2021 Governance Best Practices Survey Results: Who’s Driving Bank Strategy?

The best banks balance short-term thinking with long-term strategy.

“Long-term performance is always our paramount objective,” Bank OZK Chair and CEO George Gleason told Bank Director at its recent Inspired by Acquire or Be Acquired virtual event. The $27 billion bank topped Bank Director’s 2021 RankingBanking study. “If short-term results suffer because of our focus on long-term objectives, then that’s just part of it.”

Strategic discipline starts with a bank’s leadership team — and the board should play an important role in developing the strategy and monitoring its execution. But that’s not always the case, according to the results of the 2021 Governance Best Practices Survey, sponsored by Bryan Cave Leighton Paisner LLP.

The survey explores the board’s approach to strategic planning, as well as governance practices, board composition and the relationship between executives and the board. The results find that most boards don’t drive strategic planning at their institutions: Just 20% say the board drives this process and collaborates with management to develop the strategic plan. Most — 56% — say their board establishes the risk appetite but relies on management to develop the strategy.

The vast majority believe their strategic planning process is effective. But of the 11% who believe their process to be ineffective, some express regret over the lack of input from their board. One respondent believes their bank’s strategic plan to be “too in the weeds,” while another holds the opposite concern. “It flies at 30,000 feet for [the] most part,” says one independent chair. “[We] need to get a little closer to the ground with metrics and clear paths for management to build.”

Most — 84% — reviewed their strategic plan during the pandemic, but few shortened the time horizon of their strategy. This may seem surprising, given previous indicators that Covid-19 accelerated bank strategy in some areas, particularly around the implementation of digital technology. Perhaps this indicates that, for most bank leadership teams, balancing short-term results and long-term strategy remains top of mind.

Key Findings

Strategic Review
Three-quarters of respondents say their board reviews the strategic plan annually. Roughly two-thirds bring in an outside advisor or consultant to assist in developing the strategic plan — but not generally every year.

Board Responsibilities
When asked to identify the board’s most important functions, the majority of respondents point to holding management accountable for achieving goals in a safe and sound manner (61%) and meeting its fiduciary responsibilities to shareholders (60%). Just 34% say that setting strategy is a key board responsibility.

Competitive Pressures
Respondents say that pressure on net interest margins (52%), the ability to grow organically in their markets (44%) and meeting customer demands for digital options (37%) threaten the long-term viability of their bank.

Interacting With Management
The vast majority of independent directors, chairs and lead directors believe they’re getting the right level of information from bank executives. Almost all interact at least quarterly with the bank’s CEO (98%), CFO (94%) and chief risk officer (85%).

Credible Challenge
Three-quarters say their board has several directors willing to ask tough questions when warranted; 92% find their management team receptive to feedback.

Needle Moving on Board Diversity
Almost 60% believe that fostering diversity in the boardroom improves corporate performance. Thirty-nine percent have three or more board members who bring diverse characteristics to the board, based on gender, race or ethnicity.

Assessing Performance
Less than half conduct an annual evaluation of their board’s performance, which most use to assess the effectiveness of the board as a whole (84%), improve governance processes (60%), identify training needs for the board (59%) or assess committee performance (58%).

To view the full results of the survey, click here.

Top 25 Bank Boards for Women

In early December, Nasdaq filed a proposal with the Securities and Exchange Commission that would require its listed companies to disclose diversity statistics about their board’s composition. Boards must include at least one female and, at minimum, one minority or LGBTQ board member. While the exchange recently made some changes to the proposal - to address the concerns of small boards with five or fewer members, for instance — there’s no denying that pressure has been mounting when it comes to improving diversity on corporate boards.

Just look at 2020 alone: Institutional Shareholder Services reiterated that it would vote against the nominating chair of Russell 3000 and S&P 1500 companies that lack female representation. Goldman Sachs Group announced that it will only take companies public if they have at least one diverse board member. And California and Washington both had gender diversity requirements in place for companies headquartered there.

“Diversity of thought forces [boards] to look at solutions in a different way, to look at problems in a different way,” says Kara Baldwin, a partner at Crowe LLP. “It’s simply good business to make sure you have those differing viewpoints.”

But corporate boards often do the bare minimum when it comes to adding women: An analysis of Russell 3000 boards by 50/50 Women on Boards finds that only 5% are gender-balanced, meaning women hold roughly half of board seats.

In a new analysis using its proprietary database of the nation’s 5,000 public, private and mutual bank boards, Bank Director identified the 25 bank boards with the highest representation of women. We focused on banks above $300 million in assets, given the lack of data on very small, private institutions. Only 11 of the banks we examined would meet the goal set by 50/50 Women on Boards.

Women, it should be noted, comprise 51% of the population and 58% of the workforce, according to the U.S. Census Bureau.

Both big and small banks, public and private, topped our list, showing that diversity is not exclusively a big bank issue. Webster Financial Corp. of Waterbury, Connecticut, with $32.6 billion in assets, and The Falls City National Bank, with $456 million in assets out of Falls City, Texas, top our list. Both boast boards with a membership that’s 56% female — well above the normal balance typically found on corporate boards. Rounding out the list are $1.9 billion First Bank of Highland Park, in Highland Park, Illinois, and Principal Financial Group, the holding company for $4.5 billion asset Principal Bank in Des Moines, Iowa. Both 12-person boards include five women, comprising 42% of membership. Last year, 50/50 Women on Boards found that women held 23% of board seats at Russell 3000 companies.

