Four Interesting Insights from Two Very Interesting Bankers

The greatest benefit of being a writer is that you get to talk with lots of interesting people. It’s a constant education. Particularly if you appreciate the opportunity and structure your conversations accordingly.

My style is to conduct broad interviews across a range of topics, whether all the topics are germane to the piece I’m working on at the moment or not. This has helped me construct a mental model of banking, but it also means that a lot of material is left on the cutting room floor, so to speak.

With this in mind, I decided to revisit some of the conversations I’ve had with bankers over the past few months to share the most interesting insights.

Foremost among these is a series of conversations with Robert and Patrick Gaughen, the CEO and president, respectively, of Hingham Institution for Savings, a $2.6 billion bank based in the Boston metropolitan area.

Since the Gaughens gained control of Hingham in 1993, following a two-year proxy contest with its former managers, it has generated a total shareholder return of more than 5,400%, according to my math. That’s more than double the total return of other well-run banks like JPMorgan Chase & Co. and PNC Financial Services Group.

One thing that strikes you when talking with the Gaughens is the depth and sophistication of their banking philosophy. All bankers understand banking. But some understand it on a deeper level than others — that’s the Gaughens.

They approach the industry as investors, or capital allocators, instead of bankers. This seems to be a product of the fact that both Robert Gaughen and his father — Patrick’s grandfather — practiced law before becoming de facto bankers in order to protect investments they had made in banks.

This may seem like a vacuous nuance, but it isn’t. It’s always tempting to subordinate the process of capital allocation to operational processes. After all, if your operations aren’t profitable, you won’t have excess capital to allocate.

What true capital allocators appreciate, however, is that the distinction between capital allocation and operations is nebulous. Everything can be viewed through the prism of capital allocation — from how many employees you hire to which technologies you implement to whether you increase your dividend or repurchase stock.

In this respect, capital allocation is less of a mechanical process than it is a mindset, concentrating one’s attention on measuring the return on each incremental decision.

Another interesting insight that came up in our conversations is the importance of studying other industries. Not only the importance of doing so, I should say, but why it’s so important to do so.

The drive to constantly learn is something that many people preach, but few people practice. This is an element of leadership that can’t be overstated. It serves as the common denominator underlying the performance of the most successful CEOs in banking.

It’s well known that banking is an acutely competitive and commoditized industry, and that those characteristics compress profit margins. But there are two other forces that lead to a lack of differentiation as well.

As Patrick points out, high consultant reuse and an overbearing regulatory schema contribute to a high degree of homogeneity in terms of the way banks are run. The net result is that studying other banks can be less fruitful than one might think.

This isn’t to say that a mastery of banking isn’t critical — it is. But after accumulating a critical mass of knowledge about best practices within banking, the incremental return from intermittently studying other industries, it seems, will exceed the return of concentrating exclusively on banking.

The final point that both Gaughens stress relates to the importance of skin in the game, or executive and director ownership of stock. In their case, their immediate and extended family owns upwards of 40% of Hingham’s outstanding stock. This provides a powerful incentive to care not only about the return on their capital, but also the return of their capital.

Many companies talk about the mystical benefits of alignment between executives and shareholders, as well as having employees that act like owners. But there is simply no substitute for having actual skin in the game. It hones one’s appreciation for the virtues of extraordinary banking, from efficiency to risk management to disciplined growth.

None of this is to say that the Gaughens have everything figured out; they would be the first to admit they don’t. But their philosophy and approach to banking is not only unique, but also tried and true.

When the Earnings Get Tough, the Mergers Get ‘Strategic’

Pressure on earnings and a continued evolution in bank operations could give rise to more “strategic mergers,” according to presenters during the first two days of Bank Director’s 2020 Acquire or Be Acquired Conference.

Deal activity, specifically “strategic mergers,” could accelerate in 2020 because of slowing growth and continued momentum in the space, say presenters ranging from the heads of investment banks to CEOs who had undertaken or announced their own transformational mergers. Factors like declining interest rates and a decreasing number of potential partners could motivate executives to look to acquisitions to leverage capital, add growth or find scale and efficiencies.

Community banks across the country are grappling with the realization that superregionals like BB&T Corp. and SunTrust Banks decided last year to combine to form Truist Financial in a bid for scale — and what those decisions mean for their own prospects, says Gary Bronstein, a partner at Kilpatrick Townsend & Stockton. In a nonscientific, real-time poll conducted during one session, 48% of respondents believe their bank will be an acquirer during the year, with a plurality seeking to either acquire core deposits or gain scale.

