical and rational, but also one that embraced balance. He never sent emails to his employees at night, for instance, because he didn’t want to interfere with their home lives. He was also known to call his employees’ parents on their birthdays.

When it came to bottling U.S. Bancorp’s culture, then, one of Quinn’s objectives was to capture Davis’ approach.

“As I was getting my head around what do we do and what are we trying to do, I realized that it isn’t about the products and services,” says Quinn. “When you think about what a bank does—and this came from Richard—it’s really about powering human potential. I told him that I wanted to build his DNA into the company—the culture, the purpose, the core values. That is the part of Richard that has become the fabric of this company.”

But Davis’ influence is just one element of U.S. Bancorp’s broader culture. Other elements come from Davis’ predecessor and successor.

His predecessor, Jerry Grundhofer, was a tactical operator with few equals. He was the dean of efficiency, one of the valedictorians of banking throughout the 1990s.

“Jerry brought a set of values and capabilities to the company that was needed—scrappiness, cut to the chase, financial discipline,” says Quinn. “When Richard came in, he didn’t change that piece of it, he built on top of what Jerry did by adding the human dimension. Jerry had always put the shareholders first. Richard came in and put the employees at the top.”

The same is true of Davis’ successor, the bank’s current chairman and CEO, Andy Cecere, who adds another element into the mix. Cecere’s reputation is that of a practical innovator who’s pushing the bank to focus on change, innovation and technology. His favorite presentation slides, for example, compare the Old Western TV series Bonanza to the Jetsons.

Again, things like this are easy to dismiss as vacuous corporate-speak. But one lesson you learn after spending enough time with top-performing bank CEOs is that just because something sounds trite doesn’t mean it isn’t true.

Quinn understands that. It’s why she’s writing these cultural attributes into U.S. Bancorp’s DNA with revamped value and purpose statements. Facile notions of efficiency and operating leverage may excite analysts on quarterly conference calls, but the true source of U.S. Bancorp’s competitive advantage lies in its commitment to doing what’s right.

A Valuable Lesson from the Best Bank You’ve Never Heard of


strategy-8-24-18.pngThere are a lot of places you would expect to find one of the highest performing banks in the country, but a place that wouldn’t make most lists is Springfield, Missouri—the third-largest city in the 18th-largest state.

Yet, that’s where you’ll find Great Southern Bancorp, a $4.6 billion regional bank that has produced the fifth best total all-time shareholder return among every publicly traded bank based in the United States.

Since going public in 1989, just two years before hundreds of Missouri banks and thrifts failed in the savings and loan crisis, Great Southern has generated a total shareholder return, the ultimate arbiter of corporate performance, of nearly 15,000 percent.

What has been the secret to Great Southern’s success?

There are a number of them, but one is that the Turner family, which has run Great Southern since 1974, owns a substantial portion of the bank’s outstanding common stock. Between CEO Joe Turner, his father and sister, the family controls more than a quarter of the bank’s shares, according to its latest proxy report, which places most of their net worth in the bank.

The importance of having “skin in the game” can’t be overstated when it comes to corporate performance. This is especially true in banking, where a combination of leverage and the frequent, unforgiving vicissitudes of the credit cycle renders the typical bank, as one of the seminal books on banking written over the past decade is titled, “fragile by design.”

The trick is to implement structural elements that combat this. And one of the most effective is skin in the game—equity ownership among executives—which more closely aligns the interests of executives with those of shareholders.

“Having a big investment in the company…gives you credibility with institutional investors,” says Turner. “When we tell them we’re thinking long-term, they believe us. We never meet with an investor that our family doesn’t own at least twice as much stock in the bank as they do.”

An interesting allegory that speaks to this is the way the Romans and English governed bridge builders many years ago, as Nassim Taleb wrote in his book Antifragile:

For the Romans, engineers needed to spend some time under the bridge they built—something that should be required of financial engineers today. The English went further and had the families of the engineers spend time with them under the bridge after it was built.

To me, every opinion maker needs to have ‘skin in the game’ in the event of harm caused by reliance on his information or opinion. Further, anyone producing a forecast or making an economic analysis needs to have something to lose from it, given that others rely on those forecasts.

The most important thing having skin in the game has done for the executives at Great Southern is the long-term approach to their family business. “Our dad turned a valuable asset [stock in the bank] over to me and my sister [a fellow director at the bank] and my goal, when I’m finished, is to turn that over to my kids and have it be worth a lot more,” says Turner.

This becomes especially evident when the economy is hitting on all cylinders. “When institutional investors and analysts…are rewarding explosive growth, you need to have a longer-term view,” says Turner. “For instance, the explosive growth you can get from acquisitions is great in terms of the short-term boost to your stock price, but over the longer term that type of thing can reduce your shareholder return.”

Having skin in the game also addresses the asymmetry in risk appetite that otherwise exists between management and shareholders, where the potential reward to management in short-term incentives from taking excessive risk outweighs the potential long-term threat to a bank’s solvency, a principal concern of shareholders.

A long-term mindset promoted by skin in the game also causes like-minded, long-term investors to flock to your stock. This is a point Warren Buffett has made in the past by noting that companies tend to “get the investors they deserve.”