About six years ago, First United Corp., which has $1.7 billion in assets, started to intentionally focus on its composition, both in terms of skills and backgrounds. “We want to be more relevant to our customers and to our communities, for our shareholders, looking at that whole stakeholder group [including] employees,” says Carissa Rodeheaver, the Oakland, Maryland-based bank’s chair and chief executive. That includes representing diverse backgrounds, in terms of gender, race and ethnicity, and age.

This year, First United will begin using a skills matrix — a practice that helps boards map their directors’ expertise and backgrounds to identify gaps. A diversity and inclusion policy, put in place by the nominating and governance committee, will ensure the board considers a diverse slate of director candidates. “The pool has to be diverse, and that will continue to naturally lend itself to keeping that diversity of thought on the board,” says Rodeheaver. “It’s a great formula that leads to a well-rounded board.”

First United brought on three new directors in the past year — all women, it turns out, who are skilled in regulatory compliance, finance and project management, says Rodeheaver.

Lisa Oliver, the chair and CEO at The Cooperative Bank of Cape Cod, a $1.2 billion mutual bank headquartered in Hyannis, Massachusetts, places a high value on the “lived experiences” often uncovered when building diverse boards.

While the traditional executives and professionals often found on corporate boards — current and former CEOs, accountants, regulators and attorneys — still provide valuable insights, banks “have to think about the new needs of banking, and how that aligns with a whole different genre of people and the pipeline we need to cultivate,” says Oliver. For example, boards often seek technology and cybersecurity expertise; these skills aren’t often found at the top of an organization. Or a board might look for someone who can represent an industry that’s important to their bank, like healthcare.

C-suites are still predominantly male and predominantly white: Looking further down an organization chart might serve up an experienced candidate who also brings a diverse perspective to the table.

“You have to work harder; you have to expand that group of who you know,” says Baldwin. “You must be intentional — that’s really important.”

Oliver also wants to attract and retain younger directors to the board at “The Coop,” as the bank is called locally, but has struggled to retain young women as board members and corporators during the pandemic. (Corporators elect board members, but the position can also serve as a training ground of sorts for board candidates.)

“The pandemic has created great stress for young people to [serve] on the board,” says Oliver. One director, a business owner and single mother with a child at home, had to resign, she says. Oliver believes boards should consider how they can structure meetings to make the role more manageable for younger board members who are building their careers and businesses. “Not death by committee meeting, but what are the critical four committees we need to have?” she says. “There’s an art and a science to creating the agenda within that and providing the data to analyze risk, make it manageable.” A 400-page board packet can be difficult to fit into anyone’s schedule, much less that of a Gen X or millennial professional balancing family and career.

Oliver wonders if today’s more remote environment — with boards meeting virtually — could help them attract candidates from nearby Boston — a technology hub boasting a highly educated workforce.

Boards should consider looking outside their local community to find diverse, qualified board members, says Baldwin. Nearby cities, as Oliver posits, could be a valuable well of talent.

Both First United and The Coop are putting practices in place to help make room for new views: First United will declassify its board this year, and Oliver says her bank is putting term limits in place.

And both CEOs tell me that building the board their bank needs is a continuous process. “We need to constantly be looking and identifying individuals that make sense [for our board] and backfill that pipeline,” says Rodeheaver.

“We have to reflect the community around us, or else we’re not able to hit on some of the challenges that we face,” Oliver adds. “It takes effort, and it takes time, and it has to be a constant process.”

Top 25 Bank Boards For Women

Bank Name (Ticker) State Total # Directors % Women on the Board
Webster Financial Corp. (WBS) CT 9 56%
The Falls City National Bank TX 9 56%
Lead Financial Group MO 9 55%
First United Corp. (FUNC) MD 12 50%
The Cooperative Bank of Cape Cod MA 14 50%
First National Bank Alaska (FBAK) AK 8 50%
Boston Private Financial Holdings (BPFH) MA 8 50%
New Triplo Bancorp PA 6 50%
Andrew Johnson Bancshares TN 8 50%
Johnson Financial Group WI 10 50%
Minnwest Corp. MN 16 50%
GSB, MHC MA 15 47%
Cambridge Bancorp (CATC) MA 17 47%
First Capital (FCAP) IN 13 46%
Mascoma Bank VT 13 46%
Ledyard Financial Group (LFGP) VT 11 45%
First Seacoast Bancorp (FSEA) NH 9 44%
Orbisonia Community Bancorp PA 7 43%
Stearns Financial Services MN 7 43%
Lockhart Bankshares TX 7 43%
National Cooperative Bank OH 14 43%
MidFirst Bank OK 7 43%
Olympia Federal Savings and Loan Assn. WA 7 43%
Principal Financial Group (PFG) IA 12 42%
First Bank of Highland Park* IL 12 42%

Source: Bank Director internal data, plus bank websites and public filings, as of February 2020. Banks under $300 million in assets weren’t examined given the scarcity of data about these institutions.
*First Bank of Highland Park was left off this ranking when it first published. Bank Director regrets the omission.

How to Fix Banking’s Diversity Pipeline Problem

In less than a year, First Financial Bankshares has promoted three women to regional leadership positions, giving women at the Abilene, Texas-based bank a total of four out of 17 such leadership positions within the organization. While First Financial is not the only bank that is working hard to move women into the ranks of senior management, it is unusual to see three women promoted in such a short space of time.

“The public loves to see women and minorities promoted,” says F. Scott Dueser, chairman and CEO at the $10.9 billion asset bank. “When I put something out on a woman promotion or a minority promotion, just on social media, it goes a lot further and a lot more people look at it, which tells me a lot. I judge what I put out on social media by how many clicks I get on it, how many likes I get on it, and those will always get the most, which I think is really cool.”

