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.

The Three Critical Areas of Succession Planning

succession-9-4-17.pngLeaving is an inevitable part of life. Everybody ages and, whether by choice or by circumstance, we won’t forever be doing what we are doing today. This law is true for your bank as much as it is for yourself. It is essential to take steps now to prevent the inevitable transitions that are in the future. As individuals, we are constantly questioning whether we are prepared for the next stage of life. “Have I saved enough for retirement?” “Is my estate in order?” As directors, we need to be making similar plans for our bank’s future.

Succession planning can be broken down into three areas: management succession, board succession and ownership succession.

Management Succession
When succession planning is first addressed by a bank, typically management succession is what comes to mind. This naturally includes the chief executive officer’s position, but should also include other vital roles in the bank such as chief financial officer, chief operating officer and your bank’s senior lending officers.

Some banks are challenged when trying to start a formal succession plan: “Who should you include and how should you start?” Banks should start with the most predictable event possible, the eventual retirement of current executives. Not all current executives will necessarily know the exact date they plan to retire, but an age range of 65 to 67 is a good start. As far as whom to include in the plan, it is important to remember that it is not necessary to name a successor now. Identifying a small pool of potential successors is often sufficient. But what banks need to remember is that part of a successful succession plan is ensuring that the people in your plan are still at the bank when you need them. Many banks are incorporating executive benefit/BOLI plans that have golden handcuffs in order to retain all potential successors in the succession plan.

Knowing what you should plan for is always beneficial, but when designing a formal succession plan, banks need to address other contingencies besides the eventual retirement of the current management team. Death, disability and other unexpected events may create a critical situation for those banks that don’t have an emergency succession plan in addition to their long-term succession plan. Depending on the readiness of those involved, the person who takes over running the bank in case of an emergency may very well not be the same person who is the identified successor in the long-term plan.

Board Succession
One of the most challenging aspects of succession planning is board succession. Many banks have mandatory retirement ages typically ranging from age 70 to 75. If your bank does not currently have a mandatory retirement age, you can use nonqualified benefit plans to provide a benefit to those who you may require to retire at a specific age. This can facilitate their retirement from the board in a respectful and dignified way. You may also consider grandfathering the existing board members from a new policy you wish to implement. If that step is taken, the bank still needs to recruit young directors in preparation for the succession of the aging board. In the current regulatory environment, the role of the director is much more involved than in previous years. Often, the most successful banks have diversity on their boards, including various ages and backgrounds, to bring different perspectives regarding the strategic direction of the bank. One concept that seems to be successful for many of our clients is creating an advisory board made up of younger, successful, local business men and women to assist the bank in spreading its marketing footprint. They also typically provide great insight into the needs of the younger generation of bank customers. And many of them bring potentially profitable customers to the bank. As directors reach the mandatory retirement age, the board may recruit full-time directors from the advisory board, which makes for a much smoother transition.

Ownership Succession
Though many owners do not share their ownership succession plan with the rest of the board or key members of management, it is helpful to know how to plan for the succession of the bank. Utilizing nonqualified benefit plans for key management is beneficial in keeping the management team in place during the ownership succession of the bank.
Open communication is a key factor when considering all forms of succession planning. The more people are aware of the planning that banks are doing, the more comfortable both employees and customers will be during any portion of a transition of succession.

Why You Still Can’t Ignore Succession Planning

succession-6-13-17.pngIn the evaluations that Bank Director conducts on behalf of bank boards, it’s common for directors to voice their dissatisfaction and uncertainty regarding succession planning, particularly for the chief executive. So I wasn’t too surprised to find in Bank Director’s 2017 Compensation Survey that almost half of the responding directors and senior executives of U.S. banks report that their bank hasn’t identified a successor or potential successors to replace the CEO.

The trials and tribulations of developing a successor is a problem faced by banks of all sizes: JPMorgan Chase & Co. announced on June 8, 2017, that its chief operating officer, Matt Zames, decided to leave the bank after 13 years. Zames was viewed as a potential successor to CEO Jamie Dimon.

