Building a Better Nominating/Governance Committee

Boards could be missing out on valuable opportunities to better leverage their nominating/governance committees. 

There’s broad agreement on the responsibilities that many nominating/governance committees are tasked with, according to the directors and CEOs responding to Bank Director’s 2022 Governance Best Practices Survey, sponsored by Bryan Cave Leighton Paisner LLP. Half of the survey participants serve on this committee. But the results also suggest there are areas that these committees may be overlooking. 

As chair of the governance committee at $2.8 billion First Fidelity Bancorp in Oklahoma City, Samuel Combs III views the committee’s overarching duty as being responsible for the board’s broader framework and committee infrastructure. He says, “We try to determine if we are balanced in what we’re covering and in our allocation of resources, board members’ time [and] assignments to certain committees.” 

First Fidelity’s governance committee typically meets three to four weeks ahead of the board meeting to develop the agenda, often working closely with the CEO to do so, Combs says. Devoting this advanced time to craft the agenda means that the board can devote sufficient time later to discussing important strategic issues. 

The survey’s respondents report that their boards’ nominating/governance committees are generally responsible for identifying and evaluating possible board candidates (92%), recommending directors for nomination (89%), and developing qualifications and criteria for board membership (81%). 

Far fewer respondents say their governance committee is responsible for making recommendations to improve the board (57%) or reviewing the CEO’s performance (40%). 

While the suggestion is unlikely to come from the chief executive, a bank’s CEO could benefit from regular reviews by the nominating/governance committee, says Jim McAlpin, a partner at Bryan Cave and leader of the firm’s banking practice group. Reviewing the CEO’s performance gives the board a chance to talk about what’s working and what could be improved, separate from compensation discussions. 

“The only review he or she [typically] gets is whether the compensation remains the same,” says McAlpin, who also serves as chair of the nominating/governance committee at a $300 million bank located in the Northeast. “Beyond compensation, there’s very rarely feedback to the CEO.” 

Almost half (47%) of the survey respondents say their board goes through regular evaluations. Among those, 60% say the nominating/governance committee chair or the committee as a whole leads that process. That tracks with the roughly half (53%) who name reviewing directors’ performance as a responsibility of the nominating/governance committee. 

First Fidelity’s board alternates board evaluations with peer evaluations every other year, but Combs stresses a holistic approach to those. “Not only do you evaluate, but you spend time reviewing it with the group,” he says. “And then with each independent board member, if necessary. And we usually give them the option of having that conversation with myself and the CEO, post-evaluation.” 

McAlpin suggests another exercise that nominating/governance committees could consider: Make it a regular practice — say every 2 or 3 years — to locate and review every committee’s charter. It can be useful to regularly review each committee’s scope of responsibilities and also provides an opportunity to update those responsibilities when needed. 

“Does it list all of the things the committee does or should be doing? And secondly, does it list things that the committee is not doing?” McAlpin says. “It’s a fairly basic thing, but important in corporate hygiene.”

Forty-five percent task the governance/nominating committee with determining whether the board should add new committees. In the case of First Fidelity, the governance committee discussed how to handle oversight of cybersecurity issues and whether it would benefit from a designated cybersecurity committee. The governance committee ultimately assigned that responsibility largely to its audit committee, with some support from its technology committee. 

Nominating/governance committees should also stay apprised of emerging issues and trends, like intensifying competition for talent and increased focus on environmental, social and governance issues. Those may ultimately help governance committees better assess the skills and expertise needed on the board, which about three-quarters of respondents identify as a key duty of the governance committee. 

“It’s good for nominating and governance committees to be forward thinking, to be thinking about the composition of the board, to be thinking about the skill sets of the board, the diversity of the board,” says McAlpin. 

Many boards may assign primary responsibility for talent-related issues to their compensation committee, but Combs argues that it should also concern the governance committee, especially in the tough, post-Covid recruiting landscape. “Talent acquisition, talent retention, talent management should have always been at this level, in my opinion,” Combs says. “These emerging trends should lead you to how you position yourself with your board talent, as well as your staffing talent.” 

