What is Your Bank Measuring?

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Recent comments around diversity from Wells Fargo & Co.’s CEO brought renewed attention and focus on a problem that continues to plague corporations, including banks.

In a video call with staff over the summer, Charles Scharf pointed to a “limited pool of Black talent” as the reason why the bank missed its diversity and inclusion (D&I) targets. 

Scharf has since walked back those comments. “There are many talented diverse individuals working at Wells Fargo and throughout the financial services industry, and I never meant to imply otherwise,” he told employees. “I’ve worked in the financial services industry for many years, and it’s clear to me that, across the industry, we have not done enough to improve diversity, especially at senior leadership levels.” 

Wells Fargo, it should be noted, has established clear D&I goals. It expands on these in a recent press release: Diverse candidates must be considered for key roles, and the bank plans to integrate D&I into business plans and reviews. An anti-racism training course is under development. And the achievement of D&I goals will directly impact executive compensation decisions.

Most banks lack that level of commitment: 42% don’t have a formal D&I program, according to Bank Director’s 2020 Compensation Survey.

Rockland, Massachusetts-based Independent Bank Corp. details its “Inclusion Journey” for 2020 through a nine-page document that’s posted on its website. For the $13 billion holding company, which operates Rockland Trust Co., this includes conducting an assessment to identify strengths and weaknesses throughout the organization, and establishing a D&I council co-chaired by senior vice president and Director of Human Resources Maria Harris.  

“We have a responsibility to create an environment where respect, understanding and innovation are at our core,” says Harris. “Every colleague is critical to our growth as a company, and we are committed to a culture of teamwork, inclusion and employee engagement.”

Resource groups build awareness and address the needs of female and LGBTQ employees. In response to current events, the bank has offered webinars on self-care during the Covid-19 pandemic and conducting open discussions on racism. “These have been very beneficial for folks to better understand systemic racism and how to become an ally,” explains Harris. All new employees receive D&I training, which focuses on unconscious bias and related behaviors. 

Just 22% of survey respondents say their bank tracks participation in D&I focused training; even fewer — 10% — measure employee resource group participation and formation.  

Rockland Trust tracks applicants, hires, transfers, promotions and terminations, says Harris. It also measures employee tenure, participation in professional development programs and conducts exit interviews. All of this data informs the bank’s D&I goals. 

“Our current initiative to advance front-line professionals of color was created to address findings from our data, which demonstrated that although minorities were participating in our internal career pathing program, they were not advancing at the same rate,” she explains. “We wanted to proactively change that within our organization.”

For many companies, focusing on D&I helps strengthen the culture, while attracting talented employees who will ensure its success. 

That requires leadership.

 “Trying to lead an organization without taking measurements is like trying to coach a football game without yard markers,” wrote Ritz-Carlton founder Horst Schulze in his book “Excellence Wins: A No-Nonsense Guide to Becoming the Best in a World of Compromise.” 

Bank Director’s 2020 Governance Best Practices Survey reveals that too many directors — 48% — don’t fully buy into the idea that diversity on the board has a positive effect on corporate performance. Connecting the dots, one can assume that they don’t place a lot of value on building an effective D&I program within their bank, either.

Governance Survey Results: Directors Sound Off on Diversity, Performance

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SURVEY.pngU.S. banks have made modest progress on improving the diversity of their boards of directors, but more work needs to be done, based on the results of Bank Director’s 2020 Governance Best Practices Survey.

Sponsored by Bryan Cave Leighton Paisner, the survey was conducted in February and March of this year and included the perspectives of 159 independent directors, chairmen and CEOs of U.S. banks under $50 billion in assets.

Thirty-nine percent of the survey participants say their boards have several diverse directors, based on gender or ethnic and racial backgrounds. Thirty percent have one of two diverse directors but hope to recruit more. Thirteen percent indicate they have one or two diverse directors and believe that is sufficient, while another 13% say they have no such directors and would like to recruit some. And 5% say they have no diverse directors and aren’t seeking to add those attributes.

“What I say to boards is to look at your communities,” says James McAlpin Jr., a partner at Bryan Cave and leader of the firm’s banking practice group. “Many communities in the United States have undergone fundamental demographic change over the last 15 years.” Included in this demographic evolution is an increase in the number of women and minority business owners. “Then look around your board table,” he continues. “I think it’s really important for the board to reflect the bank’s demographic customer base.”