Fifty-three percent of survey respondents say they don’t have a successor identified because the current CEO doesn’t plan to retire soon. One-quarter say they have a young CEO. Other than not knowing who’s going to captain the ship when the top executive gets run over by the proverbial bus, the latter could be in for shock if their young CEO leaves their bank for greener pastures at a larger institution.

The end result could be messy for unprepared institutions, no matter the age of the CEO. “A bank that needs a successor is willing to do whatever it takes to get one,” says Flynt Gallagher, president of Compensation Advisors, a member of Meyer-Chatfield Group. And that could include stealing yours.

Compensation Advisors sponsored the 2017 Compensation Survey.

Money, of course, goes a long way in ensuring the CEO stays on board. Ninety-one percent of respondents believe that their bank’s compensation package is competitive enough to retain the current CEO, or attract a new one. But for CEOs responding to that question, that approval drops to 78 percent—indicating a slight but visible disconnect between CEOs and boards.

How does your CEO salary compare?

  Median CEO salary, by bank size
  All banks >$5B $1B-$5B $500M-$1B <$500M
All regions $366,250 $826,731 $442,500 $320,202 $212,000
Southeast $310,000 $848,240 $481,750 $319,185 $190,000
MidAtlantic/Northeast $475,392 $735,000 $475,783 $360,000 $298,000
Midwest $300,000 $960,305 $371,502 $280,000 $208,000
West $436,000 $770,804 $438,500 $300,000 $213,000

Source: 2017 Compensation Survey
Regional definitions:
Southeast: Alabama, Arkansas, Florida, Georgia, Louisiana, Mississippi, North Carolina, South Carolina, Tennessee, Virginia, West Virginia
MidAtlantic/Northeast: Connecticut, Delaware, District of Columbia, Maine, Maryland, Massachusetts, New Hampshire, New Jersey, New York, Pennsylvania, Rhode Island, Vermont
Midwest: Illinois, Indiana, Iowa, Kansas, Kentucky, Michigan, Minnesota, Missouri, Nebraska, North Dakota, Ohio, Wisconsin, South Dakota
West: Alaska, Arizona, California, Colorado, Hawaii, Idaho, Montana, Nevada, New Mexico, Oklahoma, Oregon, Texas, Utah, Washington, Wyoming

The median salary reported for all CEOs was $366,250 for the fiscal year 2016, a 6 percent increase over the median salary reported for FY 2015. The salary median ranges from $212,000 for banks below $250 million in assets to $826,731 for banks above $5 billion.

This year, the survey reports that 80 percent of CEOs received a cash incentive in FY 2016, compared to 64 percent in last year’s survey. The overall median cash incentive paid to CEOs in FY 2016 was $131,697, a 155 percent leap from the previous year. Bank performance has continued to improve for the industry, leading to a larger bonus for their top executives. In a quarter-to-quarter comparison of return on average equity for the last two quarters of 2015 versus the same time period in 2016, banks in general across asset categories saw a lift in return on average equity (ROAE), based on data from S&P Global Market Intelligence. Bank stocks were also rising in December 2016 due to the so-called “Trump Bump” and optimism about the president’s agenda which includes deregulation for the banking industry, a cut in the corporate tax rate and an infrastructure spending plan.

“Since incentive compensation is typically directly tied to bank performance, and the overall performance of banks continues to get better, I would conclude that is what drove the increase,” says JR Llewellyn, senior vice president at Compensation Advisors.

Fifty-two percent report the CEO received equity grants, at a median fair market value of $240,160, a five percent increase from last year’s survey. Seventy-five percent received other benefits and perks, and 62 percent received a retirement benefit and/or nonqualified deferred compensation, which allows executives to delay part of their pay to a later date. This also delays the tax burden for the executive.

Banks rely on peer studies to evaluate and set pay levels throughout the organization. Peer groups—banks of a similar size, in a similar region and even with a similar business model—can help further benchmark pay practices. Bank Director’s survey finds that 93 percent of participants are confident that their compensation plans are on par with other banks. Smaller organizations below $250 million in assets express less confidence, with 24 percent saying their compensation plans are not competitive with other banks.

