Conversing with Chief Cultural Officers

Bankers talk about the importance of culture all the time, and a few have created a specific executive-level position to oversee it.

Chief culture officer is an unusual title, even in an industry that promotes culture as essential to performance and customer service. The title was included in a 2016 Bank Director piece by Susan O’Donnell, a partner with Meridian Compensation Partners, as an emerging new title, citing the fact that personnel remain a critical asset for banks.

“As more millennials enter the workforce, traditional banking environments may need to change,” she wrote. “Talent development, succession planning and even culture will be differentiators and expand the traditional role of human resources.”

Yet a recent unscientific internet search of banks with chief culture officers yielded less than a dozen executives who carry the title, concentrated mostly at community banks.

One bank with a chief culture officer is Adams Community Bank, which has $618 million in assets and is based in Adams, Massachusetts. Head of Retail Amy Giroux was awarded the title because of her work in shifting the retail branches and staff from transaction-based to relationship-oriented banking, which began in 2005. Before the shift, each branch tended to operate as its own bank, with the manager overseeing the workplace environment and culture. That contributed to stagnation in financial performance and growth.

“We decided that we wanted to grow but to do that, we really needed to invest in our workplace culture,” she says. “When you think of a bank’s assets and liabilities, which represents net worth and capital, cultural capital becomes equally important.”

The bank’s reinvention was led by senior leadership and leveraged a training program from transformation consultancy The Emmerich Group to retrain and reorient employees. The program incorporated Adams’ vision and core values, as well as accountability through measurable metrics. Branch staff moved away from acting as “order-takers” for customers and are now trained to build and foster relationships.

“It’s worked for us,” says CEO Charles O’Brien. “We’re the go-to community bank for our customers, and they rave about how different we are. We’ve grown significantly over the last five years.”

As CCO, Giroux works closely with the bank’s human relations team on fulfilling the bank’s strategic initiatives, aligning operations with its vision and goals, creating a framework of visibility and deliverability for goals and holding employees accountable for performance. She reports to O’Brien, but says her efforts are supported by the whole executive team.

“A lot of times, people think that culture is invisible. They’ll sometimes say, ‘Well, how do I do these things on top of my job?’” she says. “Culture isn’t something you’re doing on top of your job. It’s how you do your job.”

At Fargo, North Dakota-based Bell Bank, the chief culture position is held by Julie Peterson Klein and is nestled within the human resources group, where about 20 employees are split between HR and culture. She says she has a “people first, workload second” orientation and has focused on culture within HR throughout her career; like Giroux, the title came as recognition for work she was already doing.

She says her job is really about empowering employees at the State Bankshares’ unit to see themselves as chief culture officers. Bell’s culture team supports employees by engaging the $5.7 billion bank’s 200 leaders in engagement and training, and works with HR to handle onboarding, transfers, promotion and exits. The group also leads events celebrating employees or giving back to the community, using storytelling as a way to keep the bank’s culture in front of employees.

“We focus on creating culture first, and we hire for that on the HR side,” she says.

Culture is important for any organization, but Giroux sees special significance for banks because of the large role they play in customers’ financial wellness. Focusing on culture has helped demonstrate Adams’ commitment of giving customers “extraordinary service.”

“Prior to having the collaboration and the infrastructure for culture, everybody kind of did their own thing,” Giroux says. “This really solidifies the vision and the mission. And it really is, I believe, the glue that holds us together.”

Using Succession Planning to Unlock Compensation Challenges

compensation-9-16-19.pngSuccession planning could be the key solution boards can use to address their biggest compensation challenges.

Succession planning is one of the most critical tasks for a bank’s board of directors, right up there with attracting talented executives and compensating them. But many boards miss the opportunity of allowing succession planning to drive talent retention and compensation. Banks can address two major challenges with one well-crafted plan.

Ideally, succession planning is an ongoing discussion between executive management and board members. Proper planning encourages banks to assess their current talent base for various positions and identify opportunities or shortfalls.