A Proactive Approach to Risk Adjusted Performance Management

Banks need to assess their lending practices to get a clear view of how the financial climate, and emerging economic uncertainty, will impact their corporate clients and the growth and performance of their business.

To do that, they need to fully understand their exposure to interest-rate and liquidity risk, and proactively manage their balance sheets to maintain growth and enhance profitability. They need to analyze their lending practices, identifying sources of funding and qualifying loan targets to ensure proper loan management. All of this necessarily entails a re-evaluation of their internal systems’ ability to respond to changes that can impact balance-sheet risk and returns. And many banks have concluded that legacy point solutions are not up to demands from the risk and finance departments to model numerous business and risk scenarios.

For these banks, the solution is an overhaul: combining the modeling capabilities of asset and liability management systems with the governance and reach of planning systems and the analytical power of advanced business intelligence tools.

As part of this approach, banks no longer limit asset liability management to regulatory compliance. They are moving beyond compliance, toward creating business value though flexible scenario modeling for a holistic view of the risk factors impacting the future performance of the business.

To benefit from this kind of proactive approach to risk-adjusted profitability management, banks need to implement several key capabilities. These include methodologies and processes for interest-rate management and balance-sheet optimization for fast and efficient advanced scenario modeling. Banks also the analytical power to rapidly evaluate the results and options available to them. Finally, banks need to act on this analysis. This requires them to put in place the information tooling needed to enable frontline staff to execute the selected options, as well as processes and metrics that allow management to assess the impact of any given measure.

As they move toward a holistic risk-adjusted performance management platform, bankers should ask themselves the following questions:

  • What factors are impacting earnings and liquidity within the changing environment?
  • Is the bank incorporating input from market-facing staff related to growth, spreads and potential losses?
  • Is the bank taking a credit hit? If so, how much?
  • Is the bank managing based on its current balance-sheet composition, without considering future events? Is it counting on cash flows that might disappear?
  • Are the bank’s system capable of handling different interest-rate scenarios, including high volatility and negative rates? Can the bank measure the impact of these scenarios on liquidity and earnings?
  • Is the bank’s current asset liability management solution supporting decisions that will maximize stakeholder value?

Any solution should combine three key attributes. First is that it should include an asset/liability management system capable of quickly computing multiple scenarios from the bottom up. Second, the solution needs to include business analytical tools to compare and contrast the rapid reaction plans for prioritization and execution. And finally, it needs a risk-adjusted performance management (RAPM) tool to measure and manage the results.

Attempting to build a solution in-house with this breadth of capabilities can itself be a risky business. Banks often cobble together a fragmented solution, since legacy point systems are typically focused on addressing just one aspect or requirement. This approach lacks a comprehensive or holistic view of the bank’s true risk position. Indeed, manual processes based on spreadsheets of general ledger data may provide a current view of the business, but fail to model for unforeseen risks or changing behaviors. The result can be a disconnect between the bank’s view of the risks it faces and the true factors impacting the bank’s performance going forward.

On top of that, dealing with multiple systems and suppliers introduces its own risk into the situation, including miscommunication, lack of clarity over ownership of key functions and poor interoperability that can potentially disrupt work flows. The bank may need to maintain multiple project teams with various specializations and vendor points of contacts for multiple individual suppliers, introducing complexity and expense.

That’s why banks increasingly are turning toward a more integrated approach combining risk, compliance and analytics to meet the challenge of risk-adjusted performance management. Adopting a consolidated platform can give banks the consistency and agility to gain a true view of their risk situation. The result is a realistic, holistic view of the bank’s business trajectory, accessible and managed through a single point of contact, ensuring consistency of approach and operational efficiency.

Banking’s Netflix Problem

On April 19, Netflix reported its first loss in subscribers — 200,000 in the first quarter, with 2 million projected for the second — resulting in a steep decline in its stock price, as well as layoffs and budget cuts. Why the drop? Although the company blames consumers sharing passwords with each other, the legacy streamer also faces increased competition such as HBO Max and Disney Plus. That also creates more choice for the 85% of U.S. households that use a streaming service, according to the U.K. brand consulting firm Kantar. The average household subscribes to 4.7 of them.