There is a solid body of academic research that diverse boards make better decisions, resulting in stronger financial performance. But not all of the survey’s respondents are on board with that assessment. While 52% agree that diversity improves a board’s performance, 40% believe it does to an extent but the impact is overrated, and 8% do not believe that diversity improves performance.

The survey also finds that a significant number of participants report a lack of engagement by some members of their board, with 39% saying that some or few of their directors are actively engaged during board and committee meetings.

Not unsurprising perhaps, the survey found that a significant number — 42% — report having at least one or two underperforming directors.

McAlpin suggests that engagement and performance issues “need to be addressed through board evaluation and feedback to those directors.” Unfortunately, less than half of the survey participants say their boards perform some type of periodic performance review, and just 31% include individual director assessments in that process.

Other Survey Results Include

  • Fifty-eight percent of the respondents serve on board where the chair is an independent director. On boards where the CEO is also the chair, only 55% have a lead independent director.
  • The median length of board service for the participants is 12 years; 76% are over the age of 60.
  • Eighty-four percent identify as white and 78% as male. Just 1% are Black and 1% are Hispanic.

Click HERE to view the full survey results.

For a further analysis of the findings that examines process, independence, composition, oversight and refreshment, access “How Bank Boards Manage Their Business” HERE.

Why We Ignore Big Risks

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Should we have seen COVID-19 coming?

A pandemic was far from the top risk on corporate radars a few months ago, even though experts in a variety of fields warned about the possibility of one for years.

Best-selling author Michele Wucker refers to risks like this as “gray rhinos.” It’s a metaphor for the obvious challenges that societies tend to neglect, often due to the size of the risk.

“It’s meant to evoke a two-ton thing with its horn [pointed] straight at you, and pawing the ground, snorting, probably about to charge,” says Wucker, the author of “The Gray Rhino: How to Recognize and Act on the Obvious Dangers We Ignore.” She is the CEO and founder of Gray Rhino & Co., which helps leaders and organizations identify and respond to these risks.

To learn about preparing for the next big threat, I interviewed Wucker about why we often ignore obvious threats, and how to approach the next crisis. The transcript that follows has been edited for brevity, clarity and flow.

BD: What are the most powerful forces that keep us from identifying and addressing gray rhinos?
MW: There are psychological and organizational and governmental [forces] that keep us from recognizing what we need to. Human beings are hardwired to ignore some of the things that we don’t want to see. We tend to deny information if we don’t like it — if we don’t like the solution to a problem. A lot of this is unconscious. So, when you recognize that unconscious bias, you’re way ahead of everybody else because it makes you much more able to see what’s in front of you.

But in terms of organizations and governments, more structural and policy factors, some of them have to do with decision-making. We like to surround ourselves with people who think the way that we do. And when we do that, it confirms what we already think. It makes us even less likely to see red flags. So, decision-making processes and organizational culture are one reason.

In terms of governments and even corporations, the incentives that we’ve set up are misaligned.

Businesses look so much at quarterly earnings, and too often pay so much attention to the short term, that they forget they are putting long-term value at risk. And for politicians who are looking at election cycles of just a few years, it’s much easier for them to tell people what they want to hear and kick the can down the road so that the problem explodes on the next guy’s watch. Our society tends to reward people for picking up the mess after the fact. And when somebody makes a hard decision that prevents the mess from happening in the first place, we don’t celebrate as much as we should.

BD: One of the things we often talk about [at Bank Director] is the danger of groupthink and the lack of diversity on corporate boards. As we’re looking at the impact of this pandemic, I would not be surprised to see things like diversity and similar initiatives taking a back seat to these more short-term concerns that we’re seeing now. Is that a mistake?
MW: Absolutely. It would be a huge mistake to stop looking at how we can make better decisions by bringing the right voices around the table, having a group of people who can overcome groupthink. And really what would be most helpful now would be an extra emphasis on who else are you going to bring to the table to help solve the problems right now? An injection of diversity in decision-making could be one of the most important factors helping us to not just get out of the crisis, but set ourselves up for future success.

In “The Gray Rhino,” I quote [European Central Bank President] Christine Lagarde … [her] comment that if Lehman Brothers had been Lehman Sisters instead, we wouldn’t have had that problem. In my mind, that’s not quite right. It should have been Lehman Siblings, because too much of any gender or outlook or perspective or risk attitude is the wrong approach to take. There’s a lot of research showing that when you have diverse voices in different demographics, different specializations, different perspectives, you’re much better set up to make good decisions for the future.

