The Final Lessons From HBO’s “Succession”

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I’ve previously written about three “lessons learned” from the hit HBO show “Succession.” As a refresher, those lessons are:

• Succession planning is always vital.
• Where was the board of directors?
• Separate economic ownership from executive leadership.

Now that the final chapter of the show has passed, there are final lessons to be remembered, particularly for boards of directors. One seemingly obvious lesson needs to be reemphasized here, as brilliantly portrayed in the show: Who will take over in a crisis to ensure that the proverbial trains stay on the right track?

In the case of “Succession,” the aging patriarch of the business and family, Logan Roy, dies early in the final season while aboard his private jet, with none of his children present. Once it is established that Logan has indeed passed away, the drama quickly moves to the questions of both who will take over and how this will be communicated, given that their company, Waystar Royco, is publicly traded though tightly controlled.

It was ridiculous to see company executives scrambling and attempting to decode handwritten notes in the margins of the patriarch’s important papers, trying to determine who Logan wanted to succeed him. Even on an interim basis, there is no clear plan — let alone one that provides clarity about succession for the CEO role.

The absurdity of this situation is exacerbated by the fact that while the three of his four children who are active in the business all believe that they should be the successor, none are truly qualified. In early episodes, the eldest son, Ken, appeared to be the most involved in working for the company, but he is emotionally unstable and becomes compromised by external events.

A plan of succession, both short and long-term, is lacking. In the very end, the board — including the siblings — votes to sell the company. This decision comes about because of one sibling’s deciding vote in opposition to the others. What are the parallels to community banking today?

First, there are still too many banks without real succession plans. Many boards acknowledge that there is a proverbial envelope with an interim CEO’s name in it, yet lack confidence in this choice as a longer-term solution.

Second, interim CEO plans need to be revisited annually. While a former CEO who remains on the board may be an excellent crisis solution in the first year or two after retiring, would that still be the case five or six years after stepping down? There is a practical limit to the expediency of this type of move.

Third, if the interim CEO is truly a planned short-timer, what has been done to ensure that the longer-term options are being prepared to step in when the time is right — and even when the time is less than ideal?

Our firm has been involved in over 100 president and/or CEO succession assignments; anywhere from 10% to 15% of these have occurred unexpectedly. These have arisen due to a variety of situations, including:

• Unexpected and untimely death.
• Termination for inappropriate behavior.
• Health reasons.
• Termination for poor performance.
• A change in the CEO’s planned personal timeline.
• Being recruited away for a bigger and better opportunity.

In each of these scenarios, the timeline for a succession plan was upended. In cases where no ready successor was waiting in the wings, the boards were forced to look to the outside. While an external search is always an option — whether for comparison purposes or because of a lack of strong contenders — community banks benefit the most from a well-planned orderly transition of leadership. Continuity of leadership often ensures the continuity of strategy, which is typically a healthy thing.

Boards have an obligation to regularly discuss succession plans with incumbent leadership, demand action on the development of potential long-term successors and regularly revisit the emergency succession plan. Anything less, and the board may find itself in the unenviable situation of Waystar Royco’s board in “Succession.” As we all now know, the lack of succession plans of any kind ultimately impacted the decision to sell the company. It would be a shame for that to happen to your bank.

Closing the Gap on Succession Planning

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Many boards are confident in their ability to handle the sudden departure of the CEO or a key executive, but they’re less secure when it comes to planning for the long-term future of the organization’s leadership. 

Bank Director’s 2023 Compensation Survey, sponsored by Chartwell Partners, revealed gaps in the effectiveness of long-term succession planning for the CEO. Overall, 82% of responding directors and chairs expressed confidence in the succession plan if a CEO or other key executive were to leave suddenly. Only 63% said the same of the long-term succession plan for the CEO; another 28% said they have no long-term CEO succession plan. Respondents from banks below $500 million in assets were more likely to indicate that their bank lacked a long-term plan for CEO succession.   

Succession planning can be a daunting task that involves hard conversations about retirement and ultimately giving up control of something the CEO has been deeply invested in. Yet, it’s also one of the board’s key responsibilities — and an area where many boards fall short. 