It’s not a static one-and-done project either. Directors should be aware of the problems that succession planning attempts to solve: preparing future leaders, filling any talent voids, attracting and retaining key talent, strategically disbursing training funds and ultimately, improving shareholder value.

About a third of respondents in the Bank Director’s 2019 Compensation Survey reported that “succession planning for the CEO and/or executives” was one of the biggest challenges facing their banks. More popular challenges included “tying compensation to performance,” “managing compensation and benefit costs,” and “recruiting commercial lenders.”

But in our experience, these priorities are out of order. Developing a strategic succession planning process can actually drive solutions to the other three compensation challenges.

There are several approaches boards can use to formulate a successful succession plan. But they should start by assessing the critical roles in the bank, the projected departure dates of those individuals, and information and guidance about the skills needed for each position.

Boards should be mindful that the current leaders’ skill sets may be less relevant or evolve in the future. Susan Rogers, organizational change expert and president of People Pinnacle, said succession planning should consider what skills the role may require in the future, based on a company’s strategic direction and trends in the industry and market.

The skills and experiences that got you where you are today likely won’t get you where you need to go in the future. We need to prepare future leaders for what’s ahead rather than what’s behind,” she said.

Once a board has identified potential successors, it can now design compensation plans that align their roles and training plans with incentives to remain with the organization. Nonqualified benefit plans, such as deferred compensation programs, can be effective tools for attracting and retaining key bank performers.

According to the American Bankers Association 2018 Compensation and Benefits Survey, 64% of respondents offered a nonqualified deferred compensation plan for top management. Their design flexibility means they can focus on both longer-term deferrals to provide retirement income or shorter-term deferrals for interim financial needs.

Plans with provisions that link benefits to the long-term success of the bank can help increase performance and shareholder value. Bank contributions can be at the board’s discretion or follow defined performance goals, and can either be a specific dollar amount or a percentage of an executive’s salary. Succession and training goals can also be incorporated into the plan’s award parameters.

Such plans can be very attractive to key employees, particularly the young and high performing. For example, assume that the bank contributes 8% of a $125,000 salary for a 37-year-old employee annually until age 65. At age 65, the participant could have an account balance equal to $1,470,000 (assuming a crediting rate equal to the bank’s return on assets (8%), with an annual payment of $130,000 per year for 15 years).

This same participant could also use a portion of the benefit to pay for college expenses for two children, paid for with in-service distributions from the nonqualified plan. Assume there are two children, ages three and seven, and the employee wants $25,000 a year to be distributed for each child for four years. These annual $25,000 distributions would be paid out when the employee was between ages 49 and 56. The remaining portion would be available for retirement and provide an annual benefit of $83,000 for 15 years, beginning at age 65.

Boards could use a plan like this in lieu of stock plans that have similar time horizons. This type of arrangement can be more enticing to younger leaders looking at shorter, more mid-term financial needs than a long-term incentive plan.

And many banks already have defined benefit-type supplemental retirement plans to recruit, retain, and reward key executives. These plans are very popular with executives who are 45 and older, because they provide specific monthly distributions at retirement age.

It is important that boards craft meaningful compensation plans that reward older and younger executives, especially when they are vital to the bank’s overall succession planning efforts and future success.

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.

2019 Survey Results: CEO and Board Pay Trends

Today, more banks are tying their chief executive officers’ pay to performance indicators, as indicated by 80 percent of the directors and executives responding to Bank Director’s 2019 Compensation Survey, sponsored by Compensation Advisors. That’s up from 75 percent when Bank Director last posed the question, in 2015.

Most, at 59 percent, tie CEO compensation to their strategic plan or corporate goals.

But the metrics banks prefer vary according to their structure. Public banks are more apt to tie pay to performance—just 8 percent indicate they don’t do so—and tend to favor goals established in the strategic plan (72 percent), as well as metrics such as return on assets (58 percent), return on equity (53 percent) and efficiency (40 percent).

Among private banks, net income is the preferred metric, at 55 percent. Twenty-seven percent of respondents in this group say CEO compensation is not tied to performance.