One problem we are having right now is that there were unintended consequences of some of the decisions that were made to get us out of the 2008 crisis. It’s important when you’re getting out of a crisis to make sure that you’re not setting yourself up for something worse down the road, and to put in place check-in measures along the way, to make sure that the fixes you put in place are working the way you meant them to.

BD: Crises can force change. What do you hope to see business leaders learn from this current crisis to ensure they’re better prepared for the next crisis on the horizon?
MW: I love the way you phrased that because people are always trying to look backwards, because they’re so used to thinking of black swans. [Editor’s Note: A “black swan” refers to a rare, unforeseeable crisis.] It’s important to look back to learn what we’ve done wrong, but unless you apply it to the future, it’s a bit of an exercise in futility.

The biggest lesson I think people should learn is how important it is to be proactive about problems, particularly big problems that seem overwhelming. It’s very important for everybody to do their part to address problems. … Leaders really need to focus on two new mindsets. One, proactive, long-term, forward-looking emphasis on creating value, and thinking in complex systems. The Business Roundtable statement last August about restating the purpose of a corporation was interesting in that way. They came out and said it’s no longer a matter of prioritizing your shareholders alone, because if you don’t think about all of the other stakeholders in your orbit, that has the potential to reduce shareholder value.

I think it really brought a complex systems approach to this debate in business communities. For so long, people had looked just at shareholders, and thought about other stakeholders’ needs as a zero-sum game. This new systems-thinking approach shows how they’re all related; that you can’t effectively protect your shareholders unless you’re also looking at your other stakeholders. That brings us back to your point about having diverse voices and making sure you’re getting all the inputs you need.

BD: What are the other gray rhinos that banks and corporations might be ignoring right now?
MW: I’ve been focusing personally on a trio of interrelated gray rhinos. Inequality. The fact that the people in the bottom whatever percent you want to apply are falling behind. [This is] already hurting economic growth and making the entire economy much more vulnerable, as we’re now seeing in a painful way. So, inequality is the first one.

Second one is climate change, which is closely related to inequality, because the people who are contributing the most to greenhouse gas emissions and climate change generally tend to not be the same ones as the people who are affected the most. And third, financial fragilities, which are closely related to both climate change and inequality, as we’re seeing right now when the bottom part of the population loses their jobs and they’re blown apart, taking the whole economy down with it.

As we saw in the conversations in Davos in January, and with BlackRock’s statement about climate risk and investment risk being one and the same, there’s a close relationship between climate change decisions and shoring up the way that the whole financial system and the global economy works. Many central banks and researchers around the world last year made the point that insurers are undercapitalized if you look at the potential impact of climate change.

I think there’s also complex systems thinking, a limit to that — if you’re financing fossil fuel companies, but you have other investments that are negatively affected by climate change, say oceanfront property, then you’re basically investing in hurting the other companies and investments in your portfolio.

So, that trio to me is important, and the pandemic has shown how dangerous all three of them are and that we need to deal with all three of them together.

Talking Too Much About Board Diversity

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A backlash has emerged in response to diversity and inclusion initiatives.

In the past several years, activists, institutional investors and some companies — including banks — have advocated for increased diversity and inclusion on their boards and throughout their firms. These groups believe that a diversity of race, gender, age and opinion is good for business and, ultimately, for shareholders.

But two recent studies draw attention to a burgeoning backlash to these efforts. Whether from message fatigue or concern about the board’s focus, companies may need to be mindful about the promotion and communication of their D&I efforts.

Director support to increase gender and racial diversity in the boardroom fell for the first time since 2013 in PwC’s 2019 governance survey. Thirty-eight percent of directors said gender diversity was very important in 2019, down from 46% in 2018. Those who said racial and ethnic diversity was very important fell to 26%, down from 34% the year prior.

Directors seem to be fatiguing of these messages, says Paula Loop, leader of PwC’s Governance Insights Center, who adds she was surprised at the recent trend.

“The way that we rationalized it is that it appears that directors have heard the message and they’re trying to acknowledge that,” she says.

Respondents to PwC’s survey acknowledged that diversity has added value to their discussions and decisions, Loop says, and that it increasingly makes sense from a business perspective. This finding is supported more broadly: Bank Director’s 2018 Compensation Survey found that 87% of respondents “personally believe” that board diversity, either through age, race or gender, has a positive impact on the bank’s performance.