“CEO succession is the No. 1 responsibility of the board of directors,” says Alan Kaplan, founder and CEO of the search firm Kaplan Partners. “It doesn’t matter if it’s public, private or family owned. The charter doesn’t matter. It’s the single most important responsibility as a director, and you better get it right — because if you don’t, you compromise the future of the institution.”

To put together an effective long-term succession plan, directors should ask thoughtful questions about the skills needed, the timeline, whether the board will search internally and externally, and the role of compensation in ensuring a smooth transition. 

The bank’s big picture strategy should inform the profile of the board’s ideal CEO candidate, Kaplan says. Consider whether the bank could enter into new geographies or lines of business, and how much larger or more complex it may become in five years’ time. What skills would be needed of the new CEO on day 1, and what skills could that chief executive develop over time?     

“A lot of our board members will just say, ‘Clone our CEO, they’re great.’ But what got you here doesn’t necessarily get you from where you are today to double or triple that size,” Kaplan says. “In many cases, you need a different set of skills.” 

While the current CEO’s input could be beneficial, the board also shouldn’t leave the job to the chief executive, especially if it feels it’s in the best interests of the bank’s shareholders and community to continue operating. 

“I’ve seen it time and time again: They leave it up to the CEO, the CEO pays lip service to it and all of a sudden, 18 months down the road, you don’t have an heir apparent,” says Laura Hay, lead consultant at Meridian Compensation Partners. 

The board should query the current chief executive about his or her timeline for retirement and potential successors who may already be on the management team. Evaluating the existing bench of talent will give the board a good sense for the organization’s prospects over the next few years. 

As a general rule, the board should begin the succession planning conversation about three years out from the CEO’s expected retirement if they plan to search externally, but two years should suffice if the bank plans to fill the position internally, says Scott Petty, managing partner of the financial services practice at Chartwell. He recommends that boards ask the CEO to report on talent two levels down the organizational chart from his or her own position. The board should review that information annually. 

“There [are] a lot of CEOs that rebuff that, but a board should have a CEO that’s glad to report on the state of the talent base and go down to [level] three in their depth chart, so that the board gets a true sense of what the talent base here looks like,” Petty says. 

A deeper grasp of the bank’s internal talent bench can also aid boards in understanding the cascading effects of succession planning. If an internal candidate is tapped to be the next chief executive, then that candidate would eventually need to be replaced as well.  

For internal candidates, give some thought to what kinds of skills the board wants to see already demonstrated in a potential successor, versus what that person can learn, says Sean O’Neal, a partner with Chartwell. He adds that true leadership skills are often overlooked in favor of candidates who have a history of loan growth. 

“One [quality] that is perhaps not often enough viewed as a must-have, but really should be, is true leadership — the ability to attract and develop a senior leadership team that’s going to be really effective,” he says. “Who can cast a vision, be strategic, and really see around corners and help bring people along? Sometimes that’s not the person you just happen to know really well.”   

The board could also consider the role of compensation in ensuring a successful transition. Hay has seen boards successfully utilize transition bonuses to entice an outgoing executive to stay and help get the incoming executive up to speed. In cases where the board is choosing between two internal candidates, a vesting incentive could encourage an executive who doesn’t ultimately get the chief executive gig to stay on a little longer. 

“Sometimes, emotions run high if you don’t get the job,” Hay says. “Those kinds of awards can be beneficial for slowing people down. They may leave anyway, but at least you get them to pause a little bit and think about it in a way that’s more practical, rather than emotional.”

Clear and consistent communication is critical to the succession planning process. Directors may want to avoid these uncomfortable conversations, but not having a long-term plan in place ultimately threatens the organization’s very existence. 

“As an institution, if you don’t have a succession plan, that limits your options,” Petty says. “Sometimes there are forced sales. Sometimes you get to a place where you have an aged management team and all of a sudden, you hit a market like we’re in now, and you may not be able to set up the bank at a reasonable price for another four or five years. So, you end up cratering the value of your institution.”

O’Neal adds, “It’s just like any business without real leadership: Poor decisions are made, additional key talent will be lost, earnings will suffer. In a variety of ways, businesses can just kind of wither away and no longer be relevant.” 