And in a competitive environment for talent, banks may wind up paying more for key executive positions. “We want to have really good people work for us,” says Glenn Parry, the senior vice president and director of human resources at $1.2 billion asset First National Bank and Trust Co., a subsidiary of Centre 1 Bancorp in Beloit, Wisconsin. He says that to do this, the bank is willing to pay more than what the competition pays for talent and has higher compensation costs as a result. In the past year, Parry’s bank has replaced a chief financial officer and investment officer, both of whom retired. “We were very successful in getting really good talent into those roles, well in our ranges of what we were paying,” he says.

The 2017 Compensation Survey was conducted in March and April of 2017, and surveyed 286 independent directors and senior executives of U.S. banks. Compensation data was also collected from the proxy statements of 108 publicly traded banks. The survey provides detailed information on CEO and board compensation packages.

Talent Strategies for Family-Owned Banks

How strong and transparent is the bank’s succession plan? Are employees being developed to achieve strategic goals? Joshua Juergensen, principal at CliftonLarsonAllen, shares how community bank boards and management teams should strategically approach talent development.

  • Tackling Succession Concerns
  • Outlining a Career Path
  • Developing a Strategic Vision

Finding Talent For The Bank’s Future

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

  • Developing a Succession Plan
  • Finding Diverse and Talented Directors

A CEO’s Hottest Topics

Before incentive programs can be determined, staffing needs are addressed and a succession plan is developed, a CEO needs to articulate a vision and communicate key priorities to his or her team. Gerry Cuddy, CEO of Beneficial Bank, Kent Ellert, CEO of Florida Community Bank and Chris Murphy, CEO of 1st Source Bank, explore what is capturing the attention and imaginations of bank CEOs today in this panel discussion from Bank Director’s 2016 Bank Executive & Board Compensation Conference, lead by Scott Petty, managing director, financial services at Chartwell Partners.

Highlights from this video:

  • Managing Talent in the Current Environment
  • Incentive Compensation After the Wells Fargo Scandal
  • Rising Cost of Risk & Compliance Talent
  • Competing with Bigger Banks for Talent
  • External Threats to the Industry

Video length: 38 minutes


A Tale of Two CEO Succession Plans

succession-10-20-16.pngIn January 2014, the board of directors at Union Bankshares Corp. decided that it was time to begin considering a successor to President and Chief Executive Officer G. William “Billy” Beale, who at 65 was starting to think about his own retirement. This was a pivotal time for the now $8.1 billion asset bank, which is headquartered in Richmond, Virginia. The 2013 acquisition of Charlottesville, Virginia-based StellarOne Corp. had nearly doubled the company in size, and eight of the StellarOne directors joined the board of the merged company. The newly expanded board was firmly committed to a growth plan that would take it past $10 billion in assets, where several important regulatory requirements would kick in, so the new CEO would have to be capable of managing a larger bank in a more rigorous regulatory environment.

Managing an orderly and ultimately successful CEO succession process is one of the board’s biggest responsibilities, and can be a stressful situation under the best of circumstances. And, in this instance, the eight directors from StellarOne and 11 directors from the old Union would have to work together on a potentially sensitive issue, despite the fact that they were still getting to know each other. Beale says the board engaged a consultant to help it develop a consensus on the kind of individual it was looking for, and the directors ultimately agreed on a set of expectations for the new CEO’s work experience and competencies.

“It was obvious from what the board was looking for that this was going to be an outside search [rather] than being filled [internally],” says Beale. “At that point it was pretty much the typical routine for headhunters [with] lots of names and lots of resumes.”

The board started out looking at multiple candidates but eventually narrowed its search to two individuals. And in late August, Union announced it had hired 51-year-old John Asbury as president and Beale’s designated successor. A native Virginian, Asbury had previously been president and CEO of privately held First National Bank of Santa Fe, a multi-state bank with locations in New Mexico and Colorado. Asbury will become CEO in January 2017.

I think the key piece of it was getting the board, which had really never worked together before, aligned around the work experiences and competencies we wanted in John,” says Beale. Ultimately, Union’s greatly expanded board (which now stands at 18 members) oversaw an orderly process that brought in a qualified individual to succeed its incumbent CEO. Or, to put it more bluntly, the Union board did its job.