The survey was conducted in April 2019, and includes the perspectives of more than 300 bank directors and executives—including chief executives and human resources officers—as well as data obtained from the proxy statements of more than 100 publicly traded banks.

It includes details about current CEO and director compensation packages—in the aggregate, and by asset size and ownership structure. The survey also focuses on succession planning and board refreshment.

Respondents indicate that their CEOs all received a salary in fiscal year 2018, at a median of $325,000; the median total compensation was $515,728. Paying a cash incentive (78 percent), and offering benefits and perks (75 percent) are also common forms of compensation throughout the industry. Less common are nonqualified deferred compensation or retirement benefits (49 percent) and equity grants (47 percent). However, payment of equity differs broadly based on the ownership of the bank: Almost three-quarters of respondents from public banks say their CEO received an equity grant last year.

Additional Findings

  • When asked how compensation for the CEO could be improved, 36 percent point to offering non-equity, long-term incentive compensation. Twenty-three percent believe the bank should offer equity at greater levels, and 21 percent say they should offer some form of ownership in the bank. Twenty-two percent believe the bank should pay a higher salary to the CEO.
  • The median age of a bank CEO is 58. Seventy percent are baby boomers, between the ages of 55 and 73.
  • Seventy-two percent believe the current CEO will remain at their bank for at least the next two years.
  • Twenty-one percent believe it’s time for their CEO to announce his or her retirement.
  • Thirty-one percent say their bank has designated a successor for the CEO. One-quarter have identified potential successors.
  • Nearly one-third indicate their board conducts an annual evaluation.
  • Forty-one percent have a mandatory retirement policy in place for directors. The median retirement age is 75—an increase from 72, as reported three years ago.
  • Forty-seven percent indicate their board is working to recruit younger directors. The median age of the youngest director serving on responding boards is 48.
  • Seventy-two percent say their directors receive a board meeting fee, at a median of $900 per meeting. Sixty-nine percent pay an annual cash retainer, at a median of $20,000.
  • Forty-three percent say that tying compensation to performance is a top compensation challenge facing their institution, followed by managing compensation and benefit costs (37 percent) and recruiting commercial lenders (36 percent).

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

How Midland States Bancorp Develops Its Future Leaders


talent-7-19-18.pngRoughly a decade after the financial crisis, community banks are introducing, developing and enhancing internal training programs to turn today’s young, millennial employees into the leaders the bank will need in the future. Forty-four percent of bank executives and board members responding to Bank Director’s 2018 Compensation Survey indicate that their bank has been dedicating more resources to employee training over the past three years to attract and retain younger talent. The majority, 74 percent, say their bank offers an in-house training program for some employees, and 80 percent say external training or career development is available as an employee perk.

While there’s no one-size-fits-all approach to employee training for the industry, the program developed by Midland States Bancorp, a $5.7 billion asset financial holding company based in Effingham, Illinois, illustrates how one bank is developing talent at several levels throughout the organization.

The bank had been discussing the development of future leaders, with an eye toward succession planning, for several years, says Sharon Schaubert, senior vice president of banking services at Midland States. Oversight of the bank’s human resources function is one of her primary responsibilities. “Then, as we were going through acquisitions and were growing, that need was becoming more and more apparent,” she says. Midland States Bancorp acquired Centrue Financial Corp. in June 2017, and Alpine Bancorp. last March.

The ability to lure away talent from local bank competitors had become increasingly difficult and expensive, and the bank had talented potential leaders in its own ranks that just needed the right training. “Any time that you bring somebody in from outside of your own company, you’re bringing in the culture that they come from [and] how they’ve been developed as leaders, so we felt that we could have more success with developing our own,” says Schaubert.

To develop the curriculum, the bank hired an experienced learning and development director from a California utility company, who expanded Schaubert’s initial vision into a three-tiered employee development program that trains staff at different stages of their careers. The program is in its second year, and each level takes one year to complete.

The first tier is designed for individual employees who don’t currently supervise anyone within the bank but have potential to grow within the organization. Each class is comprised of roughly 15 employees. Along with additional reading and one-on-one time with their own mentor within the bank, participants work on banking and project management simulations.