The board should also hold the chief executive to their timeline for retirement as much as possible. Would-be successors who are left hanging on for a seemingly indefinite period are ripe targets for executive search firms. 

“There are some CEOs that have a successor, and they don’t clearly communicate to the successor about the timeline … and they linger,” Petty says. “Then their successor gets frustrated and starts listening for phone calls.” 

Resources
Bank Director’s 2023 Compensation Survey, sponsored by Chartwell Partners, surveyed 289 independent directors, CEOs, human resources officers and other executives of U.S. banks below $100 billion in assets to understand how they’re addressing talent challenges, succession planning and CEO performance. Compensation data for directors, non-executive chairs and CEOs for fiscal year 2022 was also collected from the proxy statements of 102 public banks. Members of the Bank Services Program have exclusive access to the complete results of the survey, which was conducted in March and April 2023.

Bank Director’s Online Training Series includes units on CEO and executive succession planning.

Succession Planning With Confidence

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CEO succession planning is a critical board responsibility — and a big challenge. According to Dr. Julie Bell, director, leadership advisory at Chartwell Partners, boards can follow a five-step process to ensure an orderly, informed succession planning process. That process includes nailing down a timeline, evaluating the candidates and coming up with a coaching plan to close any skills gaps in a would-be successor.

  • Identifying Candidates
  • Conducting Assessments
  • Coaching Successors

The Origin Story of an Unlikely Banker

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David Findlay didn’t set out to become a banker.

After earning a degree in history from DePauw University in Greencastle, Indiana, Chicago-based Northern Trust Corp. hired Findlay as a commercial banker in the mid-1980s. He didn’t take accounting or finance courses in college, and says that he struggled through the company’s training program. At his 90-day review, he was put on probation. Findlay persevered, he adds, because “Northern, where I spent the first 11 years of my career, was an organization much like ours that says, ‘We’re here to help people succeed.’”

Findlay’s gone far since those early struggles: Today, he leads $6 billion Lakeland Financial Corp., in Warsaw, Indiana. Year after year, it’s one of the most successful banks in the country, according to Bank Director’s RankingBanking analysis, consistently ranking among the top 25 public banks in the U.S. 

The reflections on his 38-year career — including his years at Northern Trust — inform a leadership course he teaches at Lake City University, a training program for the company’s subsidiary, Lake City Bank. Any employee can take the class — or any of the classes taught by Lakeland’s executives and leaders. On average, employees participate in these in-person training classes five or six times annually. 

Focusing on his past can be a humbling experience, he says. “Teaching this course helps keep me grounded, to remind me of the challenges that I’ve had during my career,” says Findlay. “It’s sharing our own personal successes and failures — and the failures [are] as important as anything to show that you can work through them and have a career path that you can be proud of when it’s all said and done.”

If that sounds hands-on, that’s just an indicator of Findlay’s leadership style. In previous reporting, executives described him to me as a CEO that values direct connection with the bank’s employees and clients. He’s also developed a flat organizational hierarchy where decisions aren’t concentrated in one individual. Put simply, he trusts his bankers. 

“An organization that places too much emphasis on one decision maker or a small group of decision makers, I think finds it very hard to move forward and be as progressive as an organization as you need to be. People think of banking as a pretty slow-moving, boring business. But it’s a pretty dynamic business,” he explains. “We love to tell our investors that we’re an execution-oriented organization. … We gather information, we assess the circumstances, we make decisions, and then we go, and obviously that’s contributed some long-term, consistent success for the bank.”

In this edition of The Slant podcast, Findlay also shares his views on how commercial banking has evolved, the impact of technology on relationship building, whether it’s harder to be a CEO in today’s environment and his views on the year ahead. He’s looking for a return to normal, he says. Lake City Bank doesn’t rely on M&A to grow; it focuses on growing its customer base and taking market share from competitors. That slowed in the pandemic. 

“We lost that momentum of market share take,” Findlay explains. But he expects business development to pick up. “[It’s what] I’m looking forward to the most; that’s the idea that we are back out calling on our prospects, developing those opportunities.”