“We have to remember, especially when you’re thinking about boards, they … don’t move necessary as quickly as one might think,” Loop says. “I feel like we’re in an evolution — but there’s been a lot in the last couple of years.”

Interestingly, PwC observed different responses to the survey based on the gender of respondents. A higher percentage of female directors reported that gender and racial/ethnic diversity on the board was “very important.” Male directors were less inclined to report seeing evidence of the benefits of diversity, and more than half agreed that diversity efforts “are driven by political correctness.”

Male directors were three times as likely as a female director to assert that investors “devote too much attention” to both gender and racial/ethnic diversity. Overall, 63% of directors believe investors are too focused on gender diversity, up from 35% in 2018; 58% report the same when it comes to racial/ethnic diversity, up from 33%.

The different responses along gender lines demonstrates why diversity matters, Loop says. The report shows that gender-diverse slate of directors do have a “different emphasis or different way of thinking.”

“It validates why it’s good to have a diverse group of people in a room when you have a conversation about an important issue,” she says.

But even if a bank makes headway on increasing the gender diversity on its board, there is still another group to think about: shareholders. A recent study found that companies that appoint women to the board experience a decline in their share price for two years after the appointment. The study looked at more than 1,600 U.S. companies between 1998 and 2011.

“Investors seem to be penalizing, rather than rewarding, companies that strive to be more inclusive,” wrote INSEAD researchers Isabelle Solal and Kaisa Snellman in a November 2019 Harvard Business Review article about their study.

“What we think is happening is that investors believe that firms who choose to appoint women are firms who care more about diversity than about maximizing shareholder value,” writes Solal, a postdoctoral research fellow at the Stone Centre for the Study of Wealth Inequality at INSEAD, in an email interview.

In subsequent research, they found that investors view appointments of female directors with a company’s “diversity motivation.” The association is “not that surprising,” she writes, given that “almost all” press releases feature the gender of the appointee when that person is a woman, and will often include other references to diversity.

“Gender is never mentioned when the director is a man,” she writes.

Solal says that companies should still appoint women to their boards, especially given that the shareholder skepticism dissipates in two years. But companies should be mindful that overemphasizing a director’s gender or diversity may be unhelpful, and instead highlight the “skills and qualifications of their candidates, regardless of their gender.”

Board Governance For The New Year

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Business conditions, financial markets and competitive landscapes are always changing. But perhaps there is no arena of business undergoing a more significant transformation at the moment than corporate governance.

Whether driven by activists investors, regulators, institutional shareholders, governance gadflies or best practices, corporate governance is in the crosshairs for many organizations today. And in the banking sector — where some in Washington have placed a bullseye on the industry’s back — an enhanced focus on governance is the order of the day.

Bank boards today would be well served to pay close attention to three important aspects of governance: board composition, size and director age and tenure. When left to their own devices, too often inertia will set in, causing boards to ignore needed enhancements to corporate governance and boardroom performance. Even in the private company and mutual space, there is room for improvement and incorporation of best practices if a bank wants to continue to remain strong and independent.

Some governance advocates adopt a certain viewpoint that downplays an institution’s history. “If you were building the board for your bank today at its current size, how many of the existing directors would you select for the board?” the viewpoint goes. This obviously ignores historical contributions and the context that took the bank to its current state.  However, as the old saying goes: “What got you here often won’t get you there.”

For many institutions — particularly those that have grown significantly through acquisition — the size of the board has become unwieldy. Oftentimes, executives doled out seats to get a deal done; in some extreme cases, boards now have 16, 18, 20 — or more — directors.

While this allows for ample staffing of committees, pragmatically there may be too many voices to hear before the board can make decisions. At the same time, banks with only six or seven  directors may not be able to adequately staff board committees, and perhaps operate as a “committee of the whole” in some cases.  Often times, this low number of directors implies a high level of insularity.

Research from sources including both Bank Director and the National Association of Corporate Directors suggests that the average board size is between 10 and 11 directors, including the CEO. Furthermore, the CEO is now typically the sole inside director, unless the CEO transition plan is underway and a president has been named as heir apparent to the CEO role (similar to KeyCorp’s September 2019 succession announcement). Too many or too few directors can impede a board’s effectiveness, and 75% of public boards have between nine and 12 directors.