Applicants must be employed by Midland States for at least one year to be considered for the program.
They are interviewed by a panel of managers and must have the endorsement of their immediate supervisor.

Midland States initially had managers identify and recommend employees, but found that employees were better able to participate and displayed a greater level of commitment if they applied themselves. “We learned some really good lessons, because people also have to have an active interest in their own self development and the ability to make the time commitment,” says Schaubert. The bank put an application process in place, effective with the second first-tier class.

The second tier of the program launched recently and is designed for managers and supervisors, with a focus on how to lead and manage a team. The project management and banking simulations are more intensive, and trainees are coached on presentation skills.

Almost all of the employees who participated in the initial first-tier program have received some sort of promotion or additional responsibilities within the bank, but Schaubert says these employees can’t go straight to the second-tier program—at least a year must pass between the two levels. Since the program is new, no employee has participated in multiple tiers, yet.

Participants are each matched with a mentor, with whom they meet quarterly to discuss their progress, in line with their personal development goals. While face-to-face meetings are encouraged, the geographic footprint of the bank sometimes requires that those meetings occur by phone. The mentor provides guidance and ensures the participant is on track to meet their goals. Participants have some say in the selection of a mentor—the bank provides a list of potential mentors with a brief biography about each, and trainees can pick their top three choices. Members of the senior management team tend to be reserved as mentors for the higher levels of the program.

Mentorship programs are rarely used by the banking industry, according to the 2018 Compensation Survey. Just 15 percent of respondents say their bank has one in place.

The third tier of the training program hasn’t been formally launched but is intended for members of senior management or just below. The program will be one-on-one and won’t be classroom-based like the other tiers. External, rather than internal, mentors will work with participants at this level.

The training program isn’t just the responsibility of the human resources team, according to Schaubert. Subject matter experts and senior leaders, including the CEO, are brought in to present to trainees. And an all-day graduation—which includes presentations from training participants—is attended by each trainee’s mentor and immediate supervisor, as well as members of the executive team.

Some of the resources developed so far have been made available to other managers to encourage self-development. A one-day class is also available for new managers biannually.

Schaubert reports to the board twice a year about the bank’s training initiatives, and shares details about the participants and the curriculum. “The board is actively engaged,” says Schaubert. She adds that the full impact of the program won’t be felt for several years. “The big success of this will come a few years down the road, when we’re able to build a strong pool of candidates for significant roles in the future,” she says. “That takes time.”

One of the more immediate challenges banks face in training employees in today’s competitive talent environment is ensuring that those same employees don’t jump ship for a better opportunity. “You can either manage out of fear, or you can manage for growth and opportunities for the future,” says Schaubert. “We would much rather risk losing a good employee than not developing the employees.”

While some attrition is unavoidable, Midland States is actively working to engage and promote its most promising employees. Most trainees have been promoted or received additional responsibilities, though the bank did lose one trainee that it wasn’t able to promote as quickly as that employee may have expected.

But the bank puts considerable focus toward ensuring that its trained employees are engaged within the organization. For example, the CEO hosted a senior management meeting at his home in August of last year and asked senior managers to invite someone on their team. All graduates and current participants of the training program were invited, as well. “We’re challenging ourselves to find opportunities” to engage and grow talented staff, says Schaubert.

As banks are increasingly challenged to attract and retain experienced employees, more banks like Midland States could be apt to enhance their training programs to build the talent they need.

2018 Compensation Survey: Board Composition a Key Issue


compensation-6-4-18.pngAn effective board starts with having the right members, making board composition a key issue for today’s banking industry. Forty-five percent of the directors and executives responding to Bank Director’s 2018 Compensation Survey, sponsored by Compensation Advisors, a member of Meyer-Chatfield Group, say that developing a board succession plan is a top challenge related to board composition, followed by the recruitment of tech-savvy directors, at 44 percent.

More than 200 chief executive officers, human resources officers, senior executives and board members participated in the survey, conducted in March and April 2018, which examines the talent challenges faced by the banking industry. The survey also includes data collected from proxy statements to reveal how—and how much—CEOs, directors and chairmen were compensated in fiscal year 2017.