In late January 2023, Findlay will participate in a panel discussion at Bank Director’s Acquire or Be Acquired conference that shares perspectives from the leaders of three top performing banks in the RankingBanking study. 

This episode, and all past episodes of The Slant Podcast, are available on Bank Director.com, Spotify and Apple Music.

Becoming a CEO

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The chief executive officer is usually the single most important person in any organization, but it’s a job that most individuals grow into over time. The transition is often filled with challenges and difficult learning experiences.

Such was the case for Ira Robbins, the chairman and CEO at Valley National Bancorp, a $54 billion regional bank headquartered in Wayne, New Jersey. The 48-year-old Robbins was just 43 when he succeeded long-time CEO Gerald Lipkin in 2018. Lipkin, on the other hand, was closing in on his 77th birthday when he passed the baton to Robbins after running the bank for 42 years.

Robbins is deeply respectful of Lipkin but shares that one immediate challenge he faced was changing a culture that hadn’t kept pace with the bank’s growth over the years. He said Valley National was a $20 billion bank that operated as if it was still a $5 billion bank. Changing that culture was not easy, and he had to make some very difficult personnel decisions along the way.

Robbins is thoughtful, introspective and candid about his growth into the CEO role at Valley National. His reflections should be of great interest to any banker who hopes to someday become a CEO.

This episode, and all past episodes of The Slant Podcast, are available on Bank Director, Spotify and Apple Music.

How to Craft a Succession Planning Process

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The financial services industry is facing a substantial succession bubble, with an expected 50% board and senior management turnover by 2025, driven by generational and business model changes. In addition, the recent pandemic accelerated the baby boomer generation to exit more rapidly than predicted prior to the pandemic.

Most experts agree: The high demand for senior leadership talent will continue into the foreseeable future. In the face of a highly competitive talent cycle,  coupled with many banks increasing in business complexity, does your institution have confidence in the current board and senior leadership composition to guide your organization through the next five years?

Over the years, the Chartwell Partners’ Financial Services Team has helped clients evaluate their board and senior leadership team against the strategic plans for the bank to help our clients make confident leadership decisions. We have successfully used a four-step process we find effective that includes:

Step 1: Intake
Engage a third party or appoint a director to lead the planning. Meet with key stakeholders, such as the chair, lead director or CEO to understand the business strategic objectives, the current leadership dynamic and unique cultural elements that drive effective leadership transition plans. The ultimate goal is to align leadership decisions to the future business objectives.

Step 2: Planning
Create a tailored plan to define outcomes, outlining defined action plans and a timeline. In our case, we work with the decision-making team to provide guidance on executing against the defined plan — whether it’s testing a current succession plan or executing internal leadership assessments and processes to provide leadership insight supporting board or management changes.

Step 3: Assessment
Leveraging in-person executive assessments, coupled with data-driven online assessment service, the point person should meet with the select executives and provide in-depth insights into the leadership team. They can also provide perspective on the leadership team compared to outside executive options to provide the decision makers a thorough leadership analysis.

Step 4: Reporting
Following assessment, the project lead should produce a report based on the desired outcomes defined by the decision team, which may include a well-defined succession plan or a guide to an internal leadership selection process. Reports should be tailored to the specific needs of the bank, so key stakeholders can be confident in the executive leadership decisions.

At the conclusion of the four steps, it is important to communicate the plans with the team and instill board confidence in the organization. In addition, it is critical to consistently evaluate the leaders against the strategic plan and ensure they are growing and developing leaders the organization can follow. Ultimately, the board owns the responsibility for the CEO and holds them accountable for the development of their team; however, it is always important the designated committee of the board be in touch with management team succession planning. Effective succession planning takes intentional focus from the board. Banks that are proactive about succession planning increase the likelihood of a successful outcome transitioning boards and management teams.

Managing a Successful CEO Succession Process

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When David Findlay was appointed president and chief executive officer at Lakeland Financial Corp. in 2014 to replace Michael Kubacki, it was the culmination of a long succession process that began in 2000 when he joined the Warsaw, Indiana-based bank as its chief financial officer. Kubacki knew Findlay, having worked with him previously at the Northern Trust Co. in Chicago, and he recruited him to Lakeland.