Women account for a large majority of the banking workforce — but only a small percentage of them advance to a senior management position, let alone the CEO spot. And those who do make it to the C-suite are often in staff positions like human resources, marketing, communications or general counsel. An analysis by the consulting firm DDI found that women hold 21% of executive positions; of them, 63% have P&L responsibility, compared to 81% of male executives. Managing a business unit with P&L responsibility is a well-worn path to senior management.

If one were to think of career progression as a pipeline, then it clearly becomes clogged for women at some point. Men and women enter the industry in roughly equal numbers, but early in their careers many women are either diverted to one of the aforementioned staff positions, or they leave the industry altogether.

Explanations for this phenomenon vary. It’s true that some women choose to leave the workforce in their twenties and thirties, when their careers are just starting to take off, to start a family. But many women choose to do both, so it’s not as if the pipeline is devoid of promotable candidates.

“This is a gross generalization, but by and large they’re not getting the same opportunities” as men, says Jennifer Docherty, associate general counsel and managing director at Piper Sandler & Co., and co-founder of Bank on Women, a nonprofit organization dedicated to educating the community banking industry on the importance of adding qualified women to the board and C-suite.

If you look at anyone who’s successful, men and women, particularly in the banking space, at some point they have had P&L responsibilities,” Docherty says. “They have come up on the revenue side of the business, or the commercial lending side of the business, as opposed to a lot of women who are steered more toward HR, retail — things that are considered more soft skills, [though] still essential. Historically speaking, the senior ranks have been filled by people who have come up on the lending side, or [have had] some P&L responsibilities, and generally men are steered into those roles early on.”

Docherty says that men and women graduate from college and enter finance in roughly equal numbers. “But at the first promotion, you see a huge drop off,” she says. “Generally speaking, this is early on in their careers, before anyone is contemplating [starting a family], and men are steered toward one side, and women are steered toward the other. You start to see this breakage very early on in careers.”

Why exactly this occurs is difficult to pin down, although it may reflect a bias that Docherty says was once very explicit in many American corporations, but has become less explicit if no less prevalent in an age of political correctness. The bias — which Docherty says used to be expressed quite openly — was that companies were reluctant to hire women of childbearing age on the assumption that most of them would be in the workforce for only a short period of time before leaving to start a family. “Nobody would say that [today], but I know absolutely that perspective still exists — that men are going to be more focused when they have kids, and women are going to be less focused,” she says.

Another challenge facing women who are trying to build a career in banking that leads to the C-suite is a lack of sponsorship. “You won’t talk to anybody who has been successful in business without them telling you about someone who has been pivotal in their careers,” she says. “Sponsorship is different [from] mentorship. [A sponsor is] somebody who brings you to a meeting and says, ‘This is somebody you should trust,’ and then defers to that person in meetings, puts them in front of the right audience and gives them an opportunity to really shine.”

A woman who understands the struggles that women can face in banking is Maria Tedesco, the president of $19.6 billion Atlantic Union Bankshares in Richmond, Virginia. After Tedesco graduated from college, she applied to several commercial lending programs at banks in her native Boston. She was turned down for all of them. Later in her career, Tedesco joined the senior management team at a bank that had one other female member. And there were times when the men in that group would play golf or go out for drinks, and not invite them. “It’s not that I really wanted to play golf or have drinks with them, but they were doing this bonding and relationship building,” she says. “And you know how important that is. You get to know somebody from very different angles.”

These experiences can help build trust and strengthen the working relationship, and women sometimes miss out on those opportunities in male-dominated leadership teams. Tedesco says she made a pact of sorts with the other female executive that “we were going to support each other and give each other feedback. And it became a lifeline for her and a lifeline for me. That support is very rare to get peer-to-peer. And I think that helped shape [me] as an executive more than anything. And she would say the same thing. Early on we figured that, ‘Hey, we’ve got to help each other if nobody else is going to help us, and provide that coaching and feedback that is so critical.’”

Women alone can’t fix the C-suite diversity problem if enough men in male-dominated executive teams don’t champion their cause with the same earnestness they display for promising young male executives. But certainly there is an opportunity for senior female executives to sponsor younger women in their organizations, and it’s a role that Tedesco has assumed at Atlantic Union with the Women’s Inclusion Network, which she started after joining the bank in September 2018. The goal is to create opportunities for employees to leverage each other to grow professionally and personally, and is aligned with a broader diversity, equity and inclusion effort within the bank. Tedesco believes that she has advice to share, and she can serve as a mentor to other women inside and outside the company.

Tedesco understands how important it is for younger female executives to see other women in the C-suite. “They want to see that and say, ‘Oh wow, I see someone who looks like me that has succeeded, so I can succeed, too.’”

There are now four female regional leaders at First Financial who can inspire other women within the bank. Three of the women are regional presidents, while a fourth is a regional CEO. The titles vary depending on the size of the region.

Each regional president or CEO runs a substantial business, with a community board and responsibility for producing loans and deposits. While some activities are centralized in Abilene, like asset/liability management, technology and various shared services, these regional leaders are essentially running a small community bank. Each of them was a senior commercial or mortgage lender early in their career, and two of them joined First Financial through an acquisition. “Each of the women that we promoted weren’t promoted just to put a woman in the position,” says Dueser. “They were promoted because they deserved it, and they were the best person for the job.”