Thirty-five percent of respondents cite the recruitment of female directors as a top board challenge, an area where the industry appears to have made some improvement. Seventy-seven percent of respondents indicate that their board has at least one female member, up from two-thirds last year. However, boards still have progress to make, with just 14 percent indicating that their board has three or more female members. And boards still struggle to represent diverse ethnic backgrounds—77 percent report that their board doesn’t have a single ethnically diverse director. They also need to gain more age-diverse views, with just 16 percent reporting they have a director who is aged 40 years old or younger.

Conducting an effective board evaluation—which rates the effectiveness of individual directors, as well as the board—is cited by 42 percent as a top governance challenge. Board evaluations are often touted as effective tools to fuel board diversity efforts, because they identify ineffective directors and help push them out of the boardroom, leaving empty seats to be filled with the skill sets, expertise and backgrounds needed by today’s board.

Other key findings:

  • Commercial lenders remain in high demand, cited by 68 percent of respondents as an area where they expect to actively recruit employees in 2018, followed by technology, at 38 percent.
  • Forty-seven percent indicate their bank has increased salaries over the past three years to attract younger talent. Twenty-seven percent offer more equity compensation or profit-sharing incentives.
  • Forty-four percent indicate their bank has dedicated more resources to train young employees. Overall, 80 percent offer external training as a benefit to employees, and 74 percent say their bank has an in-house training program.
  • The median age of a bank CEO is 58 years old. The median CEO salary in FY 2017 was $370,232, with total compensation at $621,000.
  • Paying board members appears to be a low-level concern: Just 14 percent indicate that offering a competitive director compensation package is a top challenge faced by the board.
  • Seventy percent of non-executive chairmen and outside directors receive a meeting fee, at a median of $1,000 per board meeting in FY 2017. More than three-quarters of non-executive chairmen, and 71 percent of outside directors, receive an annual retainer, at a median of $35,000 and $24,000, respectively.
  • Fifty-one percent most recently increased director compensation in 2017 or 2018, and one-quarter raised director pay in 2016.

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

Acquire or Be Acquired Perspectives: How to Address the Social Issues of M&A


culture-5-4-18.png	Steele_Sally.pngThis is the final installment in a five-part series that examines the bank M&A market from the perspective of five attendees at Bank Director’s Acquire or Be Acquired conference, which occurred in late January at the Arizona Biltmore resort in Phoenix.

Read the perspectives of other industry leaders:
John Asbury, president and CEO of Union Bankshares
Gary Bronstein, a partner at Kilpatrick Townsend & Stockton LLP
Eugene Ludwig, founder and CEO of Promontory Financial Group
Kirk Wycoff, managing partner of Patriot Financial Partners, L.P.


It is tempting to think that last year’s tax cuts will spur deal-making in the bank industry. The cuts have driven up profits and bolstered valuations, with bank stocks trading at their highest earnings multiples since before the financial crisis. But deal volume ebbed instead of flowed last year.

“The tax reform allows potential sellers to wait longer to see how things evolve,” says Sally Steele, chairwoman of Community Bank System, Inc., an $11-billion bank based in Dewitt, New York.

Steele made this point while attending Bank Director’s 2018 Acquire or Be Acquired conference in January at the Arizona Biltmore resort in Phoenix. Her perspective on the M&A landscape is one of five that Bank Director cultivated from attendees at the event.

Whether it is prudent for a bank to sit on the sidelines as things evolve, rather than take advantage of a high valuation, is a risk—particularly when it comes to regulation. “You might have a four-year window where we have a kinder, gentler regulatory environment,” Steele notes.

All of this speaks to the axiom that banks are sold, not bought. “Folks have to come to a decision that selling is a good strategy, whatever the motivation,” says Steele.

Value plays an obvious role in this decision, but it alone is not enough. Social issues involving leadership and culture also play a major role, Steele says.

For instance, succession is a perennial topic of conversation in the industry. As leaders retire, it can be hard to find successors that are qualified to step into the void. One way to address this is to sell the bank.