One reason could be that loan growth among small and mid-cap banks has been slowing since 2015, says Keefe, Bruyette & Woods President and CEO Tom Michaud. His firm is modeling no earnings per share growth for these banks in 2020 because of net interest margin compression. At the same time, banks’ net income has been bolstered by share repurchases: excluding buybacks, earnings per share would be lower by 6% in 2020, and log no growth in 2021.

Bigger banks have been thinking about how to achieve meaningful, strategic change that can jumpstart internal transformation and external results. Enter the “strategic merger,” Michaud says, which his firm defines as transactions where the target owns 25% or more of the pro-forma company. Many of these recent deals have been among regionals and were structured as mergers-of-equals, which helped define M&A activity in 2019.

The MOEs are back. That was a popular method of consolidation in 2019, and I believe we’re going to see more of it,” he says. “It is the major theme as to how this industry is consolidating.”

Indeed, for the second year in a row, the conference coincided with an MOE announcement — this time, between Winter Haven, Florida-based CenterState Bank Corp and Columbia, South Carolina-based South State Corp. to form a Southeastern institution with $34 billion in assets.

The financial attractiveness of these deals is undeniable, say investment bankers and executives: the no-premium deals carry low dilution and quick tangible book value earn-back periods as well as double-digit earnings per share accretion and enviable returns on tangible common equity. The logic seemed to resonate with attendees: 61% of respondents during the nonscientific, real-time poll conducted during a session indicated they would consider an MOE during the year.

“These deals are being structured to make these companies more profitable … and to build better companies,” he says.

Michaud wasn’t the only presenter convinced that MOE interest and momentum will continue this year. Joe Berry, managing director and co-head of depositories investment banking at Keefe, Bruyette & Woods, points out the potential stock outperformance of certain MOEs and other strategic mergers, especially after they announce capital actions.

But recording the eye-popping results from a strategic merger only comes about after the “soft issues” are hammered out, Berry says. The MOE announcement between TCF Financial Corp. and Chemical Financial Corp., which occurred during the 2019 Acquire or Be Acquired conference, was motivated partially by a desire to achieve scale to serve larger credits, says David Provost, executive chairman at TCF Bank. The bank is now based in Detroit and has $45.7 billion post-merger. But first, executives needed to negotiate a “reverse divorce” to determine the new name and headquarters location.

It then comes down to who gets the dog, and you both love the dog. That’s the CEO title,” he says. Deal filings indicated that Provost “was going take the dog for 18 months and then [President and CEO Craig Dahl] was going to take the dog. In the end, I decided to give up the dog and create $1 billion in value for shareholders.”

The MOE catalyst has not been limited to regional banks. Randy Greene, president and CEO of Richmond, Virginia-based Bay Banks of Virginia, says an MOE transformed his bank. The 2016 deal allowed two more-rural based banks to combine and move to a more-urban area; Bay Banks now has $1.1 billion in assets.

But bankers contemplating an MOE must also ensure that internal expansion doesn’t erode the strategic financial gains of the deal. BJ Losch, CFO at $43.3 billion First Horizon National Corp., says the bank is trying to “become bigger without becoming big” as part of its MOE with Lafayette, Louisiana-based IBERIABANK Corp.

An MOE allows a bank to “build Star Wars from an IT perspective, but then you become big —like the bigger banks that you want to be more nimble than,” he says.

The MOE spared Memphis, Tennessee-based First Horizon and IBERIA from needing an “upstream” buyer, says fellow panelist Daryl Byrd, IBERIA’s current president and CEO, who will serve as the pro forma bank’s executive chairman. The dearth of potential buyers has emerged as a competitive dynamic for institutions of all sizes, including the $31.7 billion bank.

“It’s a musical chair game and you don’t want to be left without a chair. And we recently lost two very big chairs,” he says.

Michaud points out that many of the companies involved in these strategic mergers are “really good banks in their own right,” deserving of their independence. These executives do not need to find a merger partner but believe the transactions’ defensive attributes will allow them to keep up with digital transformations and changes in the bank space down the road.

He says executives are asking, “‘If we don’t do this, what’s the industry going to look like in three to five years? How relevant are we going to be and how much are we going to … make sure our shareholders have a long-term play here?’”

On the Docket of the Biggest Week in Banking

Think back to your days as a student. Who was the teacher that most inspired you? Was it because they challenged your assumptions while also building your confidence?

In a sense, the 1,312 men and women joining me at the Arizona Biltmore in Phoenix for this year’s Acquire or Be Acquired Conference are in for a similar experience, albeit one grounded in practical business strategies as opposed to esoteric academic ideas.

