The Proactive Approach to Managing Shareholder Relations


shareholder-relations-7-13-16.png“You either die the hero or you live long enough to see yourself become the villain.” While it is safe to assume that filmmaker Christopher Nolan did not have a board of directors in mind when he wrote that line about Batman in The Dark Knight, the words are fitting nonetheless. In this day and age, if you sit on a board of directors of a bank long enough, you will eventually be confronted by a shareholder that no longer appreciates how the board is managing the bank. Knowing a confrontation with an activist shareholder will inevitably arise, a board of directors has two options: be proactive or reactive.

Being proactive means taking steps now to engage with all shareholders and prepare to address the concerns of a hard-charging shareholder. Being reactive means ignoring the inevitable in hopes that the board can react quickly under pressure about the board’s stewardship of the bank. Historically, the reactive approach was safe due to the infrequency of shareholder activism in banking. However, in today’s “what have you done for me lately” culture, people believe they are entitled to immediate recognition of their complaints, substantive responsiveness from the board and, ultimately, satisfaction of their demands.

Boards should consider implementing a number of actions to avoid being caught flat-footed. A board can adopt a shareholder engagement policy and/or create a shareholder relations committee. A good shareholder engagement policy will delineate the board’s process regarding shareholder communications and guidance on what is and is not permissible for directors to discuss with shareholders. A shareholder engagement policy typically includes:

  • the purpose of the policy;
  • the responsibilities of the board with regard to shareholder communications;
  • the procedures for interactions between the board and shareholders, including details about how and when such interactions should be conducted, documented and reported to the board;
  • acknowledge the legal and regulatory concerns inherent in engaging with shareholders; and
  • the general topics that are appropriate for the board to address, any limitations on those topics and any topics that the board and management are expressly prevented from discussing.

A detailed shareholder engagement policy also allows the board to set forth a clear shareholder communication strategy prior to confronting an activist shareholder.

A board can also implement a shareholder relations committee. The shareholder relations committee can:

  • review, update and implement a shareholder engagement policy or other procedures governing interactions with shareholders;
  • oversee and document all communications from the board to shareholders;
  • establish avenues or forums for shareholders to communicate with the board and vice versa;
  • appoint a specific individual to supervise and be responsible for speaking directly with shareholders;
  • communicate with management regarding investor relationships; and
  • set the procedures and oversee the purchase of stock by insiders.

The committee would oversee shareholder communications. During difficult stretches, a shareholder relations committee facilitates the board’s understanding of the issues concerning shareholders. This will simplify the process of conveying the bank’s strategy to shareholders. This is particularly important when the board feels it is necessary to calm any shareholder anxieties. During prosperous times, a board can ensure that shareholders fully understand the exemplary results the bank is producing and what it means for the shareholders’ investments.

Should the board have to deal with an activist shareholder, the foundation built and maintained by the committee can prove invaluable. Banking is about relationships. That is just as true for shareholders as it is for customers. If an activist shareholder arrives, the shareholder relations committee can utilize the goodwill generated with the majority of shareholders to gauge where the shareholder base stands on certain issues. Having relationships with all of the shareholders can help the board craft an appropriately measured response and ensure its message is disseminated properly to all shareholders.

A proactive board should not be viewed the same as a board taking defensive measures in the face of a proxy contest or hostile takeover. Some boards may be hesitant to take proactive actions for fear that the board will appear as though they are trying to entrench themselves. Communicating with shareholders is vastly different than implementing defensive measures that can (rightly or wrongly) be painted by activist shareholders as self-serving. By taking these actions the board shows shareholders that it cares about transparency and meaningful communication with the owners of the bank. The proactive approach conveys the message that the board welcomes and will be responsive to constructive interactions with shareholders.

Succession Planning for the Board: What to Consider


succession-7-6-16.pngBenjamin Franklin is quoted as saying “If you fail to plan, you are planning to fail.” And that old quote couldn’t be more applicable to bank board succession planning, especially nowadays when the industry is undergoing so many significant changes.

Boards today need to be planning for even more technology reliance, new fee-based income generators, tougher regulations, and fewer professionals interested in banking as a career. The days when a bank could rely solely on investors and well-connected business people to guide its direction are almost gone. Instead, tomorrow’s banks will need leadership with expertise in the crucial areas that aren’t directly adding to the bottom line, such as technology, risk, compliance and audits.

There are a lot of moving parts in a bank board succession plan. That’s why we’ve highlighted seven areas to consider that have surfaced from our experiences working with banks and their board succession plans.