There are also times when the current leadership is not a good fit, irrespective of retirement. This came up in one of Community Bank System’s recent acquisitions, where the CEO was better suited to be a commercial lender than the CEO.

Steele speaks on these issues from experience, as she has served as a director of banks that have been both buyers and sellers.

Prior to serving on the board of Community Bank System, Steele was a director of Grange National Banc Corp., a Pennsylvania-based bank that grew to $278 million in assets before selling in 2003 to her current bank.

Since then, Community Bank System has acquired seven other banks, the biggest and most recent being Merchants Bancshares, a $1.9-billion bank based in Vermont, acquired last year.

The principal motivation for buyers tends to be growth. The bank industry has consolidated every year since 1984. Prior to that, the number of banks in the country tended to grow on an annual basis. Since then, it has dropped without interruption every year.

Given this, it is easy to understand why banks are so inclined to grow. There comes a point in a consolidating industry when the law of the jungle takes hold, forcing banks to choose between eating or being eaten.

This motivation helps explain the tendency for mergers and acquisitions to impair, as opposed to improve, shareholder value. It was the imperative to grow, after all, that led banks in the prelude to the financial crisis to acquire subprime mortgage originators, as Bank of America Corporation did with Countrywide Financial and Wachovia did with Golden West.

Regardless of the numbers, however, Steele emphasizes the central role that culture plays in the acquisition process. “From a buyer’s perspective, it’s about how the combination fits,” says Steele. “Fits in a lot of different ways, not only monetarily and economically, but also the culture is huge. Bringing in the wrong culture just doesn’t work. I don’t care what anybody says, it doesn’t work.”

As the chairwoman of an acquisitive bank, this is one reason Steele attends the annual Acquire or Be Acquired conference, coming four out of the last five years.

“I’ve been through the acquisition process, and it’s a scary thing,” says Steele. “There is a lot of distrust when folks start approaching you about that kind of thing. So having rapport and thinking, ‘Oh, I met that person at the conference.’ That’s helpful. So much of it is personal. I don’t care what anybody says.”

Seven Secrets of Succession Success


succession-1-19-18.pngOne of a bank board’s most vital responsibilities is overseeing the plan of succession for the CEO. Whether driven by a looming retirement or change in the incumbent’s personal timeline, a well-orchestrated plan of succession and leadership continuity reassures employees, investors and communities. Unfortunately, too many bank boards still take a passive approach to CEO succession, rather than acknowledging that as directors, they are responsible for the selection and ongoing evaluation of CEO performance.

Good succession planning for any executive role starts with understanding the potential succession timeline and the bank’s strategy. These seven steps will help to guide the board and incumbent CEO in developing a solid succession plan.