Some of the biggest names in the business, from the most prestigious institutions, will join us over three days to share their thoughts and strategies on a diverse variety of topics — from lending trends to deposit gathering to the competitive environment. They will talk about regulation, technology and building franchise value. And our panelists will explore not just what’s going on now, but what’s likely to come next in the banking industry.

Mergers and acquisitions will take center stage as well. The banking industry has been consolidating for four decades. The number of commercial banks peaked in 1984, at 14,507. It has fallen every year since then, even as the trend toward consolidation continues. To this end, the volume of bank M&A in 2019 increased 5% compared to 2018. 

The merger of equals between BB&T Corp. and SunTrust Banks, to form Truist Financial Corp., was the biggest and most-discussed deal in a decade. But other deals are worth noting too, including marquee combinations within the financial technology space.

In July, Fidelity National Information Services, or FIS, completed its $35 billion acquisition of Worldpay, a massive payment processor. “Scale matters in our rapidly changing industry,” said FIS Chairman and Chief Executive Officer Gary Norcross at the time. Fittingly, Norcross will share the stage with Fifth Third Bancorp Chairman and CEO Greg Carmichael on Day 1 of Acquire or Be Acquired. More recently, Visa announced that it will pay $5 billion to acquire Plaid, which develops application programming interfaces that make it easier for customers and institutions to connect and share data.

Looking back on 2019, the operating environment proved challenging for banks. They’re still basking in the glow of the recent tax breaks, yet they’re fighting against the headwinds of stubbornly low interest rates, elevated compliance costs and stiff competition in the lending markets. Accordingly, I anticipate an increase in M&A activity given these factors, along with stock prices remaining strong and the biggest banks continuing to use their scale to increase efficiency and bolster their product sets.

Beyond these topics, here are three additional issues that I intend to discuss on the first day of the conference:

1. How Saturated Are Banking Services?
This past year, Apple, Google and Facebook announced their entry into financial services. Concomitantly, fintechs like Acorns, Betterment and Dave plan to or have already launched checking accounts, while gig-economy stalwarts Uber Technologies and Lyft added banking features to their service offerings. Given this growing saturation in banking services, we will talk about how regional and local banks are working to boost deposits, build brands and better utilize data.

2. Who Are the Gatekeepers of Customer Relationships?
Looking beyond the news of Alphabet’s Google’s checking account or Apple’s now-ubiquitous credit card, we see a reframing of banking by mainstream technology titans. This is a key trend that should concern bank executives —namely, technology companies becoming the gatekeepers for access to basic banking services over time.

3. Why a Clear Digital Strategy Is an Absolute Must
Customer acquisition and retention through digital channels in a world full of mobile apps is the future of financial services. In the U.S., there are over 10,000 banks and credit unions competing against each other, along with hundreds of well-funded start-ups, for customer loyalty. Clearly, having a defined digital strategy is a must.

For those joining us at the Arizona Biltmore, you’re in for an invaluable experience. It’s a chance to network with your peers and hear from the leaders of  innovative and elite institutions.

Can’t make it? We intend to share updates from the conference via BankDirector.com and over social media platforms, including Twitter and LinkedIn, where we’ll be using the hashtag #AOBA20.

Bank M&A: Setting Expectations for 2020

What’s driving bank M&A today? That’s one of the questions explored in Bank Director’s 2020 Bank M&A Survey, sponsored by Crowe LLP. In this video, Crowe Partner Rick Childs explains how M&A drivers and barriers will impact deal activity in 2020. He also weighs in on how to effectively measure the success of a transaction and shares the important role strategic discipline plays in achieving long-term success.

  • Pricing Expectations
  • Defining a Successful Deal
  • Predictions for 2020

In accordance with applicable professional standards, some firm services may not be available to attest clients. © 2020 Crowe LLP, an independent member of Crowe Global.   crowehorwath.com/disclosure

2019 Survey Results! Here’s How Banks Are Spending Money on Technology

The desire to streamline customers’ experience and improve efficiency is driving bank technology strategies across the industry, as most executives and directors believe their offerings are “adequate,” according to Bank Director’s 2019 Technology Survey, sponsored by CDW.

The survey, conducted in June and July 2019, reflects the views of CEOs, technology executives and independent directors. It seeks to better understand bank strategies, staffing and budgets around technology and innovation, as well as banks’ relationships with legacy core providers and newer vendors.

Seventy-eight percent of survey respondents say that improving the customer experience is a top objective driving their bank’s strategy around the investment, development and implementation of technology. Seventy-two percent say that fueling efficiency is a top objective.