“That point is probably right,” says Turner. “We have a much larger proportion of retail investors than a lot of other companies do. I understand where institutional, especially fund, investors are coming from. It’s great for them to say they’re long-term shareholders, but they have investors in their funds that open their statements every quarter and want to see gains. So it’s harder for big money managers to be truly long-term investors.… It’s a different story with retail investors, who, in my opinion, tend to be longer term by nature.”

This cuts to the heart of what Turner identifies as the biggest challenge to running a successful bank.

“The hardest thing is balancing different constituencies,” says Turner. “We have a mission statement that is to build winning relationships with our customers, associates, shareholders, and communities. What we’re talking about is building relationships that are balanced in a way that allow each of those constituencies to win.”

The moral of the story is that, much like bridge builders in ancient Roman and English times, one of the most effective ways to construct an antifragile bank is by putting skin in the game.

How Midland States Bancorp Develops Its Future Leaders


talent-7-19-18.pngRoughly a decade after the financial crisis, community banks are introducing, developing and enhancing internal training programs to turn today’s young, millennial employees into the leaders the bank will need in the future. Forty-four percent of bank executives and board members responding to Bank Director’s 2018 Compensation Survey indicate that their bank has been dedicating more resources to employee training over the past three years to attract and retain younger talent. The majority, 74 percent, say their bank offers an in-house training program for some employees, and 80 percent say external training or career development is available as an employee perk.

While there’s no one-size-fits-all approach to employee training for the industry, the program developed by Midland States Bancorp, a $5.7 billion asset financial holding company based in Effingham, Illinois, illustrates how one bank is developing talent at several levels throughout the organization.

The bank had been discussing the development of future leaders, with an eye toward succession planning, for several years, says Sharon Schaubert, senior vice president of banking services at Midland States. Oversight of the bank’s human resources function is one of her primary responsibilities. “Then, as we were going through acquisitions and were growing, that need was becoming more and more apparent,” she says. Midland States Bancorp acquired Centrue Financial Corp. in June 2017, and Alpine Bancorp. last March.

The ability to lure away talent from local bank competitors had become increasingly difficult and expensive, and the bank had talented potential leaders in its own ranks that just needed the right training. “Any time that you bring somebody in from outside of your own company, you’re bringing in the culture that they come from [and] how they’ve been developed as leaders, so we felt that we could have more success with developing our own,” says Schaubert.

To develop the curriculum, the bank hired an experienced learning and development director from a California utility company, who expanded Schaubert’s initial vision into a three-tiered employee development program that trains staff at different stages of their careers. The program is in its second year, and each level takes one year to complete.

The first tier is designed for individual employees who don’t currently supervise anyone within the bank but have potential to grow within the organization. Each class is comprised of roughly 15 employees. Along with additional reading and one-on-one time with their own mentor within the bank, participants work on banking and project management simulations.

Applicants must be employed by Midland States for at least one year to be considered for the program.
They are interviewed by a panel of managers and must have the endorsement of their immediate supervisor.

Midland States initially had managers identify and recommend employees, but found that employees were better able to participate and displayed a greater level of commitment if they applied themselves. “We learned some really good lessons, because people also have to have an active interest in their own self development and the ability to make the time commitment,” says Schaubert. The bank put an application process in place, effective with the second first-tier class.

The second tier of the program launched recently and is designed for managers and supervisors, with a focus on how to lead and manage a team. The project management and banking simulations are more intensive, and trainees are coached on presentation skills.

Almost all of the employees who participated in the initial first-tier program have received some sort of promotion or additional responsibilities within the bank, but Schaubert says these employees can’t go straight to the second-tier program—at least a year must pass between the two levels. Since the program is new, no employee has participated in multiple tiers, yet.

Participants are each matched with a mentor, with whom they meet quarterly to discuss their progress, in line with their personal development goals. While face-to-face meetings are encouraged, the geographic footprint of the bank sometimes requires that those meetings occur by phone. The mentor provides guidance and ensures the participant is on track to meet their goals. Participants have some say in the selection of a mentor—the bank provides a list of potential mentors with a brief biography about each, and trainees can pick their top three choices. Members of the senior management team tend to be reserved as mentors for the higher levels of the program.

Mentorship programs are rarely used by the banking industry, according to the 2018 Compensation Survey. Just 15 percent of respondents say their bank has one in place.

The third tier of the training program hasn’t been formally launched but is intended for members of senior management or just below. The program will be one-on-one and won’t be classroom-based like the other tiers. External, rather than internal, mentors will work with participants at this level.

The training program isn’t just the responsibility of the human resources team, according to Schaubert. Subject matter experts and senior leaders, including the CEO, are brought in to present to trainees. And an all-day graduation—which includes presentations from training participants—is attended by each trainee’s mentor and immediate supervisor, as well as members of the executive team.

Some of the resources developed so far have been made available to other managers to encourage self-development. A one-day class is also available for new managers biannually.