  1. Understand the succession timeline. What is the intended horizon for the incumbent leader to remain at the helm? This timeline is often fluid, which can create a challenge for the board. It is natural for many healthy CEOs to struggle with stepping out of a role that has been so closely tied to their personal identity. Yet, boards must insist on some understanding of the timing in order to maximize the development of potential internal contenders and to avoid frustrating executives who are waiting in the wings.
  2. Strategy informs profile. One of the most critical elements of planning for CEO succession is the bank’s strategic plan. The direction of the bank going forward should help to clarify the skills and attributes required in the bank’s next leader. Given the massive transformation of the industry over the past decade, the old maxim—what got you here may not get you there—may truly apply. Directors need to align around the bank’s strategy to develop a profile for the bank’s next CEO.
  3. Identify key skills. There are countless technical and industry skills needed in a bank leader today—so many, in fact, that it is virtually impossible to find an executive with all of the ideal requisite experiences. So, prioritize the specific banking skills that the bank must have versus those the board would like to have. Key experiences such as commercial credit skills, regulatory experience, balance sheet management, board experience and risk management are often considered critical to success as a bank CEO today.
  4. Determine critical attributes. What are the most important elements of a potential leader’s personal style and leadership philosophy that are necessary at this time for the institution? For example, most community banks see a CEO’s community presence and visibility as critical for success, as well as creating and achieving a strategic vision. Strong communication skills, cultural agility and the ability to attract top talent also rank high these days.
  5. Develop a process. Successful succession at the CEO and other executive levels involves a robust and thoughtful process, not just putting together a list of who the board knows or who the incumbent leader suggests. Boards today not only need to select a superior executive as their next leader, but are often called upon to defend their decision—and how they made it—to investors, customers and their communities. This does not mean that an external or formal search is always warranted, but it does mean that there needs to be a genuine effort to source, screen, assess and validate serious contenders, which ultimately adds credibility to the board and the selected leader.
  6. Make your bank attractive to star talent. Despite the declining number of banks in the country today, the crop of qualified bankers available to fill the growing ranks of retiring CEOs is not deep enough. Thus, the market is competitive for top bankers, and relocating someone to a new and potentially smaller market remains a challenge. Star bankers will ask tough questions of the board and will want to understand the bank’s strategy, as well as the level of support, engagement and strategic value they can expect from the bank’s directors.
  7. Prepare for an emergency. As most boards know, the bank should plan for the best and prepare for the worst. Reviewing and updating the bank’s emergency succession plan on a regular basis is a must for good governance and regulatory satisfaction. There have been too many instances where this backup plan has been called into action. Having a scenario ready to keep the train on the tracks during an unexpected situation is critical to keeping the institution moving forward.

There is no greater responsibility for a bank’s board of directors than ensuring that the organization has the right leader in place. While there are many important elements to successful CEO succession, the most important point is to maintain the topic of leadership succession as a regular and ongoing board-level discussion.

Does Your Bank Have a Dream Team?


succession-10-24-17.pngMany bank boards of directors and CEOs are proud of their bank’s executive team. And rightly so! Yet frequently those feelings of pride dissolve into uncertainty when the bank is faced with the decision to promote a banker into a top executive position or even the CEO role.

How does this happen? Why do well laid out succession plans sometimes evaporate in the face of reality when the time to elevate someone finally arrives? One reason, based on our experience working with hundreds of community bank boards and executive teams, is that directors are often missing context when faced with a promotion decision. The lack of relative perspective on comparative candidates for similar roles may at times impede the comfort level necessary for a board to validate a major promotion decision.

Succession plans are frequently aspirational in nature for community banks: long on good intentions towards the executive and bank, yet short on taking advantage of the time available to fully develop and groom worthy successors for key roles. In order for a bank board to feel comfortable supporting a CEO’s recommendation for a C-Level executive promotion, or for the board to align around a promotional decision into the CEO role, a robust assessment, development and monitoring program needs to have taken place along the way.

True clarity around the bank’s strategic plan and growth objectives is also critical. Alignment among the key decision makers—usually the board of directors or trustees, along with the CEO—provides a consistent viewpoint on what the bank needs in its next leader. Strategy informs profile on many levels, including both tangible skills and leadership competencies, and collectively these must also mesh with the company and boardroom culture to enable a successful leadership transition.

Once a bank’s strategic direction is updated and affirmed, an appropriate next step is often to conduct a management assessment of the existing leadership team. At a minimum, this exercise should provide a developmental action plan to help elevate performance of the senior team—even when that performance is already solid.

Evaluating the leadership team provides multiple benefits, including:

  • An objective evaluation of the strengths, scalability, areas of development and desire for more responsibility—particularly when conducted by an independent party.
  • Creation of a “road map of development,” which can be taken to boost executive performance and enhance succession viability.
  • Increased likelihood of retention of high potential bankers due to the feeling of being “valued” and “invested-in” by the organization.
  • Higher morale, as employees see the investment in future leaders as a sign of a commitment to growth and continued independence.
  • A lower risk of a sale or merger driven by a talent deficit, as good succession planning enhances the continuity of leadership and strategy.