These strategic objectives are driving where banks are investing in technology: 68% say they’re investing in automation in fiscal year 2019, and 67% are investing money to enhance the bank’s digital channels.

Most banks rely on their core provider to advance these goals. The cores are the primary providers for many of the technologies used by banks today, including application programming interfaces (68% say that API technology is provided by the core), business process automation (43%), data aggregation (42%) and peer-to-peer (P2P) payments (47%).

That relationship isn’t stopping many banks from searching for new potential partners; 60% are willing to work with newer fintech startups. The survey finds that the use of alternate providers is gaining ground, in particular when it comes to the cloud (57%), data aggregation (25%) and P2P payments (29%).

Despite the rise of the digital channel, 51% of respondents say the branch is equally important to online and mobile channels when it comes to growing the bank. More than half indicate they’re upgrading branch and ATM technology.

Just 30% say that driving top-line growth fuels their technology strategy, which indicates that most banks see technology as a way to save money and time as opposed to generating revenue.

Key Findings

  • Loyal to the Core. More than half of respondents say their core contract expires within the next five years. Sixty percent say they’re unlikely to switch to a new provider.
  • But Banks Aren’t Satisfied. Just 21% say they’re completely satisfied with their core provider.
  • Technology Pain Points. Sixty percent say their current core provider is slow to provide innovative solutions or upgrades to their bank, and almost half cite difficulty in implementing new solutions. These are major sticking points when 60% rely on their core provider to introduce innovative solutions.
  • It’s All on IT. Almost three-quarters point to the senior technology executive as the individual responsible for identifying, developing and implementing technology solutions. Almost half task a management-level committee to make decisions about technology.
  • Rising Budgets. Forty-five percent say their technology budget has risen between 5% to 10% for FY2019. Almost one-quarter report an increase of more than 15%. Responding banks budgeted a median of $750,000 for FY2019.
  • Where the Money’s Going. In addition to automation, digital enhancements and branch improvements, banks are hiring consultants to supplement in-house expertise (50%), and bringing on additional employees to focus on technology and innovation (43%).
  • Data Gap. Almost half describe their bank’s data analytics capabilities as inadequate.
  • More Expertise Needed. Fifty-three percent say technology is on the agenda at every board meeting — up three points from last year’s survey. Yet, 80% say the board needs to enhance its technology expertise. Forty-three percent say they have a technology expert on the board.
  • Cybersecurity Top of Mind. Protecting the bank from cyberattacks dominates board technology discussions, according to 96% of respondents. Many boards also focus on process improvements (63%) and implementing innovative customer-facing technology (46%).

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

The Strategic Side of Cybersecurity Governance


cybersecurity-8-7-19.pngWithout a comprehensive cyber risk governance strategy, banks risk playing Whac-A-Mole with their cybersecurity.

Most financial institutions’ cybersecurity programs are tactical or project-oriented, addressing one-off situations and putting out fires as they arise. This piecemeal approach to cybersecurity is inefficient and increasingly risky, given the growing number of new compliance requirements and privacy and security laws. Institutions are recognizing that everyone in the C-suite should be thinking about the need for a cyber risk governance strategy.

There are three key advantages to having a cyber risk governance strategy:

  • Effectively managing the audit and security budget: Organizations that address current risks can more effectively prepare for cybersecurity threats, while meeting and achieving consistent audit results. A thorough risk assessment can highlight real threats and identify controls to evaluate on an ongoing basis through regular review or testing.
  • Reducing legal exposure: Companies and their officers can reduce the potential for civil and criminal liability by getting in front of cybersecurity and demonstrating how the institution is managing its risk effectively.
  • Getting in front of cybersecurity at an organizational level: Strategic planning is an important shift of responsibility for management teams. It proactively undertakes initiatives because it’s the right thing to do, versus an auditor instructing a company to do them.

So what’s required to set up a cyber risk governance strategy? Most organizations have talented individuals, but not necessarily personnel that is focused on security. Compounding the industry shortage of cybersecurity professionals, banks may also lack the resources necessary to do a risk assessment and ensure security practices are aligned to the cyber risk governance. As a result, banks frequently bring in vendors to help. If that’s the case, they should undertake a cyber risk strategy assessment with the help of their vendor.