Our financial lives are just as complicated — and there’s a lot more at stake when it comes to managing our money. A 2021 survey conducted by Plaid found that 88% of Americans use digital services to help manage their money, representing a 30-point increase from 2020. Americans use a lot of financial apps, and the majority want their bank to connect to these providers. Baby boomers use an average of 2.6 of these apps, which include digital banking and lending, payments, investments, budgeting and financial management. Gen Z consumers average 4.6 financial apps.

“Banks can be material to simplifying the complexity that’s causing everybody to struggle and not have clarity on their financial picture,” said Lee Wetherington, senior director of corporate strategy at the core provider Jack Henry & Associates. He described this fractured competitive landscape as “financial fragmentation,” which formed the focus of his presentation at Experience FinXTech, a tech-focused event that took place May 5 and 6 in Austin, Texas. Successful banks will figure out how to make their app the central hub for their customers, he said in an interview conducted in advance of the conference. “This is where I see the opportunity for community financial institutions to lever open banking rails to bring [those relationships] back home.”

During the event, Wetherington revealed results from a new Jack Henry survey finding that more than 90% of community financial institutions plan to embed fintech — integrating innovative, third-party products and services into banks’ own product offerings and processes — over the next two years.

Put simply, open banking acknowledges today’s fractured banking ecosystem and leverages application programming interfaces (APIs) that allow different applications or systems to exchange data.

Chad Davison, director of client solutions consulting at Fiserv, creates “balance sheet leakage” reports to inform his strategic discussions with bank executives. “We’ve been trying to understand from an organization perspective where the dollars are leaving the bank,” said Davison in a pre-conference interview. Some of these dollars are going to other financial providers outside the bank, including cryptocurrency exchanges like Coinbase Global and investment platforms like Robinhood Markets. This awareness of where customer dollars are going could provide insights on the products and services the bank could offer to keep those deposits in the organization. “[Banks] have to partner and integrate with someone to keep those dollars in house,” said Davison, in advance of a panel discussion focused on technology investment at the Experience FinXTech event.

Increasingly, core providers — which banks rely on to fuel their technological capabilities — are working to provide more choice for their bank clients. Fiserv launched a developer studio in late 2021 to let developers from fintechs and financial institutions access multiple APIs from a single location, said Davison, and recently launched an app market where financial institutions can access solutions. “We want to allow the simple, easy connectivity that our clients are looking for,” he said. “We’re excited about the next evolution of open banking.”

Jack Henry has also responded to its clients’ demand for an open banking ecosystem. Around 850 fintechs and third parties use APIs to integrate with Jack Henry, said Wetherington, who doesn’t view these providers as competitive threats. “It’s a flywheel,” he said. “Competitors actually add value to our ecosystem, and they add value for all the other players in the ecosystem.” That gives banks the choice to partner and integrate with the fintechs that will deliver value to the bank and its customers.

As fractured as the financial landscape may be today for consumers, bank leaders may feel similarly overwhelmed by the number of technologies available for their bank to adopt. In response, bank leaders should rethink their strategy and business opportunities, and then identify “the different fintech partners to help them drive strategy around that,” said Benjamin Wallace, CEO at Summit Technology Group. Wallace joined Davison on the panel at Experience FinXTech and was interviewed before the conference.

The Federal Reserve published a resource guide for partnering with fintech providers in September 2021, and found three broad areas of technology adoption: operational technology to improve back-end processes and infrastructure; customer-oriented partnerships to enhance interactions and experiences with the bank; and front-end fintech partnerships where the provider interacts directly with the customer — otherwise known as banking as a service (BaaS) relationships.

Banks will need to rely on their competitive strengths, honing niches in key areas, Wallace believes. That could be anything from building a BaaS franchise or a niche lending vertical like equipment finance. “Community-oriented banks that do everything for everyone, it’s really difficult to do” because of the competition coming from a handful of large institutions. “Picking a couple of verticals that you can be uniquely good at, and orient[ing] a strategy and then a tech plan and then a team around it — I think that’s always going to be a winning recipe.”