Dueser believes that the best way to get more women into senior management is to train them early on an equal footing with men. First Financial has its own management training program, known as the FFIN University — such training programs are a rarity these days for a regional bank — and the two regional presidents who grew up in the bank are graduates.

Dueser was also instrumental in launching the Excellence in Banking program at his alma mater, Texas Tech University, which is run by a former First Financial banker. “One of the things we’re focused on is women and minorities, trying to get them into the program. Things like that will help. All banks are really working on this, bringing in more women and minorities.” Shortly after the program started, Dueser says he took a group of people from Texas Tech to New York to visit with some of the big banks there.

“The one thing that every one of the banks said was, and this is why I know that banks are very dedicated [hiring] to women and minorities, ‘If you can bring us women and minorities from this program, we will hire them.’ And they are.”

Honing Your Strategic Vision

The financial institutions examined in Bank Director’s 2021 RankingBanking study, sponsored by Crowe LLP, demonstrate the fundamentals of successful, long-term performance. What can we learn from these top performers — and how should bank leaders navigate today’s challenging environment? Crowe Partner Kara Baldwin explores these issues, based on the lessons learned in the RankingBanking study, and shares her own expertise. To view the complete results of the 2021 RankingBanking study, click HERE.

  • Weaving Digital Into Your Bank’s Strategy
  • Being Efficient Without Being “Cheap”
  • Today’s Uncertain Credit Environment
  • Considerations for Bank Boards

Overcoming Cultural Challenges In M&A

Culture is fundamental to the success of the deal, so it’s top of mind for bank leadership teams working with Richard Hall, managing director for banking and financial services at BKM Marketing. In this video, he explains why transparent, candid communication is key to retaining customers and employees, and shares his advice for post-pandemic strategic planning.

  • Ensuring a Successful Integration
  • Retaining Customers and Employees
  • Formulating a Strategy for 2021

What We’ve Learned From the Pandemic (So Far)

Year in and year out, Bank Director’s surveys tap into the views of bank leaders across the country about critical issues: risk, technology, compensation and talent, corporate governance, and M&A and growth.

But 2020 has been a year for the record books. It’s been an interesting time for me as head of research for Bank Director, with the results of our recent surveys revealing changes that, in my view, will continue to have far-ranging effects for the industry.

As boards plan for 2021 and beyond, here are a few things I believe you should be considering.

The Great Tech Ramp-Up
The Covid-19 pandemic dramatically accelerated technology adoption by the industry, an issue we explored in Bank Director’s 2020 Technology Survey.

Sixty-five percent of the executives and board members responding to that survey told us that their bank implemented or upgraded technology to respond to Covid-19, primarily to issue Paycheck Protection Program loans. As a result, most banks reported increased spending on technology, above and beyond their budgets for 2020.

The primary drivers that fuel bank technology strategies remain the same — improving customer experience and generating efficiencies — and pressure has only grown on financial institutions to adapt. More than half of the survey respondents told us that their bank’s technology plans had been adjusted due to the pandemic, with most focused on enhancing their digital banking capabilities.

“The next generation will rarely use a branch,” one survey respondent commented, “so a totally quick efficient comprehensive digital experience will be necessary to survive.”

The 2020 Compensation Survey confirmed that most banks dialed back on branch service early in the pandemic; by the time we fielded the Technology Survey in June and July, bank leaders finally recognized the digital channel’s preeminence in terms of growing the bank and serving customers. (The previous year’s survey found respondents placing equal emphasis on digital and branch channels.)

Our FinXTech Special Report on mobile banking provides tips on evaluating your bank’s mobile app.

The Technology Survey revealed gaps in small business and commercial lending as well — deficiencies that have been laid bare as a result of the pandemic. More than half of respondents that have adjusted or accelerated their technology strategy indicated they’d expand digital lending capabilities.

Some bankers I spoke with about the survey results indicated concerns that banks could dial back on technology spending due to the profitability pressures facing the industry. However, given the changes we’ve seen, I don’t believe it’s sustainable to dial back on this investment.

That leaves bank leaders facing a few key challenges, starting with determining where to invest their technology dollars. It’s difficult to gauge where the wind will blow, but the survey provides solid clues: 42% believe process automation will be one of the most important technologies affecting their bank, followed by data analytics (39%). Almost 40% believe the security structure to be vitally important; cybersecurity is a perennial concern for bank leaders and as banking grows more digital, this will require additional investment.

Additionally, 64% told us that modernizing their bank’s digital applications forms a core element of their bank’s strategy.

Implementing new technology requires expertise, and the 2020 Compensation Survey found most respondents (79%) telling us that it’s difficult to attract technology and digital talent.

But this may not mean bringing data scientists or other highly-specialized roles on staff. Olney, Maryland-based Sandy Spring Bancorp hired a senior data strategist who is responsible for the use, governance and management of information across the organization; that individual also reviews vendor capabilities and identifies areas that help the bank achieve its goals. “The senior data strategist should be on the lookout for ways to find opportunities for and through data analytics, whether that’s predicting customer trends or finding new revenue-generating opportunities,” said John Sadowski, chief information officer at the $13 billion bank.

Finally, 69% told us their bank didn’t streamline vendor due diligence processes in response to Covid-19. As technology adoption accelerates, consider whether your bank’s third-party management process is sufficiently comprehensive, while still allowing it to quickly and efficiently put new solutions into place. 

Work-From-Home Will Alter the Workplace
The 2020 Compensation Survey found that banks almost universally implemented or expanded remote work options as a result of the pandemic; the 2020 Technology Survey later told us that for many banks (at least 42%) that change will be permanent for at least some of their staff.

