What You Don’t Know Can Hurt You


3-4-15-Jack.pngOn March 5 and March 6, Bank Director will hold its second annual Bank Board Training Forum at the Hermitage Hotel in Nashville. The day-and-a-half event was designed to augment Bank Director’s other conferences, which tend to focus on a specific topic, like mergers and acquisitions, audit, risk or compensation, and appeal to a more targeted audience. Instead, the Training Forum was designed for the entire board, and it covers a wide range of topics that all bank directors need to understand.

We are expecting a standing-room only crowd with about 120 people, which speaks to the pressure that directors feel to keep up with the changes that are occurring throughout the industry. Whether it’s something to do with technology, like the advance of mobile or the impact of social media, the rise of nonbank competitors like Google and Apple, or the growing impact that millennials are having on the U.S. economy, the pace of change seems to have accelerated. Staying on top of it all almost seems like a full-time job.

I’ve always thought that bank directors face a unique challenge because banking is a highly regulated industry and it takes time for a new director to grasp just the major requirements, let alone the entire rule book. (I wonder how many bank CEOs who grew up in the industry know the entire rule book.) Banking is also a complex business (as is finance generally) and a new director whose background is in, say, manufacturing or retail can end up having a pretty steep learning curve. The fact that most bank directors come from outside of the industry only adds to the challenge. 

Ultimately, directors’ effectiveness will depend on how much they know about the business of banking and, specifically, their own bank. How can a board exercise their fiduciary duties to shareholders, or be a valuable resource to management, if its members don’t understand the industry, its issues and how those are changing?  

There are a variety of ways that directors can keep themselves informed. Attending events like the Training Forum, or those offered by other industry organizations, is certainly one approach. I would also strongly suggest that directors read a variety of industry publications on a regular basis. Bank Director magazine is one of them, obviously, but there are others. I think it would be extremely helpful if there was someone on the board, perhaps the lead director or independent director, or even the corporate secretary, who could flag important articles, research reports and webcasts and push that content out to the entire board.

I have come across a number of bank boards that make it a regular practice to have a member of senior management brief the board on a particular topic, say, credit trends throughout the industry, or the latest developments in cybersecurity. I think it’s entirely reasonable for the board to expect management to help keep it informed on important industry trends as well as what’s going on inside the bank. But the management team can’t do it all. Directors themselves have to make a personal commitment to training and education for as long as they serve on the board. Basic intelligence, life experience and sound judgment are important qualities for a director, but they can only take you so far. 

Cultivating the Talent Within


military-formation.jpgHaving trouble finding quality managers that fit your organization’s culture? Maybe it’s time you make them yourself. Bank of Marin, a $1.4-billion asset community bank headquartered in Novato, California, is doing just that.  By applying a similar training concept to those sometimes employed by much larger institutions, Bank of Marin  is wagering that even for a community bank, the long-term benefits of an early investment in employees will be well worth the initial cost.  Bank of Marin CEO Russell Colombo recently spoke with Bank Director about the program.

Why did you start an employee training program? 

We really looked at both our growth and our total employee base. As we’ve been growing, we felt it was important to start building a culture from the bottom up by training people to learn the organization. That way we knew what we were getting.Whereas, when you hire from the outside, there’s a little bit of risk. You can interview all you want, but you don’t necessarily know what you are getting.

The program also sends a very good message to our employees that there are opportunities here for growth.

Can you give us an overview of how the program works?

It’s a nine month program. Each trainee is assigned a mentor who meets with them regularly either at branch locations or at headquarters depending on where they are assigned. These mentors, usually branch managers, provide the trainees with guidance and assistance. 

After they graduate, the mentor who was assigned to them still remains in contact and works with them as they are taking on their full responsibilities in the branches. They help them make that transition. So, it’s a nine month program with three months of additional mentoring. The trainees become pretty close to their mentors.  They can call them anytime for assistance, direction and guidance even after those last three months.

What are some of the qualities you are looking for from trainees?

There are a few things. For educational background, we are looking for a bachelor’s degree or better. We are looking for [people with] leadership qualities: Those that are not afraid to speak up and are open to learning. We are looking for those that can be outgoing and have a sales aptitude. We also want someone who isn’t afraid to ask for business and who can build client relationships with existing customers.

How have you been gauging the success of the program?

It is early yet since we just completed the first year, but we had our first graduation and each [graduate] got up and gave a speech. They felt good about their own careers because the bank had confidence in them and we were willing to spend money to train them for success within the bank.

I think this [program] creates a strong sense of loyalty. These days you have people coming out of college with degrees in business and accounting who are taking jobs as tellers. We pulled our [trainees] out of these ranks because they clearly have the capability and the capacity to do more.  We are giving them their opportunity.