Optimize Your Composition: Boards need to find the right people to reflect the strategic priorities of the shareholders. Banks today have moved to finding niche lending areas in addition to traditional banking services to meet growth objectives. It is imperative to build a board that aligns with and is complementary to the bank’s strategic plan. For example, if a bank is transitioning from a branch-focused model to a branchless model, it’s important to incorporate expertise on the board who can guide that transition. Perhaps reducing the number of directors will increase the productivity of the board.

Anticipate What’s Coming: It’s important to understand the changing bank market, including technology and regulatory shifts that are expected in the next three to five years. Understanding this gives banks an opportunity to move out of reactionary situations and become proactive. Having board members with the right experience and forward-thinking approach can help define new potential business lines while adhering to shifting compliance and regulatory demands.

Identify Necessary Skills: Once you have identified coming shifts in the business, it’s important to determine the skills needed to meet those challenges. Beyond driving business, boards should include members who bring a skill set that advances the bank toward its strategic priorities, whether technology, cyber-security, audit, risk and/or compliance. As a bank grows, it should consider bringing on directors who understand more complex banking models. If a bank wants to move into a niche, bringing a board member in with specific experience can help guide the bank in that area.

Consider Investor Expectations: It’s important to keep in mind the fiduciary role the board plays. Investors want to see a committed board qualified to serve, while remaining devoted to the short and long-term success of the bank. Investors today are actively monitoring the governance of banks.

Get a Technology Expert on the Board: It’s time to consider adjusting the board’s composition to complement the capabilities of the next generation of leadership. One big switch between today’s leaders and tomorrow’s will likely be reliance on technology. Technology has been a missing piece on a lot of boards, and as the next generation of leadership takes the helm to steer banks toward more technology-driven services, it will be essential to have a technology expert on the board. This person should not only understand technology, but also understand how to leverage it to connect with customers.

Self-Assess: Directors are increasingly using self-assessments to look for gaps in expertise and skills, some of which could be addressed with training or further development. Assessments can help drive consistent refreshment of the business over time by adding needed skills as the complexity of banking continues.

When it comes to who will lead succession planning for the board, it is typically the governance committee’s responsibility but in privately held banks, the chairman often runs the show on succession planning. As regulators are increasingly asking about director succession, the ownership of the plan will increasingly shift to the independent directors of the governance committee. Knowing when and how often to develop and refresh a succession plan depends on where a bank is in its development. A newer bank will likely review the succession plan for the board more frequently than a more established bank.

A Better Way To Sell To Your Customers


Helping consumers meet the milestones in their lives could generate more revenue and loyalty for your institution. Tom White of iQuantifi explains why goal-based selling is a better way to connect your customer to the right product.

  • Why Goal-Based Selling Is an Effective Approach
  • Advantages for the Bank
  • Meeting the Needs of Millennials
  • Partnering With Fintech Firms

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

Three Questions to Ask About Your Bank’s DNA


Today, numerous financial technology (fintech) companies are developing new strategies, practices and products that will dramatically influence the future of banking. Within this period of transformation, where considerable market share is up for grabs, ambitious banks can leapfrog both traditional and new rivals. Personally, I find the narrative that relates to banks and fintech companies has changed from the confrontational talk that existed just a year or two ago. As we found at this year’s FinTech Day in New York City on Tuesday, far more fintech players are expressing their enthusiasm to partner and collaborate with banking institutions who count their strengths and advantages as strong adherence to regulations, brand visibility, size, scale, trust and security.

With more than 125 attendees at Nasdaq’s MarketSite on Times Square, we explored the fundamental role financial technology firms will play in changing the dynamics of banking. While we heard about interesting upstarts, here are three questions that underpinned the event that I feel a bank’s CEO needs to sit down with his/her team and discuss right now:

1. Are We Exceeding Our Customer’s Digital Experience Expectations?
Chances are, you’re not. But you can re-set the bar to make clear to your team that while customer expectations have shifted in pronounced ways, this is an area that a bank of any size can compete, especially with the help and support of a fintech company. If you are looking for inspiration, take a look at these examples of successful partnerships that we highlighted at FinTech Day:

  • City National Bank in Los Angeles and MineralTree in Cambridge, Massachusetts, developed an online business-to-business, invoice-to-pay solution that enabled the bank to differentiate itself from its competitors and attract new corporate customers. (In June 2015, City National was acquired by Royal Bank of Canada.)
  • USAA in San Antonio, Texas, and Daon in Reston, Virginia, collaborated to roll out a facial, voice and fingerprint recognition platform for mobile biometric authentication that enhances security while enhancing customer satisfaction.
  • Metro Bank teamed up with Zopa, both in the United Kingdom, on a deal which allows Metro Bank to lend money through the peer-to-peer platform the fintech company developed.