Bank boards can perform a cyber risk governance strategy assessment in three phases:

  1. An assessment of the current cyber risk governance strategy. In phase one, a vendor’s team will review a bank’s current organizational and governance structure for managing information security risk. They’ll also review the information technology strategic plan and cybersecurity program to understand how the bank implements information security policies, standards and procedures. This provides a baseline of the people and processes surrounding the organization’s cyber risk governance and information security risk tolerance.
  2. Understand the institution’s cyber risk footprint. Here, a vendor will review the technology footprint of customers, employees and vendors. They’ll look at internal and external data sources, the egress and ingress flow of data, the data flow mapping, the technology supporting data transport and the technology used for servicing clients, employees, and the third parties who support strategic initiatives.
  3. Align information security resources to cyber governance goals. In phase three, a vendor will help the bank’s board and executives understand how its people, process and technology are aligned to achieve the company’s institution’s cyber governance goals. They’ll review the bank’s core operations and document the roles, processes and technology surrounding information security. They’ll also review the alignment of operational activities that support the bank’s information security strategic goals, and document effective and ineffective operational activities supporting the board’s cyber governance goals.

Once the assessment is complete, a bank will have the foundation needed to follow up with an operational analysis, tactical plan and strategic roadmap. With the roadmap in place, a bank can craft a cyber risk strategy that aligns with its policies, as well as an information security program that addresses the actual risks that the organization faces. Instead of just checking the boxes of required audits, bank boards can approach the assessments strategically, dictating the schedule while feeling confident that its cyber risks are being addressed.

What’s Trending at Acquire or Be Acquired 2019

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

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

Engaging Branch Staff to Build Merchant Services Momentum


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

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

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

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

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

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

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

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

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

Community Bank Succession Planning in Seven Steps


succession-6-25-19.pngSuccession planning is vital to a bank’s independence and continued success, but too many banks lack a realistic plan, or one at all.

Banks without a succession plan place themselves in a precarious, uncertain position. Succession plans give banks a chance to assess what skills and competencies future executives will need as banking evolves, and cultivate and identify those individuals. But many banks and their boards struggle to prepare for this pivotal moment in their growth. Succession planning for the CEO or executives was in the top three compensation challenges for respondents to Bank Director’s 2018 Compensation Survey.

The lack of planning comes even as regulators increasing treat this as an expectation. This all-important role is owned by a bank’s board, who must create, execute and update the plan. But directors may struggle with how to start a conversation with senior management, while executives may be preoccupied with running the daily operations of the bank and forget to think for the future of the bank without them. Without strong board direction and annual check-ins, miscommunications about expected retirement can occur.

Chartwell has broken down the process into seven steps that can help your bank’s board craft a succession plan that positions your institution for future growth. All you have to do is start.

Step 1: Begin Planning
When it comes to planning, there is no such thing as “too early.” Take care during this time to lay down the ground work for how communication throughout the process will work, which will help everything flow smoothly. Lack of communication can lead to organizational disruption.

Step 2: The Emergency Plan
A bank must be prepared if the unexpected occurs. It is essential that the board designates a person ahead of time to take over whatever position has been vacated. The emergency candidate should be prepared to take over for a 90-day period, which allows the board or management team time to institute short- and long-term plans.

Step 3: The Short-Term Plan
A bank should have a designated interim successor who stays in the deserted role until it has been satisfactorily filled. This ensures the bank can operate effectively and without interruption. Often, the interim successor becomes the permanent successor.

Step 4: Identify Internal Candidates
Internal candidates are often the best choice to take over an executive role at a community bank, given their understanding of the culture and the opportunity to prepare them for the role, which can smooth the transition. It is recommended that the bank develop a handful of potential internal candidates to ensure that at least one will be qualified and prepared to take over when the time comes. Boards should be aware that problems can sometimes arise from having limited options, as well as superfluous reasons for appointments, such as loyalty, that have no bearing on the ability to do the job.

Step 5: Consider External Candidates
It is always prudent for boards to consider external candidates during a CEO search. While an outsider might create organization disruption, he or she brings a fresh perspective and could be a better decision to spur changes in legacy organizations.

Step 6: Put the Plan into Motion
The board of directors is responsible for replacing the CEO, but replacing other executives is the CEO’s job. It is helpful to bring in a third-party advisory firm to get an objective perspective and leverage their expertise in succession and search. When the executive’s transition is planned, it can be helpful to have that person provide his or her perspective to the board. This gives the board or the CEO insight into what skills and traits they should look for. Beyond this, the outgoing executive should not be involved in the search for their successor.

Step 7: Completion
Once the new executive is installed, it is vital to help him or her get situated and set up for success through a well-planned onboarding program. This is also the time to recalibrate the succession plan, because it is never too early to start planning.