“I think that CEO succession is the single most important responsibility of a board of directors,” says Alan Kaplan, CEO of the executive search firm Kaplan Partners. “I don’t think a board has any more important decision than who leads the organization, unless at some point they’re going to sell or merge the company.”

Kaplan says that three years is a reasonable amount of time for a board at a community bank to set aside for management of the succession process, although a much larger bank might need four to five years. The experience at Union shows that it can be done in less time as well. It’s probably a good idea for the board to delegate hands-on management of the process to a subcommittee of the board, like the compensation or governance committees, although some banks set up special committees just for that purpose. For example, Union established a special search committee that had seven directors, headed up by the holding company’s independent board chair, Raymond D. Smoot, Jr.

“It gets very time consuming,” says Kaplan of the succession management process itself. “You’re meeting with consultants, meeting with internal candidates and external candidates. It’s not until that process gets whittled down to a short list that “most of our clients think it makes sense to get the full board involved,” he adds.

Sometimes the biggest challenge that boards face in managing the succession process is dealing with the incumbent CEO. For starters, many bank CEOs are at best ambivalent about the retirement issue. Some of their foot dragging is simple human nature. For many CEOs, theirs is a dream job that they are very reluctant to give up. The financial crisis, which wreaked havoc on the stock options of many younger bank CEOs, is also a factor in the retirement plans for many individuals. “People who 10 years ago at age 55 might have said they’d love to retire at 60, but at 60 they didn’t have what they had at 55,” Kaplan says. “Now they’re 65 and they might still be in it.”

The board will also have to determine what role the current CEO will play in the succession process and how much influence they will have over the final decision. “In most situations, with a planned orderly succession where no one is being forced out, the retiring CEO has an important role in participating in the interview process because they are your most experienced banker,” Kaplan says. But the process itself should be under the control of the board and not the outgoing CEO. “While I think the voice of that CEO in the process is very important, and they should be a very important participant, I do not believe the CEO should drive the process,” he says.

The board will also have to decide whether to select an internal candidate to succeed the incumbent CEO or recruit someone from the outside. Either approach can be successful, and they both entail certain risks. For the internal candidate, it’s a question of whether they have the experience and skills the bank will need going forward. For external candidates, a common concern is whether they will be able to work effectively in the bank’s culture.

One bank that has a long tradition of developing internal candidates to succeed their chief executive is Park National Corp., a $7.4 billion asset bank in Newark, Ohio. The current president and CEO, David L. Trautman, was chosen to succeed C. Daniel DeLawder in January 2014. At that point, Trautman had been with the company for 34 years, and had been president since 2005. DeLawder, who had been CEO for 15 years when Trautman succeeded him, felt the younger executive Trautman deserved the opportunity to finally run the bank. “I just thought that it was probably time,” DeLawder says.

DeLawder, who has served as chairman of the board since 2014, says the other directors were a little surprised when he first raised the succession issue in 2013 and recommended Trautman as his successor because he, DeLawder, was then only 63 and fully capable. “I’ve still got game,” he quips. “I could still be running the place.” And even though Trautman had been a director since 2002 and was well known to the other directors—and “was a large part of our historic success,” according to DeLawder—his selection as the new CEO was not a foregone conclusion as far as the board was concerned. Trautman ended up meeting separately with every Park National director in an extensive interview process as the board did its due diligence. “The board did its job,” DeLawder says. “It was very thorough.”

There were no external candidates, according to DeLawder, which is hardly surprising since Trautman is just the fifth Park National CEO since 1928, and all four of the previous CEOs came from inside.

The biggest risk of mismanaging the CEO succession process is that it could ultimately put the bank at risk of receiving a takeover bid from another institution. StellarOne announced in March 2012 that it had initiated a CEO succession plan “in contemplation of the planned retirement” of its then-CEO, O.R. Barham, Jr. In fact, Barham had informed the StellarOne board a few years prior that he was considering retirement, and the board had already been working on a succession plan. According to the bank’s former chief talent officer, Lisa Cannell, now chief human resources officer at the University of Virginia’s Darden School of Business and also founder of the consulting firm Talent Strategies and Solutions LLC, the board looked at several internal candidates to replace Barham but ultimately decided to recruit someone from the outside. Working with an executive recruiter, the bank did settle on an outside candidate to succeed Barham. “But by the time we finally got the person identified, Union came in with an offer,” Cannell says. [For more on this, and CEO succession, see Bank Director digital magazine’s Talent Issue.] Beale, who had long eyed the possibility of merging with StellarOne, eventually made an offer to acquire the bank, which the StellarOne board accepted in April 2013. In effect, Beale made himself Barham’s successor.