Any good experience starts with great data. Many presenters remarked that fintech companies’ appetite to leverage analytics (which in turn, allows a business to tailor its customer experience) will continue to expand. However, humans, not machines, still play critical roles in relationship management. Having someone on your team that is well versed in using data analytics to uncover what consumer needs are will become a prized part of any team.

2. How Do We Know If We’re Staying Relevant?
How can new players show us whether the end is near? That is, what part of our business could be considered a profit center today but is seriously threatened in the future? As you contemplate where growth isn’t, here are three companies that came up in discussions at FinTech Day that could potentially help grow one’s business:

  • Nymbus, a Miami, Florida-based company which provides a cloud-based core processing system, web site design, marketing and other services to help community banks compete with bigger players.
  • Ripple, a venture-backed startup, whose distributed financial technology allows for banks around the world to directly transact with each other without the need for a central counterparty or correspondent.
  • nCino, based in Wilmington, North Carolina, which developed a cloud-based, end-to-end small business loan origination system that enables banks to compete with alternative lenders with quick processing and approval of loans.

3. Do We Have a “Department of No” Mindset?
Kudos to Michael Tang, a partner at Deloitte Consulting LLP, for surfacing this idea. As he shared at FinTech Day, banks need structure, and when one introduces change or innovation, it creates departments of “no.”

For instance, what would have happened if Amazon’s print book business was able to jettison the idea of selling electronic books? If you refuse to change with your customers, they will find someone else who does. Operationally, banks struggle to make change, but several speakers opined that forward-thinking banks need to hire to a new level to think differently and change.

Throughout FinTech Day, it struck me as important to distinguish between improvements to the status quo and where financial institutions actually try to reimagine their core business. Starting at the customer layer, there appears massive opportunities for collaboration and partnerships between established and emerging companies. The banks that joined us are investing more heavily in innovation; meanwhile, fintechs need to navigate complex regulations, which isn’t easy for anyone. The end result is an equation for fruitful conversations and mutually beneficial relationships.

The Traditional Community Banking Model is Dead


retail-banking-2-12-16.pngConsumer banking needs have not changed all that much over the last decade. However, the way those needs are met are going through transformational change. As such, community banks must find ways to shed the traditional ways of delivering banking services and morph into the new reality. Those banks that embrace the change will win, big. Those that do not will be acquired by those that do.

So what is the transformational change? It basically boils down to two key thoughts. The industry is now all about customers, not products, and it’s all about relationships, not transactions. Although fundamental in concept, these are dramatic changes from the traditional community banking model.

Historically, banks have focused on products, not customers. This is reflected in the fact that banks organize themselves along a product orientation. This results in numerous employees chasing the same opportunity. Even worse, it results in banks spending resources chasing certain customers with a product basis they will never use or buy. For example, older baby boomers are saving for retirement. As such, they need savings, investment, trust and advisory services. Trying to sell them a 30-year mortgage has a slim chance of success. Trying to sell retirement services to a millennial also will be met with failure. Banks need to focus on customers. We need to learn from our retail brethren and listen to the customers’ needs and then bring forward our products and services that meet the customers’ needs. This greatly enhances the likelihood of success, as we are giving customers what they want and need as opposed to what we want to sell. Selling hot soup in the middle of the summer is not a sustainable business model. It may get some limited sales, but is the wrong product at the wrong time.

Banks have also focused on transactions as opposed to relationships. This made sense when we had a product orientation. However, customers breed relationships and so we need to build and maintain them. Banks need relationship managers to be the primary point of contact with customers. They will act as a traffic cop, directing customers to in-house expertise that meets the customers’ needs. Their job is simple: Know the customers, their needs, their business and their personal situations and then meet and exceed those needs.

To shed the traditional model, banks must embrace a different culture. This means we need to:

  1. Adopt customer segmentation across all silos within the organization
  2. Reorganize into a customer-centric model
  3. Hire relationship managers (call them whatever you want)
  4. Establish strong calling programs 
  5. Create affinity with various customer segments

Integrating these concepts into a bank’s culture requires a commitment from the board and CEO. They will need to accept change and be willing to change the business model accordingly. They will need to break down the traditional silos inside the bank and integrate all departments into a customer-centric mode.

The following list is proven to aid in this endeavor.

  1. Create relationship managers and have them report directly to the CEO. Banks will still have product managers, but they must coordinate through the relationship managers.
  2. Integrate customers into your budgeting and planning process. This means plan on getting customers and their relationships as opposed to various non-related products.
  3. Build product bundles that fit targeted customer segments.
  4. Target and track market share of customer segments.
  5. De-emphasize brick and mortar and emphasize targeted delivery by segment.
  6. Track family, friends, neighbors and acquaintances as sources of new business. Leverage off affinity.
  7. Proactively identify opportunities and chase them. Do not wait for customers to knock on your door or call you.