Schaubert reports to the board twice a year about the bank’s training initiatives, and shares details about the participants and the curriculum. “The board is actively engaged,” says Schaubert. She adds that the full impact of the program won’t be felt for several years. “The big success of this will come a few years down the road, when we’re able to build a strong pool of candidates for significant roles in the future,” she says. “That takes time.”

One of the more immediate challenges banks face in training employees in today’s competitive talent environment is ensuring that those same employees don’t jump ship for a better opportunity. “You can either manage out of fear, or you can manage for growth and opportunities for the future,” says Schaubert. “We would much rather risk losing a good employee than not developing the employees.”

While some attrition is unavoidable, Midland States is actively working to engage and promote its most promising employees. Most trainees have been promoted or received additional responsibilities, though the bank did lose one trainee that it wasn’t able to promote as quickly as that employee may have expected.

But the bank puts considerable focus toward ensuring that its trained employees are engaged within the organization. For example, the CEO hosted a senior management meeting at his home in August of last year and asked senior managers to invite someone on their team. All graduates and current participants of the training program were invited, as well. “We’re challenging ourselves to find opportunities” to engage and grow talented staff, says Schaubert.

As banks are increasingly challenged to attract and retain experienced employees, more banks like Midland States could be apt to enhance their training programs to build the talent they need.

Safeguarding Top Talent Is Key for Making Mergers Succeed


mergers-3-22-17.pngBanks merge because of the obvious benefits—longer client lists, greater real estate holdings, stronger intellectual property, and wider market share, among others. While there is no denying the positives of a merger and acquisition (M&A), a common downside is that change can disengage and drain your talent pool if not managed correctly. It is critical through this unstable transition period that the best talent engage in the transition process, be informed about the long-term vision of the new company, and that business continuity and quality service not be compromised. Complicating matters is that while the window of time to pull off an M&A agreement often is very brief, a long period of employee uncertainty may precede regulatory approval.

Managing Change Properly Starts With Due Diligence
Procedural adjustments, such as changing lock box addresses, are very straightforward. What’s trickier and needs to be a priority is helping employees adopt the associated changes. Closely learning about the culture of the other company—how it is aligned and how it is different from the acquiring company’s culture—can be done by interviewing stakeholders, conducting informal or formal surveys, or even studying the look and feel of employee communications and polices in the employee handbook. These simple exercises will prevent hasty decision-making and will help structure the new company so that objectives are met without unwanted employee turnover.

Taking the time required to get a more intimate understanding of the bank being acquired also will speed things up when it’s time to fit the right people into key roles. The new organization ideally will represent the best of both companies, so it’s critical to identify not just where value was strongest at the former company, but why it developed and who was responsible. Getting that right early in the transition will help make it seamless. Productivity will be less likely to drop, will snap back quickly and unwanted employee turnover will be manageable.

Change Management Fails Because of Poor Communication
When employees are kept in the dark, productivity slacks and resumes start flying out the door. And your best people have the most options. Don’t underestimate the impact change has on long-time employees when they are not involved in the transition as stakeholders. They want to understand where the new company is heading, if it shares the values they are accustomed to, and what role they will play in the days and years ahead. Seventy percent of change initiatives fail due to factors involving employee and cultural resistance. Timing and engagement both matter in preventing discord at the top because it always trickles down.

Unlike in other sectors, regulatory approval can slow the process of bank mergers to a halt, and time can make miscommunication fester. Often when a merger is announced, both parties have to wait five months for approval. The uncertainty of this period can turn into a harmful fog unless handled the right way.

One way to help clear things up is to have employees from both banks interact at social events or give the acquired employees opportunities to learn about the acquiring bank’s culture to see what change looks like in settings that are casual. Another way to keep communication open with key employees from the bank being acquired is to involve employees from both banks in teams to help broker transition objectives. Any step to include employees from the bank being acquired is better than no communication. In the absence of a story, human nature is to make one up, and it’s likely to be negative.

Identify Problems Early
The best way to identify potential issues for the merging organizations is impact analysis, a method that takes a qualitative approach to assessing the way each organization handles different aspects of its business, and then developing a quantitative solution to make both sides sync. For example, an impact analysis of the culture of a lending group—how decisions are made and by whom—would create a working hypothesis about what needs to happen in the group post-integration. Identifying strengths and weaknesses is necessary for closing the gap between the organizations and creating a cohesive roadmap to move forward.

In short, managing change successfully requires focusing on four key areas:

  1. Identify the most effective leaders and transition them to roles where they can thrive. Take advantage of the merger by making needed changes to your organizational structure.
  2. Get in front of the talent most likely to be a flight risk and help them see how they play an essential role in the new company.
  3. Focus on leading employees into the new culture and on their individual transition through incentives, training and new opportunities. Keep communication open and clear.
  4. Make sure payroll and benefits transition by day one. Mishandling paychecks or other mechanics will sabotage all of your prior efforts.

Talent Strategies for Family-Owned Banks



How strong and transparent is the bank’s succession plan? Are employees being developed to achieve strategic goals? Joshua Juergensen, principal at CliftonLarsonAllen, shares how community bank boards and management teams should strategically approach talent development.

  • Tackling Succession Concerns
  • Outlining a Career Path
  • Developing a Strategic Vision

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.