A robust management assessment program should have several critical components:

  • Input from the CEO and board that aligns strategy and the desired/needed profiles of future leaders for key roles. These profiles are often different than an incumbent’s profile.
  • Extensive in-person interview time with a qualified industry talent expert. This should involve both behavioral and chronological interviewing techniques.
  • Use of a third-party assessment tool to help understand an executive’s full range of behaviors and leadership attributes, and the ability to benchmark against desired profiles.
  • A peer evaluation survey to garner candid input from close colleagues. Such a 360° process can provide valuable insights to help guide developments plans.

There is no more important responsibility of an incumbent CEO and community bank board than to develop the strongest possible leadership team and potential CEO successors. An informed board with a strong range of perspectives on the bank’s executive talent is best positioned to make promotional decisions on future bank leaders and the next CEO. A robust management assessment program provides the right foundation for good governance and successful succession planning.

Does Your Bank Have a CEO Succession Plan?


succession-10-11-17.pngMedian-CEO-image.pngIn the Bank Director 2017 Compensation Survey, sponsored by Compensation Advisors, a member of Meyer-Chatfield Group, 48 percent of bank directors and executives say their bank does not have a successor to replace the chief executive officer when that person leaves. While some responders indicated they did not have a designated successor because their CEO did not plan to retire soon, there are other unforeseen events that could prompt the need for a successor sooner than expected. Starting early on a good succession plan is one of the keys to a successful transition event.

Succession planning is an ongoing practice that is focused on the organization’s strategic vision and identification of the leadership and managerial talents that are necessary to carry out that idea. Recruiting, developing and retaining individuals who have or who can develop those skills is an integral part of the process.

Maintaining a succession plan will promote a healthy organization and mean a great deal to stakeholders. It’s a shared responsibility that requires a strong partnership between senior management and the board of directors.

The best time to discuss a leadership transition is when it isn’t imminent. Establishing an environment that supports open and ongoing discussions about succession and leadership development will reduce the anxiety that executives and board members may feel.

A comprehensive plan must also take into account what happens when the potential internal candidates are either not ready to assume the needed role or have not been through a sufficient grooming process. There are three key planning processes your institution should embrace:

1. Anticipate Emergency Situations
Emergency succession planning focuses primarily on the unanticipated departure of a CEO. You may be given a few weeks’ notice, a few days, or possibly no notice at all. An emergency succession plan ensures the uninterrupted performance of essential executive functions and outlines the steps necessary for the appointment of an acting CEO.

This interruption in leadership may be short term or permanent. Regardless, planning for the event is absolutely critical to maintaining a successful drive toward the institution’s long-term business objectives.

2. Developing Leadership
Leadership development is an ongoing process that identifies the core competencies, skills and knowledge needed by the institution over the next five years or so, including a plan to develop those competencies in your existing leadership team. If the board feels that such qualities are not inherent in the current team, you’ll need a plan to recruit new talent.

Creating a strategy for leadership development will help ensure that your organization will survive a required leadership change, whether expected or unexpected. Some of the key questions to address in this step include:

  • How do future opportunities for the organization impact our leadership needs?
  • Where are the future leadership gaps?
  • Is the board developed to its full potential?
  • Who are the natural internal leaders in the organization and how can we nurture them?

3. Seamless Transition
When a leadership change needs to be made, the transition process is not automatic. To ensure a seamless, problem-free transition, a defined course of action should be executed. One question to address is: How much time do you have?

If the departure is anticipated, such as a future retirement, it’s important that the departing executive establishes a clear and unchanging end date so that the organization can work diligently to prepare for that day. Otherwise, it is likely the organization and board will be unprepared and the transition will inflict greater stress on the firm. For unanticipated departures, the transition period will be brief, so having a clear plan of action at the ready is all the more critical.

Proper communication to stakeholders and executives can be one of the most essential tasks in succession planning. Your stakeholders will want to know what contingency plans are in place. And your management team will want to know of anticipated changes in their roles and responsibilities. Losing other key members of the leadership team in this process only makes the board’s job that much more difficult. So be strategic about your communication, which means listening, speaking the truth and helping everyone understand what is taking place.

Click for more information from the 2017 Bank Director Compensation Survey sponsored by Compensation Advisors, a member of Meyer-Chatfield Group.