In late October, $96 billion Synchrony Financial — a direct, virtual bank — announced that remote work will become permanent for its employees, allowing them to choose from three options. Some can simply work from home. Others can schedule office space, while some will have an assigned desk. This third group includes executives, who will be asked to work remotely at least a couple days a week to reinforce the cultural shift.

It’s a move that the bank believes will make employees happy, but it also promises to yield significant cost savings by cutting real estate expenses.

It could also yield competitive benefits for banks seeking top talent. Glacier Bancorp, for example, doesn’t limit hires to its Kalispell, Montana-based headquarters — instead, it hires anywhere within its multi-state footprint. That helps the $18 billion bank recruit the technology talent it needs, human resources director David Langston told me in May.

Remote work is a cultural shift that many bank executives will be reticent to make. But even if a long-term remote work option doesn’t align with your bank’s culture, offering flexibility will help support employees, who have their own struggles at home with virtual schooling or caring for high-risk family members.

Too often, working parents are forced to choose between their children and their career, meaning companies are losing valuable employees or, in the least, productivity.

A recent McKinsey study finds that a lack of flexibility, among other issues, drives women in particular to leave the workforce. The authors also advise that companies “should look for ways to re-establish work-life boundaries” — putting policies in place to assure meeting times and work communications occur within set hours, and encouraging employees to take advantage of flexible scheduling. Unfortunately, employees often worry that taking advantage of these benefits will damage their reputation at work. “To mitigate this, leaders can assure employees that their performance will not be measured based on when, where, or how many hours they work. Leaders can also communicate their support for workplace flexibility [and] can model flexibility in their own lives. … When employees believe senior leaders are supportive of their flexibility needs, they are less likely to consider downshifting their careers or leaving the workforce.”

Flexibility and remote work can help companies retain valued employees.

It’s difficult to change a culture, especially if you believe that what you’re doing works. But sometimes, culture can change around you.  I’d encourage you to approach these issues with fresh eyes to ensure your leadership team can direct the change — not the other way around.

Don’t Put Diversity on the Backburner
Almost half of respondents to Bank Director’s 2020 Compensation Survey told us their bank doesn’t measure its progress around diversity and inclusion, indicating to me that they don’t have clear objectives around creating an inclusive culture that hires, retains and rewards employees despite race, ethnicity or gender.

Further, just 39% of the CEOs and directors responding to our 2020 Governance Best Practices Survey told us their board has several members who are diverse, based on race, ethnicity or gender. And almost half believe that diversity’s impact on a company’s performance is overrated.

Employees and customers take this issue seriously. Rockland, Massachusetts-based Independent Bank Corp., which has been recognized for LGBTQ workplace equality by the Human Rights Campaign since 2016, incorporates inclusion in its “cycle of engagement.” This starts with engaged employees who provide a higher level of service that delights customers, resulting in strong financial performance for the institution, allowing the company to invest back into its employees — continuing the virtuous cycle.

The $13 billion bank’s culture promotes respect, teamwork, empathy — and inclusion, COO Robert Cozzone told me in a recent interview. “Think about working for a company where you enjoy being around the people that you work with, you enjoy the work that you do, you buy into the mission of the company — you’re going to be much more productive than if you don’t have those things,” he says. Today, “It’s all that more important to show [employees] care and empathy and understanding.”

Small, rural banks may believe it’s difficult to hire diverse talent, making it nearly impossible for them to tackle this issue. Expanding remote work options, mentioned earlier, can help. But ultimately, it’s an issue that companies nationwide will need to address as the demographics of the country change. “We all need to do better [on] diversity and inclusion,” one survey respondent wrote. “Many of us out in rural America don’t have as many opportunities, but we need to keep this topic front of mind, and [read] information and stories on how to be more intentional.”

Directors Must Be Engaged and Educated
The 2020 Governance Best Practices Survey also found 39% indicating that at least some members of their board aren’t actively engaged in board meetings; 36% said some members don’t know enough about banking to provide effective oversight.

That survey, conducted just before the pandemic effectively shut down the U.S. economy, found executives and directors identifying three top challenges to the viability of their institution: pressure on net interest margins (53%), meeting customer demands for digital options (40%) and industry consolidation and the growing power of big banks. Further, most directors said that staying on top of the changes occurring in the industry is one of the great challenges facing their board.

Confronting these issues will require engaged and knowledgeable leadership.

Bank Director’s 2020 Compensation Survey, sponsored by Compensation Advisors, surveyed 265 independent directors, CEOs, human resources officers and other senior executives of U.S. banks to understand trends around the acquisition of talent, CEO performance and pay, and director compensation. The survey was conducted in March and April 2020.

Bank Director’s 2020 Technology Survey, sponsored by CDW, surveyed more than 150 independent directors, CEOs, chief operating officers and senior technology executives of U.S. banks to understand how technology drives strategy at their institutions and how those plans have changed due to the Covid-19 pandemic. It also includes compensation data collected from the proxy statements of 98 public banks. The survey was conducted in June and July 2020.

Bank Director’s 2020 Governance Best Practices Survey, sponsored by Bryan Cave Leighton Paisner, surveyed 159 independent directors, chairmen and CEOs of U.S. banks under $50 billion in assets to understand the practices of bank boards, including board independence, discussions and oversight, engagement and refreshment. The survey was conducted in February and March 2020.