Board composition, of course, speaks to the diversity seated around the board table. Whether you accept the prevailing sentiment or not, there is ample evidence that boards with more diverse perspectives perform better. In order to garner more diverse viewpoints, the board needs to be less homogenous (read: “not full of largely middle-aged white men”) and more representative of the communities served and employee demographics of today and tomorrow. And let’s not forget about age diversity, which helps to bring the perspectives of younger generations (read: “vital future customers and employees”) into the boardroom. One real world example: How would you feel if your bank lost a sizable municipal deposit relationship because a local ordinance required a diverse board in order to do business with an institution? It can happen.

Lastly, many boards are aging. The average public director today is 63 — roughly two years older than a decade ago. And as directors age and begin to see the potential end of their board service, a number of community bank boards have responded by raised their mandatory retirement age and prolonging the inevitable. Yet with rising tenure and aging boards, how can an institution bring on next-level board talent to ensure continued strong performance and good governance, without becoming unnecessarily large? Boards need to stay strong and hold to their longstanding age and tenure policies, or establish a tenure or retirement limit, in order to allow for a healthy refresh for the demands ahead.

High-performing companies typically have high-performing boards. It is rare to see an institution with strong performance accompanied by a weak or poorly governed board. Boards that take the time to thoughtfully optimize their size, composition and refreshment practices will likely improve the bank’s performance — and the odds of continued independence.

What’s Trending at Acquire or Be Acquired 2019

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Smart Leadership – Today’s challenges and opportunities point to one important solution: strong boards and executive teams.
Predicting The Future – Interest is growing around mergers of equals, commercial deposits and shifting team dynamics.
Board-Level Concerns – Three characteristics define the issues facing bank directors.
Spotlight on Diversity – Diverse backgrounds fuel stronger performance.
Digging into Strategic Issues – The end of the government shutdown could yield more IPOs.

Exclusive: How KeyCorp Keeps Diversity & Inclusion in Focus

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

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

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

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

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

She also discusses:

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

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

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 Download transcript for the full exclusive interview

Board Compensation, Diversity Under Scrutiny

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diversity-7-17-19.pngSimilar to trends in other industries, banks have been simplifying their director pay programs. Slightly more than half of publicly traded banks with $1 billion to $10 billion in assets increased cash retainers instead of offering board meeting fees. Board meeting fees are the easiest to simplify, given the generally consistent number of meetings and their applicability to all board members. Retainers are also the most common way to recognize committee chairs for their roles and compensate committee members.

Annual equity grants are also a core element of board member pay at public banks, while stock option grants remain a minority practice. Restricted stock is the most common form of equity.

The amount of time for directors’ equity awards to vest is also shortening. Of the banks we reviewed with $1 billion to $10 billion in assets, 73 percent of those using full-value awards were granted either fully vested or with a one-year vesting requirement.

This shortened vesting period for director awards parallels the declassification of board structure and use of one-year terms. Banks do not want to incentivize directors that would have otherwise resigned or not stood for reelection to remain on the board so their equity awards can vest.

Most public banks have share ownership guidelines, which often require that directors own three to five times the annual cash retainer. Most guidelines build in a fixed amount of time for directors to reach the guideline, like five years. Another recent trend is a stock ownership requirement, which requires directors to hold a certain percentage of vested shares until they reach the guideline and kicks in if they fall below the threshold.

Scrutiny and Oversight
Director compensation has been in the spotlight because of recent litigation and increased focus from proxy advisory firms.

Institutional Shareholder Services (ISS) announced it will target board members who are responsible for setting director pay when levels are “excessive,” with adverse vote recommendations issued as early as 2020 where director or board chair pay is in the top 2 percent to 3 percent of a defined comparison group. This will not be an issue for most banks that pay within a reasonable range around market, but banks should be aware of this change. As a result, the industry is likely to see enhanced proxy disclosures that includes the board compensation philosophy, additional responsibilities of chair roles and communication of independent compensation reviews.

Delaware courts have recently issued a series of decisions limiting the extent that the business judgment rule protects directors when determining their own compensation. As a result, companies are being more thoughtful in establishing total limits on director compensation, establishing appropriate stock ownership guidelines and holding requirements, and closely reviewing the competitiveness of pay levels and structure. We recommend companies check their plans to ensure appropriate caps are in place.