Evaluating Your CEO’s Performance

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Governance Best Practices: Taking the Lead

Due to ongoing changes in the banking industry — from demographic shifts to the drive to digital — it’s never been more important for bank boards to get proactive about strategy. James McAlpin Jr., a partner at Bryan Cave Leighton Paisner and global leader of the firm’s banking practice group, shares his point of view on three key themes explored in the 2021 Governance Best Practices Survey.

  • Taking the Lead on Strategic Discussions
  • Making Meetings More Productive
  • The Three C’s Every Director Should Possess

Is an Independent Chair a Best Practice?

Independence is a foundational principal in corporate governance.

Many good governance proponents would argue that corporate boards should be comprised primarily of outside directors who meet the legal definition of independence. In laypersons’ terms, this means they are free of any conflicts of interest that would prevent them from discharging their fiduciary responsibilities to the company’s owners.

Likewise, many governance experts would say that splitting the chair and CEO roles between two individuals also is a best practice. In this instance, the chair would be an independent director who focused their attention on managing the board, while the CEO ran the company.

Having an independent chair can be especially helpful when the board has appointed a new CEO who has never held that position before; the chair can focus on board governance while the CEO transitions into their new role. Splitting the jobs can also provide a check on an overbearing CEO who might dominate the board if they were also the chair.

This approach would seem to enhance the board’s independence, but is it a best practice? And does splitting the chair and CEO roles necessarily improve the company’s profitability?

Results from Bank Director’s 2020 Governance Best Practices Survey suggest that most bank boards have a majority of independent directors. The survey included 159 independent directors, chairs and CEOs at banks under $50 billion in assets. It was sponsored by Bryan Cave Leighton Paisner.

Forty-four percent of the survey participants say they have just one inside director on their boards, while 27% have two, 12% have three and 18% have more than three. An inside director is normally a member of management. Survey banks with more than $10 billion in assets were more likely to have just one inside director, while banks under $500 million in assets were more likely to have multiple insiders on their boards.

A majority of survey participants — 58% — have an independent director as their board chair, while the CEO was also the board chair at 31% of the respondents. Interestingly, survey banks under $500 million in assets were more likely to have split the chair and CEO roles (73%), while banks over $10 billion were less likely to have dual roles (50%).

James McAlpin Jr., a Bryan Cave partner who leads the firm’s banking practice group, says that while a combined role can make a difference in a situation where the board has to replace the CEO because of a performance issue, he does not consider it to be a best practice.

“Maybe 10 years ago I would have said, ‘Yes, it is a best practice for the chair not to be the CEO,’ but I have changed my opinion,” McAlpin says. “I do think it absolutely matters who the individual is. And in an instance where you have a well performing and highly respected CEO, it may make the most sense for that person to be the chair because they often want to run the board. And it would be difficult to retain them if they are not the chair.”

McAlpin’s point speaks to a simple truth at most banks: It is the CEO who drives the company’s performance, not the board or an independent chairman. A strong governance culture can certainly have a positive impact on a bank’s financial performance by establishing an effective risk management culture, adopting compensation practices that reward high performance and making sure that a capable CEO is in place. And an independent chairman can provide a CEO with an important sounding board if the two have a good relationship. But the CEO runs the company, not the board or the independent chair.

“I’ve never seen a study of this, but I doubt you would see any statistical advantage in terms of performance for having an independent chair,” McAlpin says. “In fact, it might be the opposite where the banks perform better if the chair and CEO are the same person.”

Greg Carmichael was not given the chairman’s title when he became the CEO at Fifth Third Bancorp, a $203 billion regional bank in Cincinnati, in November 2015.

“When we made the transition to myself as the new incoming CEO, we elevated our lead director to become the chairman for a period of time,” Carmichael explains. “It was decided and voted on when I became CEO that at some point I would become the chairman. And that time frame was roughly two years. They didn’t want to put the burden of the chairman role on me initially, which was appropriate. They also wanted to make sure that I had a chairman in place to help me through that transition to CEO.”