Banks can continue to whine about falling spreads, lack of core business, high expenses and low fee income, or they can change with the times and shift to a customer-friendly, relationship-oriented culture. Banks who do thrive and become acquirers. Banks who do not will wither and likely become acquired. We have numerous case studies of banks that are shedding the traditional models in favor of the new on and all of them are winning in their markets.

Using Strategic Planning to Drive Value


strategic-planning-6-15-15.pngIt is certainly no secret to banking professionals and bank board members that the banking landscape has changed significantly following the financial crisis of 2008. Banks of all sizes now face radically altered economic and regulatory realities. To survive and, more importantly, thrive in this new environment requires banks and bank boards to be more proactive than ever before.

An important—perhaps the most important—element to proactivity is strategic planning. In our business, we run across banks of all shapes and sizes. I’ve spent years as a regulator and now an investment banker visiting with and observing the “haves” and the “have-nots” in our industry—and the associated outcomes associated with each type. If there was one element of bank oversight I could improve tomorrow, it would be the strategic planning process. We often tell bank boards of clients and prospective clients, “Whatever you are doing, do it on purpose.” In other words, have a plan.

Sometimes we are greeted with skepticism: We’ve all heard a variation of the old saw that no battle plan survives contact with the enemy. And that may well be true—but Dwight Eisenhower, no slouch at preparing and executing battle plans, reminds us that plans may be useless, but “planning is indispensable.” In other words, the process of systematically evaluating the challenges and opportunities facing your organization as it seeks to accomplish a set of defined goals is always worthwhile. It teases out differences in approach, sets the tone on corporate culture, and outlines benchmarks against which progress can be measured.

There are many benefits to instituting a planning process at your bank, but perhaps the most important is that the regulators expect it. The Office of the Comptroller of the Currency and the Federal Reserve endorse it. The Fed’s own examination manual stresses the importance of “designing, implementing and supporting an effective strategic plan.”  But we all know there is the “spirit” of the regulatory guidance and the “letter.” You can certainly go through the motions to ensure you have a document that passes muster with your regulator—but in my experience effective organizations do much more than this.

Far more than a perfunctory regulatory expectation, an effective strategic plan ensures continuity between the board and the management team on key matters of setting strategic goals, the process by which progress will be measured, the talent needed to achieve the goals, the challenges the organization currently faces, and planning for contingencies (or known unknowns). Done right, a good strategic plan is the backbone around which an organization can evaluate managerial effectiveness, design compensation structure, orchestrate team building and hiring decisions, ensure infrastructure is in place well in advance of each phase of growth, execute on plans to enter or exit lines of business, and position itself to take advantage of unexpected opportunities and challenges.

Having a common mindset on these matters will enhance organizational effectiveness and avoid crippling delay when presented with new and unexpected developments. As a regulator during the financial crisis, I was amazed that, in the stretch of a single morning’s phone conversations, I would visit with executives in both severely crippled organizations as well as strong banks methodically plotting how to seize on the opportunities presented by the downturn to expand, grow and strengthen their companies. One group was in harm’s way and the other was positioned to succeed. Often, the difference came down to planning, or the lack thereof.

Another benefit of planning is to position the organization for the future. A well developed strategy along with a track record of delivering on strategic promises can position an organization nicely for more advanced stages of growth. A community bank considering institutional investors, in anticipation of well thought out expansion or a public stock offering, for example, will benefit from a disciplined and thoughtful planning process. The track record presents a benchmark against which investors can evaluate management and board performance. The bank can anticipate questions investors may ask when a robust and performance-based discussion is already part of the bank’s internal dialogue.

Finally, a strategic plan can help the bank avoid foreseeable bad outcomes. Strategic plans don’t protect the bank from all harm. But the planning process can identify employees, customers, or lines of business out of step with the organization’s carefully considered tolerances for risk. It can help companies avoid needless and unproductive spats with regulators (over the failure to plan, for example) and tense conversations with restless investors, whose first question is often: What is the plan? Good execution can establish a track record which will serve the organization well in considering mergers or acquisitions — and it can drive greater value when it comes time to sell.

Clear–eyed and realistic self-assessment, plus robust planning and benchmarking, should be elevated to a much higher prominence in the company than a simple checked box on a regulatory form. Done right, it can result in an enhanced and more disciplined corporate culture, ensuring the organization is positioned to grow responsibly and drive shareholder value.