Diversity Focus
Large institutional investors, proxy advisory firms and legislators are putting significant focus on board diversity. BlackRock’s most recent proxy voting guidelines encouraged companies to have “at least two women directors” on their board. Vanguard noted that board diversity is “an economic imperative, not an ideological choice” in a 2017 open letter to public company directors.

Beginning in 2020, State Street Global Advisors, the asset management business of State Street Corp., will vote against the slate of directors on a company’s nominating committee if that company’s board does not include any women directors, and the company has not engaged in successful dialogue with the asset manager regarding board gender diversity for three consecutive years.

Proxy advisory firms will generally recommend voting against a company’s nominating committee chair if a board includes no women; Glass Lewis started in 2019, with ISS joining in 2020.

Outside of corporations, two states are looking into gender diversity mandates. California enacted legislation that imposes gender quotas on public companies headquartered in the state; New Jersey has proposed a nearly identical law.

We expect these issues to be top of mind for the boards of many banks in the coming 12 to 24 months, along with other concerns such as director tenure, retirement age and engagement. Banks should evaluate their programs and board composition in light of these hot topics.

A Woman’s Place is in the C-Suite

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

The Most Effective Bank Directors Share These Two Qualities

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director-6-14-19.pngBanks have a slim margin for error.

They typically borrow $10 for every $1 of equity, which can amplify any missteps or oversight. Robust oversight by a board of directors, and in particular the audit and risk committees, is key to the success of any institution.

“At the Federal Reserve Bank of Kansas City, we have consistently found a strong correlation between overall bank health and the level of director engagement,” wrote Kansas City Fed President Esther George in the agency’s governance manual, “Basics for Bank Directors.” “Generally, we have seen that the institutions that are well run and have fewer problems are under the oversight of an engaged and well-informed board of directors.”

This may sound trite, but the strongest bank boards embrace a collective sense of curiosity and cognitive diversity, according to executives and directors at Bank Director’s 2019 Bank Audit & Risk Committees Conference in Chicago.

Balancing revenue generation against risk management requires a bank’s audit and risk committees to invite skepticism, foster intelligent discussion and create a space for constructive disagreements. Institutions also need to remain abreast of emerging risks and changes that impact operations and strategy.

This is why curiosity, in particular, is so important.

“It’s critical for audit committee members to have curiosity and a critical mind,” says Sal Inserra, a partner at Crowe LLP. “You need to ask the tough questions. The worst thing is a silent audit committee meeting. It’s important to be inquisitive and have a sense of curiosity.”

Board members who are intellectually curious can provide credible challenges to management, agrees John Erickson, a director at Bank of Hawaii Corp.

Focusing on intellectual curiosity, as opposed to a set of concrete skills, can also broaden the pool of individuals that are qualified to sit on a bank’s audit and risk committees. These committees have traditionally been the domain of certified public accountants, but a significant portion of audit committee members in attendance at the conference were not CPAs.

Robert Glaser, the audit committee chair at Five Star Bank, sees that diversity of experience as an advantage for banks. He and several others say a diversity of experiences, or cognitive diversity, invites and cultivates diversity of thought. These members should be unafraid to bring their questions and perspectives to meetings.

Having non-CPAs on the audit committee of Pacific Premier Bancorp has helped the firm manage the variety of risks it faces, says Derrick Hong, chief audit executive at Pacific Premier. The audit committee chair is a CPA, but the bank has found it “very helpful” to have non-CPAs on the committee as well, he says.

Audit and risk committee members with diverse experiences can also balance the traditional perspective of the CPA-types.

“It’s important [for audit committee members] to have balance. Bean counters don’t know everything,” says Paul Ward, chief risk officer at Community Bank System, who self-identifies as a “bean counter.”

“Some of the best questions I’ve seen [from audit committee members] have come from non-CPAs,” Ward says.

However, banks interested in cultivating intellectual curiosity and cognitive diversity in their audit and risk committees still need to identify board members with an appreciation for financial statements, and the work that goes into crafting them. After all, the audit committee helps protect the financial integrity of a bank through internal controls and reporting, not just reviewing financial statements before they are released.

Executives and board chairs also say that audit and risk committee members need to be dynamic and focus on how changes inside and outside the bank can alter its risk profile. Intellectual curiosity can help banks remain focused on these changes and resist the urge to become complicit.

I’ll be the first to admit that qualities like curiosity and cognitive diversity sound cliché. But just because something sounds cliché, doesn’t mean it isn’t also true.