Carmichael was later appointed chairman in January 2018, and he says it was helpful that initially he could just focus his attention on running the company. “When you become a new CEO, you’re drinking from a fire hose and you’re just inundated with a ton of information and there are things you have to demonstrate and manage that take a lot time,” he says. “You have to get your operating rhythm in place. You have to get your credibility with [Wall Street], with your own organization; you have got to chart your vision, what you’re about and where you’re taking the company, and that takes an inordinate amount of time your first couple of years. They didn’t want that to be encumbered by me worrying about the board dynamics and the board meetings and so forth.”

Marsha Williams, Fifth Third’s chair during Carmichael’s early years as CEO, had served on the bank’s board since 2008; prior to her elevation, she had been the board’s lead director for two years. “It was very helpful to me because I had a great relationship with Marsha and it was always just a reassuring conversation or good guidance if there was input on something she thought was important,” he says.

After Carmichael assumed the title of chairman, Williams returned to her previous role as the board’s lead director. Carmichael says they continue to work together well. “There’s probably not a week that goes by that we don’t talk,” he says. “She’s a great sounding board on ideas and thoughts that I have. She’s good at giving me independent feedback from the board [about] things they’d like to hear more about.”

Carmichael’s relationship with Williams highlights the importance of having a lead director when the CEO is also the board chair. Lead directors have less authority than board chairs, but they can help build an important bridge between the CEO and the independent directors.

Unfortunately, of the survey banks that have appointed an independent chair, only 55% have also appointed a lead director. “I think having a lead director is a best practice,” says McAlpin. “It’s important to have someone [the CEO] can talk to without having to talk to the entire board to bounce ideas off. I think it’s important for both the board and the CEO.”

Engaging Branch Staff to Build Merchant Services Momentum


services-7-3-19.pngThe success of a bank’s merchant services program lives or dies by the support from branch staff.

While offering competitive rates and top-notch customer service is important, those things won’t make a difference if bank branch staff isn’t discussing merchant services with customers. Programs suffer without the support and enthusiasm of staff. Here are some best practices on keeping branch staff engaged in merchant services promotion.

Set Goals
A bank should employ a top-down directive from leadership that emphasizes the importance of cross-selling merchant services during customer interactions. It is imperative that the directive includes clear, attainable goals for branches and employees. “Goals are the fuel in the furnace of achievement,” writes development consultant and author Brian Tracy.

Goals help motivate branch staff to sell these services. Leadership also needs to track performance and offer recognition. If staff gets the impression that set goals are not followed up on, it can be incredibly demoralizing.

Empower Your Sales Staff
Employees may hesitate to sell products they have not been fully educated on. But the growing popularity of online banking means it’s important that branch staff capitalizes on every opportunity to cross-sell. It may be the only chance they have to speak face-to-face with a prospect.

Executives need to make sure that bank staff is trained up on all products and services. They can do this through role-playing exercises of different situations that focus on improving communication skills and preparing for curveball questions. This is one of the best ways to prime employees for productive conversations with prospects.

Implement an Incentive Campaign
Managers should encourage staff to stretch for sales goals through an incentive campaign. These campaigns can include referral bonuses, sold-product goals, raffle campaigns and more. Some merchant services providers may sponsor incentive campaigns for their partner banks. Additionally, incentive campaigns aren’t limited to employees; banks should consider incentivizing existing clients through referrals.

Provide Ongoing Training
Payment card technology is constantly changing. Executives need to provide branch staff with tools that will help them stay up-to-date on current trends and industry changes. One way to do this is through a portal that is regularly updated with new resources and information. It is vital that executives cultivate an environment where branch staff feels comfortable asking for additional training or information.

The success of a merchant services program rests on the shoulders of a bank’s branch staff. Executives must make sure they equip their front-line people with all the tools and knowledge they need. The investment of time and resources up front will pay dividends in the future. Every win for branch staff is a win for the bank.

Why Great RMs Matter So Much


manager-4-17-19.pngImagine you have given two commercial relationship managers (RMs) at your bank the same potential deal to work on.