Bank Director has published several recent articles and videos about issues related to today’s economic environment. Our Online Training Series includes units on “Managing the Balance Sheet in a Zero-Rate Environment” and “Managing Through the Coronavirus Pandemic.” You may also consider watching Bank Director Editor at Large Jack Milligan’s conversation with Huntington Bancshares CEO Steve Steinour, which focuses on “Strategic Planning in an Age of Uncertainty.”

Our Bank Services membership program also includes licenses to FinXTech Connect, which helps banks identify technology providers. You can find out more about that tool and how to access it here.

Embracing Gender Diversity as a Pathway to Success

A prolonged flat yield curve, economic contraction, increasing compliance and technology costs, not to mention the pandemic-induced pressure on stock valuations, have left banks in a difficult operating environment with limited opportunities for profitability.

Yet, there is an untapped opportunity for banks to capitalize on a strong and growing talent pool and profitable customer base: women. Research repeatedly shows that increasing gender diversity on bank boards and in C-suites drives better performance. Forward-thinking banks should look to women in their communities for growth inside and outside the institution.

Women now receive nearly 60% of all degrees, make up 50% of the workforce and, prior to the pandemic, held more jobs in the U.S. than men. They are the primary breadwinner in over 40% of U.S. households and comprise more than 50% of stock owners. A McKinsey & Co. report found that U.S. women currently control $10.9 trillion in assets; by 2030, that could grow to as much as $30 trillion in assets. Women also started 1,821 net new businesses a day in 2017 and 2018, employing 9.2 million in 2018 and recording $1.8 trillion in revenues. Startups founded by women pulled in $18.6 billion in investments across 2,304 deals in 2019 — still, lack of capital is the greatest challenge reported by female small business owners.

Broadly, research also supports a positive correlation between a critical mass of gender diversity in leadership and performance.

A study of tech and financial services stocks found a 20% increase in stock price momentum within 24 months of appointing a female CEO, a 6% increase in profitability and 8% larger stock returns with a female CFO. And they may achieve better execution on deals. In a review of 16,763 publicly announced M&A transactions globally over the last 20 years, boards that were more than 30% female performed better in terms of stock price and operational metrics than all-male boards.


Note: Performance metrics are market-adjusted
Source: M&A Research Centre at Cass Business School, University of London and SS&C Intralinks: “Gender Diversity and M&A Outcomes; How Female Board-Level Representation Affects Corporate Dealmaking” (February 2020)

But as of 2018, women held just 40 CEO positions at U.S. public banks, or 4.31%. Nearly 20% of banks have no women board members; the median is just over 16%. Banks should start by gender diversifying their boards; gender-diverse boards lead to gender-diverse C-suites.

Usually, boards feature an “accidental” composition that results from social norms: board members source new directors from their social and immediate networks. An intentional board, by comparison, is deliberate in composing a governance structure that is best equipped to evaluate and address current demands and future challenges. Boards can address this in three ways.

  1. Expand your networks. The median male board member has social connections to 62% of other men on their boards but no social connections to women on their boards. Broaden the traditional recruitment channels to ensure a more qualified, diverse slate.
  2. Seek diverse skill sets. Qualified female candidates may emerge through indirect career paths, other sectors of the financial industry or are in finance but outside of financial services. Women with nonprofit experience and small business owners can bring local market knowledge and relevant experience to bank boards.
  3. Insist on gender diverse slates. A diverse slate of candidates negates tokenism, while a diverse interviewer slate demonstrates to candidates that your bank is diverse.

But diversity in recruiting and hiring alone won’t improve a bank’s performance. To be effective, a diverse board must intentionally engage all members. Boards can address this in three ways.

  1. Ensure buy-in. Support from key board members when it comes to diversifying your board is critical to success. Provide coaching for inclusive leadership.
  2. Review director on-boarding and ongoing engagement. Make sure it’s welcoming to people with different connections or social backgrounds, builds trust and facilitates open communication.
  3. Thoughtful composition of board committees. Integrate new directors into the board’s culture and make corporate governance more inclusive and effective.

The long-term performance benefits of a gender diverse board and c-suite are compelling, especially in the current challenging operating environment for banks. Over time, an intentional board and C-suite that mirrors the gender diversity of your bank’s key constituents — your customer base, your employee base and your shareholder base — will out-perform banks that do not adapt.

Combatting Employee Malaise During the Pandemic

The coronavirus pandemic has upended how people work, and how they feel about that work — changes that may persist over the long term.

While many companies have adjusted to working remotely, the uncertain duration of the pandemic has left some employees feeling a sense of malaise and listlessness. Bank Director reached out to Brendan Smith, who holds both a clinical therapy degree and an MBA, to learn more about how office workers, managers and business leaders can address these feelings and prepare for the future.

As “The Workplace Therapist,” Smith helps companies eliminate workplace dysfunction through workshops, executive coaching, consulting and content on his blog, podcast and books. This conversation has been lightly edited for length and clarity.

BD: What is your read of where the U.S. workforce is, five months into the coronavirus pandemic, based on what you’re hearing?
BS:
2020 has been an interesting year from the workplace standpoint. The biggest word I’m hearing from people who come to me is “motivation.” They’re not motivated anymore. Part of the reason why is they’re stuck. Every day is the same thing: coming down into their office, getting on the same Zoom calls at the same time. There’s no variety.

The other interesting thing that happened is that when people first started working virtually, they said, “I have all this free time because I’m not commuting.” Everyone realized that and started using what would have been commute time to schedule meetings. A lot of people I talk to have meetings starting at 7:30 or 8 in the morning, and have meetings that go all the way to 6:30 in the evening.