The bank needed a CFO, but Kubacki had something else in mind as well.

“He was a high-powered person and not only were we going to get a good CFO, we were going to get a succession plan over the long term,” says Kubacki, who remains chairman. “The strengths that he brought from a leadership potential standpoint — it was anticipated that he would eventually become the CEO. That [plan] was hatched right from the get-go.”

Findlay was promoted to president in 2010, and later began spending extra one-on-one time with individual board members in more informal settings so they could get to know him better personally. Kubacki was 63 when the board decided that Findlay was ready to become CEO; he became executive chairman for two years before eventually becoming the board’s independent chair.

Kubacki will leave the Lakeland board in 2023 when he reaches the mandatory retirement age for directors of 72. As for Findlay, he turned out to be a pretty good choice as CEO. With assets of $6 billion, Lakeland was the fifth-ranked bank on Bank Director’s 2020 Bank Performance Scorecard, a ranking of the 300 largest publicly traded U.S. banks.

CEO succession doesn’t always go as smoothly as it did at Lakeland, where a promising young executive was given time to grow into the job. If a bank doesn’t have an internal candidate to succeed a soon-to-retire CEO, then it will have to recruit one from the outside. Whichever way it goes, there is no question that managing an orderly succession process is a core responsibility of the board.

“CEO succession absolutely, unequivocally, is the No. 1 responsibility of the board of directors,” says Alan Kaplan, CEO and founder of Kaplan Partners, an executive search firm in Wynnewood, Pennsylvania. “Public company, private bank or mutual – doesn’t matter. CEO succession is a process that needs to be owned by the board and specifically, by the independent directors.”

One of the most critical elements in any CEO succession process is time. Ideally, planning for a transfer of power at the most critical position in the company should begin years in advance. Say a bank CEO reaches the age of 64 and announces to his or her board that they want to retire in a year. If succession planning hasn’t begun, it forces the board to accelerate a process that ideally should proceed at a thoughtful and deliberate pace.

“Most institutions are pretty poor at executing successful CEO succession plans,” says J. Scott Petty, a partner in the Dallas office of the executive search firm Chartwell Partners. Sometimes the problem begins with a CEO who won’t commit to a firm retirement date, which can delay the process. “The better plan would be to have an age when the CEO will agree to step down, and then be very intentional three to five years before and identify that next generation person and give them the rotational responsibilities to prepare them to be able to step into that role,” Petty says.

Most boards have a strong preference for internal candidates, because bringing in a new CEO from the outside can be extremely disruptive to a bank’s culture. But while an internal successor might be the most comfortable choice, they may lack the skills or experience necessary to help the bank grow. So, another important element in every CEO succession plan is picking someone who not only will be good for today but can help the bank achieve its strategic objectives over the next five to 10 years. “I think there’s always a preference to continue the culture of the bank by selecting someone from the inside,” Petty says. “But often times the person they thought would be right to take the bank to the next level, they realize they’re not and there’s a gap there.”

Both Kaplan and Petty say it’s often useful for boards to bring in an outside search firm to perform an assessment of their internal candidates, focusing not only on their readiness to become CEO but also on whether they are the best person to execute the bank’s long range strategic plan. “A lot of times, boards don’t have context on executives,” Kaplan says. “They may know them in the community, they may socialize with them, they may see them in the boardroom. But they don’t actually know what they’re like to work for and work with.”

Kaplan says that “a painless, bloodless, smooth transition of power internally is always preferable, providing that person is really qualified and ready based on where the company is going. Organizations that can plan ahead and develop people that seem to have leadership competencies … I think that is an ideal way to go.” Kaplan says his firm’s “three-year stick rate” for CEO and C-suite executives recruited from the outside is 97%. Still, “companies with long-term, well-groomed internal contenders on average outperform parachuting somebody in from the outside.”

Kaplan believes strongly that the CEO succession process should be guided by the board’s independent directors. The incumbent CEO can play an important role but should not be the kingmaker. “You would always want them to be a participant in the succession process because they’re your most experienced banker,” Kaplan says. “What I think is to be avoided whenever possible is that the [CEO] is driving the process.”

Ultimately, the choice of a new CEO should be a board decision.