According to Beale, the two characteristics that Union’s board were looking for was someone who had run businesses in a banking environment that were much larger than Union’s current size, and were also multi-state in nature. Asbury fit the bill since he had held senior level positions at two of the largest banks in the country—Regions Financial Corp. and Bank of America Corp.—and had also managed a multi-state franchise at First National Bank of Santa Fe. “They wanted someone who had been down that path before,” Beale says.

Clearly, the Union board is expecting Asbury to grow the bank and expand its franchise beyond Virginia. Interviewed just eight days after taking over as CEO, Asbury has a lot on his management plate at the moment. But one of his priorities going forward will be to make sure the company has a good management succession process in place.

Bank Succession Planning Made Simple

Succession-10-17-16.pngAccording to a recent Bank Director survey, 60 percent of those surveyed expect their bank’s CEO and/or other senior executives to retire within the next five years. The survey also revealed that most banks are unprepared for those coming changes. Only 45 percent have both a long-term and emergency succession plan in place for the CEO and all other senior executives. Does your bank have a plan? Will the plan actually work should the trigger be pulled?

There are a lot of moving parts in a bank’s management succession plan. That’s why we have highlighted the following three key steps to consider that have repeatedly surfaced in our experience working with bank boards and CEOs around the topic of management succession planning.

Who “Owns” Succession Planning?
The chairman or a board committee is the overall “owner” of management succession planning, specifically for the chief executive role and board of directors. In turn, senior management succession is owned by the CEO, with regulators now requiring most sized banks to have detailed succession plans in place for senior management. The big question quickly becomes; will those succession plans actually work, given the velocity of change in bank business models, regulatory demands, flat margins and the lack of viable growth options? Banks with well developed succession plans will clearly be in the driver seat. If your bank has a weak plan or no plan, here are three practical steps bank board, CEO and management teams should take.

Step One: Emergency Plan
In the event of an immediate leadership void, we recommend an emergency 90-day plan for each key position with no clear internal successor. Putting someone from the board or management team into the slot for 90 days buys time to consider the best short-term and long-term options. Appointing an interim person gives the board or CEO a chance to “test drive” the new leader while at the same time, considering external options. For public banks, it’s the fiduciary responsibility of the board to consider external options so as to compare and contrast to the internal candidate. However, based on our experience and observations, more often than not, the internal candidate gets the nod with minimal disruption and a high level of success.

Step Two: Internal Plan
Based on a recent Bank Director management survey, more than 50 percent of banks still do not have a formal succession plan for senior management. Shareholders are more active in bank succession and demand a written plan. Either way, regulators will soon be requiring formal succession plans across all asset sizes of banks. Clearly, succession requirements are moving down to the community bank level with all speed. Clients we serve with strong succession plans have taken the time to codify each senior management position, including the timeline to retirement and then review who in the bank could take on that role if necessary. Unfortunately, many banks simply don’t have a backup internal option. Either the bank can’t afford the extra overhead cost of a successor or the age and timeline of the backup option does not align for succession purposes. If your bank is in that predicament, move to step three immediately.

Step Three: External Plan
Being ever mindful of the internal succession plan is key when it comes to considering and evaluating potential external options. We have seen clients go to the extreme and develop a list of external succession options for all senior management positions. Since banks can’t predict when they will have a departure, which very well could happen before the internal successor is ready, it is wise to think and identify those whom it would make sense to recruit. Clearly knowing your competition and developing relationships in advance makes recruiting an executive easier, plus the culture fit can also be assessed early, thereby increasing a successful integration.

A practical three step plan can provide the board more detailed insights into the depth and reality of the company’s succession plan. A formal review by the bank board should be conducted annually to test succession plans and make adjustments where necessary.

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