People see this and they say, “If so-and-so can have that opportunity and succeed, I could too,” and maybe they will raise their hand the next time or be chosen the next time. That has a real positive impact on a culture.

Do any of your area competitors have similar programs?

I haven’t seen any others in the area doing this. This is what the big banks used to do. They all had training programs. When I started in banking, every bank had a significant training program where they hired a number of people and put them through a class. You spent a year or two training and learning about the bank before being placed in a job.

With community banks it’s tougher because it’s a matter of cost. Everybody is looking hard at the efficiency ratios. We are adding people who do not have a function other than learning, but I Iook at it from this perspective—even though there is that initial cost, in the long run this is going to be really efficient for us because we don’t have to go through the retraining when we hire people. We are creating a pipeline of people who can take over, who can really be a succession plan for our branch managers. We don’t want it to be a fire drill and have to go out and look for the right person every time a spot opens up.  You want to be able to say, “OK, this person is ready now to take that roll on.” That’s certainly the best way to do it.

What lessons have you learned from the program?

I think one of the things we learned is we have to do a really good job in training our employees who are managing people on the employment laws and regulations in this state. There are a myriad of regulations they need to know about employment issues that go beyond just basic management skills. We don’t want them to either risk their own careers or the bank because they made mistakes regarding the law. It’s not as simple as it used to be. Believe me. 

What advice would you give to CEOs considering a similar training program?

I would say to any other community bank—if you can afford to do something like this, it is well worth it. It’s a great way to build upon the culture that your particular organization has. This program is creating branch managers who will ultimately be doing things the Bank of Marin way. So, there is not a culture clash between the new hires and existing employees. We don’t have people saying, “Oh, we did it like this at x,y,z bank.” No.This is the way we do it, and I think there is a lot of benefit to that.

I look back on my banking career, and I had the opportunity to go through a [training program]. It was terrific because your job was to learn. You have people that are learning the right way to do it. That’s invaluable. It  will save you money in the long run, and it will build a more positive environment and culture for the bank.

What Have We Wrought? How Can We Atone?


training.jpgI know, I know, this may not be the time or the venue for industry self-flagellation, but like the twelve-step programs and most religious admonitions, one cannot change or eliminate bad habits or poor behavior without first acknowledging the problem. That one key problem for community banking—both relative to this crisis and the continuation of our business model—is the dearth of classically trained credit talent remaining in our industry.

We know the primary culprit: the big bank fixation on the efficiencies of the hunter-skinner template for credit delivery. Are we not now paying exponentially for those “savings” now? I’ve said for years that I knew of no other industry that has been successful putting people on the street selling a product or service with such limited knowledge or training.  Most devastatingly, adherence to that model has ended the en masse credit training that had been the font of credit talent that ultimately found its way to the community banks. Even without this economic tsunami, our niche of the industry was facing a crisis over how to staff lending functions with people who actually knew credit. These are the people who provide value to both risk management and the borrowing customer—knowledge that is arguably at the heart of community banking’s popularity and viability. Simply put, due to big bank strategies and retirement factors, there’s less credit talent per capita in banking today than ever before.

What can be done? Like the so-called aging infrastructure of America, rebuilding our depleting credit talent pool needs significant investment and high profile support—support at the highest levels of our banks, including boards and CEOs.  Credit training can no longer be seen as just a discretionary non-interest expense item available for the budget balancing axe. Even at Credit Risk Management, L.L.C. (CRM), training revenue has been down about 25 percent since the onset of the crisis in ’08—understandable for the times, but a trend that must be reversed. Credit training, of course, can take many forms: in-bank, trade association-sponsored, and vendor-directed. Each bank needs to devise a strategy that works best for its talent needs.

One initiative that banks should consider is re-invigorating the formal or informal peer group training programs, where costs can be shared and curriculum can be customized. Also, look for schools with graduated levels of complexity in the two primary branches of commercial lending: C&I (commercial & industrial) and CRE (commercial real estate). Community banking in particular needs diversity away from real estate. Focus on schools where the curriculum will be focused totally on credit underwriting and analysis, using case studies, mock presentations, and computer tools—not ancillary issues like loan review or effective officer call programs. And to ensure the cost justification for the bank’s investment in sending students, ensure that the program include at certain stages some testing and certification. 

Even with all the turmoil and economic pain our industry is currently experiencing, I subscribe to the Chinese adage that within every problem lays an opportunity. Our opportunity is to begin now to build the next version of the business model for community banking, and credit training must be a vital part of that re-building strategy. Accordingly, I implore you community banking leaders—executive management and board directors—to first acknowledge this depleted credit talent problem, and then to see some way to budget for training opportunities as not only investments in enhanced risk management, which we obviously need, but as investments, too, in the marketing and survival of our niche in the broader industry.