Same credit worthiness. Same opportunity for cross-sell. The market is the same, the internal approval process is the same. So is the pricing technology they’re using.

Would the two RMs produce the same result?

Probably not. Even with all conditions being equal, the RMs working on it are not.

Some RMs are just better than others.

But how much better? Earlier this year, PrecisionLender looked for that answer. Our findings were published online in our report: “Measuring RM Performance: Proving Impact and Dispelling Myths.”

We delved into our database, which includes commercial relationships (loans, deposits and other fee-based business) from over 200 banks in the United States, from small community banks to the top 10 institutions. In addition to size, these banks are also geographically diverse, with headquarters in 35 states and borrowers in all 50.

We found three things.

  • The best RMs matter much more than we hypothesized.
  • They win on all fronts, without costly trade-offs.
  • They share common traits and tactics.

Right now it’s assumed that to gain in volume, an RM must give on price. By that logic, RMs with the thinnest margins should have the largest portfolios. Yet we found the RMs with the biggest portfolios aren’t compromising on price.

When normalizing for loan mix and looking at RMs in one line of business pursuing similar borrowers, we found the RMs winning the most volume were also earning the highest risk-adjusted spreads.

We found a similar lack of compromise when it came to risk. Some of the top RMs we studied managed to negotiate higher spreads on a higher-quality portfolio than their peers achieved on weaker-rated books.

Winning On Fees and Price
Most banks we looked at displayed a tremendous dispersion in fee incidence across their RMs. While market aggregate fees showed variance by product type, deal size and term, perhaps the most significant factor in fee performance was the RM.

That performance matters, because RMs who included fees achieved consistently higher risk-adjusted return on equity than those who did not.

To get those fees, top RMs didn’t have to give on price. In most sample banks, there was a positive correlation between spread and fees, largely due to RM talent. Those ranked at the top for fee penetration had above-average spreads. Those ranked near the bottom for fees were also the low performers on spreads.

With today’s thin credit margins, banks often lead with credit to win more ancillary business. RMs routinely justify below-target credit pricing by including an anticipated cross-sell.

Putting aside whether those cross-sell promises are fulfilled, it would be easy to assume relationships with non-credit revenue carry lower spreads. We found the opposite.

Our data suggests relationships with above-average cross-sell revenue tended to carry higher credit pricing than those with below-average cross-sell revenue. RMs often cited the strength of the relationship—thanks to a track record of delivering value—as the biggest reason.

How Do Great RMs Do It?
The evidence we’ve collected points to a set of best practices that top RMs have in common.

  • They act like trusted advisors instead of order takers.
  • They deliver tailored solutions.
  • They know what matters to the customer and the relative priorities.
  • They provide alternatives.
  • They maintain meaningful, ongoing communication.
  • They explain their pricing.
  • They leverage internal resources.
  • They implement performance-based pricing.
  • They are proactive in managing renewals.
  • They negotiate well.

Some RMs manage to achieve volume, add fees, cross-sell and minimize risk, without conceding on rate. Look closer, and you’ll find a common set of tactics and strategies.

Banks that understand what makes their top performers great can turn a best practice into a common practice.

Advice for Buyers & Sellers in 2019



The need for stable, low-cost deposits is driving deals today, and the increasing use of technology is changing how banks should approach integrating an acquisition. In this video, Bill Zumvorde of Profit Resources shares what prospective buyers and sellers need to know about the operating environment. He also explains how bank leaders can better integrate an acquisition and how potential sellers can get the best price for their bank.

  • Today’s M&A Environment
  • Common Integration Mistakes
  • Maximizing Acquisition Success
  • Tips for Prospective Sellers

Compensation Governance in Today’s Economy



Despite recent shifts in the economic and regulatory environment, bank boards still need to keep a close eye on many of the same issues—including risks related to your bank’s compensation practices, as McLagan Partner Gayle Appelbaum explains in this video. She also spells out how talent pressures, and the expectations of regulators and investors, will continue to keep banks on their toes.

  • Key Practices for Boards and Compensation Committees
  • Why You Can’t Relax in Today’s Strong Economy
  • The Need for Heightened Corporate Governance