BD: A lack of motivation is also a problem for workplaces even in normal environments. What’s different about this broader lack of motivation?
BS:
The lack of motivation before was really tied to lack of growth: I’m not growing at the pace I want, I don’t have the right opportunities in front of me, I’m wanting something else. This is different. This lack of motivation is tied to feeling stuck or trapped: I don’t have options, I’m stuck doing the same thing over and over again, I can’t go out and explore. People feel like they’re out of options.

BD: Why is a lack of motivation detrimental to the workplace and why do employers and managers need to address it?
BS:
The lack of motivation results in people doing the bare minimum. That’s detrimental right now because everybody has things they need to be working on: pivoting, changing, adapting to survive. Survival requires more than the bare minimum. If everyone at your company is doing the bare minimum, you’re a sinking ship.

BD: What are you telling people dealing with this unique lack of motivation? How can people adapt or transition to this new environment and new reality?
BS:
What’s happening is that we thought things would come back to normal by this point but now, it feels more a rollercoaster: we’re going down another hill, and we’re not sure when the coaster will end. That uncertainty breeds anxiety, and it contributes even more [to the] feeling of [being] trapped.

Let’s talk about how you get out of this. There was a famous theologian at Emory University’s theology school named Jim Fowler who used to say “You want to give people hope and handles.” Hope and handles is the best antidote for the time we’re in now.

With hope — people need to anchor to something in the future that motivates and excites them. We know that there will be some kind of normal, at some point in the future. We just don’t know when.

What handles represents is “What can I do now?” In times of uncertainty, one antidote is clarity. While we can’t be clear on how things are going to look a month from now, we can be clear on this week. What’s something people can do this week that either leads them towards something they’re excited about in the future, or gives them what they need?

BD: Do you recommend fewer Zoom calls as well? Or is there anything that managers can do to bring hope and handles for their employees?
BS: Hope and handles is for everybody. But one thing that managers need to do in times of chaos is create more structure and consistency, while also mixing in some variety. Maybe it’s not always a Zoom call — I’ve been recommending people switch video calls into phone calls.

From a motivation standpoint, I think it’s healthy for managers to have some hope and handles conversations right now with members of their team, to help people reframe and feel a little more in control. Something like, “I know we’re stuck in this hamster wheel now, but when things get back to normal, what is one thing you want to either do more of, change or improve for your role specifically?” Or for something a little more structured, there’s a simple technique of asking three questions: Stop, start, continue. “What’s one thing that you think we should stop? What’s one thing we should start doing differently? And what’s one thing we should continue?”

The other thing I would say to managers is to really work on honoring and protecting boundaries. Boundaries are really important for us in life. The way technology has evolved has broken down all natural boundaries between work and home. For me, protecting boundaries is not doing work calls outside of certain hours. Managers need to recognize that everyone’s experiencing the blending of work and life now, and be respectful of people’s boundaries and the needs of their particular situation.

BD: I understand that a lot of the advice for helping people cope is to remind them of a more-normal future. But do you have any advice to help people become more comfortable with the ambiguity in the present?
BS: Let’s talk about this from a business or banking standpoint. There’s a school of thought that strategic planning is silly, because no one can see into the future and there are too many variables.

What you should consider doing instead is an exercise called “scenario planning.” You map out different scenarios and factor in the variables that may change; for example, rising or lowering Covid-19 infection rates. If it lowers and then everything gets to a healthy point, then what [does] the economy look like? If it goes up, what happens? If it stays flat, what happens? While you can’t predict the future, you’ve got enough different scenarios of what might happen so that when the future does start to unfold, you just map it to one of your scenarios.

It probably would not be unhealthy for managers to do a bit of planning with their teams on how they want to handle the remainder of the year. We’ve got enough months under our belt doing this virtual thing that it would probably would be a healthy exercise for teams to create a plan of how you want to operate, assuming that this is going to be the way that that we roll.

Realities Beyond the Balance Sheet Facing Bank Buyers

Financial leaders face new and unique challenges as the navigate the remainder of this year and well into 2021.

The early reads on credit quality, credit access, operational and execution risk, regulatory oversight impacts and dimming growth prospects paint a bleak picture. Underlying this environment is an ongoing consideration for consolidation forcing institutions to assess their long-term viability. A closer examination of tangible book values clearly demonstrates who could be the buyers and potential sellers.

So, what is so different for M&A now? I have always believed that no two deals are the same —and that remains true. In the past, we may have looked solely at regulatory good standing, loan concentration, deposit pricing and distribution like geography and branches. While these remain fundamentally most important at the core, we now fully expect to see a heightened focus in due diligence around key layers of bank leadership, corporate culture and values, ability to deliver digital offerings to key customer segments, financial literacy programs and community investment.

A recent study by Deloitte noted that more than ever, bank M&A strategies need the right tools, teams and processes — from diligence through integrations — to pull off successful mergers. Additionally, buyers need to consider the compatibility and integration of any digital tools and how they will meet customer expectations. Can your bank deliver what these customers expect?

Most institutions looking to acquire or be acquired need to address several non-financial topics when considering how to proceed. Five in particular are consistently under-communicated by acquirers and will be even more impactful moving forward. These items speak to the fit of the merger partners — the intangible elements that cause the difference between a high customer retention rate with a platform for organic growth or a tepid retention rate with little sign of future organic growth.