There are many ways that bank boards can organize themselves to manage a CEO succession process. “In some cases, the nominating and governance committee acts as the succession committee,” Kaplan says. “In some cases, it’s the compensation committee because HR matters fall there. In some cases, we see boards form a special committee. Oftentimes, that committee is comprised of what I would call your most capable board members or your board members who really understand these kinds of issues.”

Every CEO search is a little different, reflecting the culture and practices of the board as well as the personalities of the people involved. The succession process at Lakeland worked as well as it did because Kubacki and Findlay had a personal relationship, and the younger executive was willing to be patient. “I think we were very fortunate we had David — that we had him so long and it was just very seamless,” Kubacki says. “Can every organization say they’re going to recruit a person and that person is going to wait 14 years to be CEO? It worked for us, but David is a special guy.”

Finding Talent For The Bank’s Future

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CEO succession planning should be a top priority for a bank’s board of directors, but many institutions lack a plan. J. Scott Petty of Chartwell Partners outlines how to prepare for the short and long-term transition of the CEO and addresses recruiting new board talent.

  • Developing a Succession Plan
  • Finding Diverse and Talented Directors

When is the Right Time to Get Rid of the Wrong CEO?

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fired.jpgWhen Citigroup’s chairman Mike O’Neill spoke on an investor conference call about the abrupt resignation of CEO Vikram Pandit, he said that the timing made sense because strategic planning was underway.

“And so, if we are going to hold [the new CEO] accountable for our performance, he clearly needs to have a role in setting the targets,’’ O’Neill said.

Citigroup Inc. has had a bad year. Make that a bad decade. The company’s stock price fell 89 percent during Pandit’s tenure. But the bank is hardly alone. Many of the more than 7,000 banks and thrifts in the country have problems of their own, so the question of whether you have the right CEO on the job, and if not, how to get rid of him or her, is one that many banks are trying to answer.

Courage is step one. Is the board independent enough from management to actually fire the CEO?

The Wall Street Journal reported last week that the “shake-up amounts to an extraordinary flexing of boardroom muscle at Citigroup, a company that until recently had a board stocked with directors handpicked by former CEO Sanford Weill who rarely challenged management decisions.”

Chairman O’Neill, a longtime banker and stellar CEO at the Bank of Hawaii, has only been there since April. Several other directors are recent appointees who signed on after regulators urged a board purge following the financial crisis, according to the Journal.

In fact, O’Neill had an office within 100 feet of Pandit, according to The New York Times. In his new job as chairman, O’Neill quickly got to work learning in the ins and outs of Citigroup and visiting the company’s various trading floors, according to news reports.

“The chairman of the board is critical,’’ says James McAlpin, a strategic planning expert and bank attorney at Bryan Cave LLP in Atlanta. “If you have the chairman and the CEO as the same person, that further complicates this. That makes it more difficult for the evaluation [of the CEO’s performance] to take place.”

If the board doesn’t want a non-executive chairman, a lead independent director who meets separately with other independent directors is key to maintaining independence.

It’s also important that the CEO be judged on how well he or she has executed the strategic plan. Tying the CEO’s performance to strategic goals with a formal annual evaluation is something that bank boards often don’t do.

As shocking as this might sound, banks are more likely to evaluate the performance of their tellers than their CEOs.

“There are a surprising number of banks where the CEO doesn’t see a performance review,’’ McAlpin says. “Particularly in community banks, it’s the exception rather than the rule. That makes it harder for the CEO to know how he is doing. Concern builds over time and suddenly the CEO finds himself in a very confrontational meeting with the board.”

Geri Forehand, national director of strategic services with Sheshunoff Consulting + Services, says that all CEOs should receive an annual performance review.

“When you hire a CEO, you have to have a way to evaluate the CEO, both quantitatively and qualitatively,’’ he says. “Every board should handle this in a formal matter. You should give your CEO an evaluation on an annual basis.”

He says the CEO should be fully informed of the metrics that will be used to measure performance and how they will be used, including how the board will factor in qualitative measures.

“I think the CEO wants to know what is expected of him or her,’’ Forehand says.