1. Strategic Leadership
How an institution’s leaders navigated the recent Covid-19 pandemic says a lot about what investors, employees, customers and communities can expect if it merges with another bank. For example, the Small Business Administration’s Paycheck Protection Program may have given some banks lessons and plans that may make them potential partners worth exploring. No one knows what lies ahead, but strategic leaders must be able to think, clarify and execute during these new M&A conditions.

2. Bank Culture and Values
Most banks have a mission, vision and values statements. Until the current environment, how leaders must lead to make employees feel included and valued had not been challenged. But in almost every M&A engagement, there are significant segments of impacted employees and customers that experience uncertainty and fear. Demonstrated values can go a long way to secure trust and help the execution of these transactions succeed.

3. Digitization Expectations for Employees and Customers
Many institutions were not prepared for what occurred earlier this spring. Disaster recovery and business resumption plans were a solid start, but many were insufficient for this type of event, requiring operations and services to move off-site in a matter of days.

But aside from the initial challenges of the PPP, most banks appear to have done an outstanding job of helping employees work from home without too much customer disruption. This operating model will be the new way forward in banking. When banks merge, it is important to understand how each institution’s plan worked, and how much or little displacement that model could be for employees and customers going forward.

4. Financial Literacy and Inclusion
The reality of how our country has operated over decades has come into focus during the pandemic. One issue that many banks have identified is access to capital and providing banking services in a service-blind manner going forward. Financial literacy and inclusion must be a tenet in creating a more-effective banking system. Aligning how these programs can work, collaboration and inclusiveness can create a platform for capital distribution that works with any institutional strategy and grows exponentially after a merger.

5. Community Investment
Many institutions have invested significantly in community programs over the years. In a merger, these groups need to understand what the plan for that support will be going forward. The pandemic has made it even more important to discuss and support these investments in communities, given the struggle of many organizations these days. While these five items are not exhaustive, we know that they are among the top issues of executives, employees and customers at prospective selling institutions.

Leading Through Crisis

In the early 2000s, The LEGO Group was on the verge of collapse.

It sounds hard to believe today, since the company is one of the largest and most successful toy sellers in the world. But in 2003, the Denmark-based company was on the brink of insolvency, with massive debt and a negative cash flow of DKK $1 billion.

LEGO needed new leadership. It promoted Jørgen Vig Knudstorp, a former consultant, to CEO. Along with Chief Financial Officer Jesper Ovesen — a former banker — Knudstorp gradually righted the ship by instilling organizational discipline and forming a strong financial foundation for the company.

The new executives were brutally honest with LEGO’s board and employees about the challenges the company faced. To survive, everyone needed to focus on turning things around, correcting the company’s problems so they could plan its future.

That required clear thinking and a dose of reality.

“Before LEGO could even begin to reignite a sense of what was possible for LEGO, they first had to persuade people that decades of unfettered growth offered no assurance that the company would ever get its groove back,” writes David Robertson in “Brick by Brick: How LEGO Rewrote the Rules of Innovation and Conquered the Global Toy Industry.”

Crises come in all shapes and sizes. They can be small and isolated in a single company, like LEGO’s need to refocus itself after years of mismanagement. Or they can be caused by broader, external factors that affect industries and economies.  

No matter the source, crises call for strong leadership. The coronavirus pandemic is just the latest example.

Carla Harris, vice chairman of wealth management and a senior client advisor at Morgan Stanley, shares what leaders today must do to weather the current crisis in a discussion that kicks off Microsoft’s Envision Virtual Forum for Financial Services.

First, great leaders are visible, says Harris. “There’s something powerful in being able to see the person that you’re following.”

They’re also transparent and empathetic. Employees and other stakeholders “want to see empathy, but they also want to see confidence and positivity,” she says. It’s an uncertain environment, and we’re all feeling a wide range of emotions due to the health and economic consequences of this crisis.

“One of the biggest learning moments for me as a leader was watching financial services leadership during the financial crisis. There were some leaders who didn’t really say anything to their people, and there were some leaders who were out front every day,” she says. Harris has spent over three decades on Wall Street, joining Morgan Stanley in 1987. “There was a regular cadence that people came to rely on, and that was frankly empowering.”

While the unfolding crisis is unique even among crises, with an especially broad range of potential outcomes, leaders have arguably never been better equipped from a technology standpoint to take action. Companies may be locked down for the most part, with employees largely working remotely, but leaders can still communicate directly with staff. For example, Boston-based State Street Corp. uses video conferencing technology to host virtual forums where employees can interact with senior executives to get answers to their questions.

Harris also recommends that leaders be flexible in today’s environment and open themselves up to input from diverse viewpoints. Strategic goals may shift in response to the Covid-19 environment, or leaders may need to consider new ways to achieve their objectives. “Don’t have rigid views of what you think things are going to look like on the other side” of this crisis, she says. “This is the time now to be an inclusive leader, and the hallmark of being an inclusive leader is to solicit other peoples’ voices.”

I’d suggest one addition to the actions Harris outlines, based on my conversations with business leaders like Horst Schulze, the co-founder and former president of the Ritz-Carlton Hotel Co.

Lead with purpose.

There is no one-size-fits-all personality for leaders, and leadership skills are developed over time. But all great leaders share one trait: They have a vision and inspire employees to achieve it.

“We need leadership,” says Schulze. “Leadership implies, ‘I have a destination in mind.’ It means, ‘I show my people the destination, and I show them how it’s beautiful for them, how it’s great for them, how it’s exciting for them, how they should join me in reaching that destination.’”

Great leaders are rare. But in times like these, they can be the difference between surviving a crisis or thriving despite it.