It’s not only good for the CEO, it’s good for the bank. A CEO who knows what he or she is supposed to achieve will be better able to actually achieve it.

When it’s time to make a tough decision, however, it works best for there to be a strong chairman or lead independent director. The full board needs to be involved in the discussions and the CEO needs to know the entire board has made a decision.

The board should also go through the process of identifying the next CEO far in advance of an actual resignation, which will make the transition easier, says Forehand.

The actual firing (or forced resignation), therefore, is part of a long, strategic process.

“It’s a very difficult conversation to have with a CEO,’’ McAlpin says. “[The CEO] wants to know the entire board has deliberated on this.”  

Devising a Plan and Determining What Questions to Ask

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Succession planning is an often overlooked issue for community bank boards, whose agendas are stuffed with business decisions and regulatory requirements. However, good succession planning can avoid many problems in the future, and attorney Thomas Hutton of the law firm Kilpatrick Townsend & Stockton talks about the right ways to go about it.

What do you mean by succession planning?

Succession planning has to be looked at as preparation for change in leadership, whether it’s at the CEO level or any C-suite job. It could be an announced retirement or an unplanned situation, such as a death or disability or an unexpected termination of employment. It can also relate to a temporary leave of absence, maybe for medical reasons, for example.

How many boards do you work with that don’t have a formal succession plan?

There are a lot of boards that don’t have a formal succession plan or are really not up to speed on how to properly handle succession planning. Turnover at community banks tends to be relatively low. There are a lot of long-serving CEOs and CFOs, so boards can become somewhat complacent. They can think, ‘If a previous retirement went well, that means the next one will be without any issues, as well.’ They don’t really think about how situations can change, especially unexpected situations such as regulatory orders or a death or disability.

Succession planning comes up less frequently than a lot of other matters, like determining compensation on an annual basis. It’s very important to an organization, however.  Addressing it too late or improperly may lead to a level of competition for a position that becomes unhealthy and may result in internal dissention or even unanticipated or unwanted departures. Maybe that “competition” would have been better to take place over a longer period of time.  Or, the successor may need to be approved by regulators if the bank is operating under a regulatory order. If the board already has someone in mind, the process of getting regulatory approval can go quicker if the board can make a solid case for the desired successor.  In short, it’s a process that should be discussed regularly.

Is there regulatory guidance that addresses the need for a succession plan?

Not necessarily. But regulators do consider adopting and reviewing a formal succession plan at least annually a best practice.

What is the role of the board in succession planning?

The board needs to develop a formal written policy that can evolve over time. It’s not just picking someone as a possible replacement; it includes understanding the process. By addressing it regularly, at least annually, they can avoid some of the problems that typically arise and eliminate or reduce the natural anxieties and uneasiness that comes with succession planning.

In today’s environment, it’s not just replacing someone with a qualified person; the bank might have regulatory issues that could make the requirements of the position different from a couple years ago. There should also be a process to address the situation of an identified replacement not being available or not meeting the bank’s current needs. A lot of thought should go into the succession plan. Just for starters, who will handle the succession planning process—the nominating committee, the compensation committee or a succession planning committee?

What kind of balance should there be between the CEO picking a successor versus the board?

In community banks, it’s pretty common for the CEO to have an expectation that he or she will have a big voice in identifying a successor. That’s fine. However, the board really needs to control the process and should rely on the CEO for input and not just “rubber stamp” the selection. The board needs to become familiar with the candidates over time and may invite individuals to make board presentations or appear at bank or industry functions as part of the long-term “interview” process. 

Couldn’t identifying a successor lead other executives to leave?

Yes. If there’s a large gap in background and skills to the other executives, maybe it’s not as big a deal. But if there are several executives who have an interest in and are competing for a position, it may be problematic to specifically name someone too early. If the board is doing this as a long-term process, it will gain a better sense of who should be the replacement and can better handle how to address those who are not selected. However, the board should not automatically assume the no. 2 person wants to become the no. 1 person or is qualified at the time to become the no. 1 person. The no. 2 person may have little or no interest or lack the full complement of skills, depending on the timing and nature of the situation. In that case, it is important to identify who will fill the position temporarily—the chairman, a former CEO on the board or someone else.