Highly effective boards have something in common: A strategic mindset and a clear understanding of what it means to govern.
In today’s ever-changing business landscape, effective strategic thinking at both the board and senior management team level is critical. Opportunities and challenges abound for financial institutions. Too often, the strategic planning process can become focused on financial measures and/or annual budget goals.
Effective strategic thinking generates thoughtful deliberation of strategies necessary to 1) maintain or increase financial performance; 2) capitalize on current opportunities; 3) anticipate future opportunities; and 4) overcome challenges by getting ahead of those threats.
Board governance is at the heart of strategic thinking. Without appropriate Board governance, strategic thinking simply cannot become a way of being within your financial institution. Either your Board will be pulling at senior management to define the desired future or senior management will be looking to the Board to set the vision of tomorrow. Each group plays a key and integral role. Each brings a unique perspective. Each is invaluable.
In order to achieve and maintain effective Board governance, we encourage your Board to conduct a review of its governance model. Consider the following fundamentals:
- Are rules of engagement between management and your Board identified?
- Is there a clear definition of how information is communicated to your Board?
- How does the Board access management and resources?
- Are there ground rules for committee reports?
- Is there a 12-month schedule of Board and committee meetings and a broad or consent agenda for each?
Board Roles and Responsibilities
- Are there role descriptions for Board chair, Board director, committee chairs?
- Have you defined the ideal size and make-up of your Board?
- Have committee structure and charters been adopted?
Documented Decision-Making Process
- Is there a process around designating committee chairs and determining committee assignments?
- Is there an established CEO performance review process?
Board Succession Plan and Process
- Have you developed Board selection criteria?
- Do you have a Board recruitment and election process?
- Are you continually identifying possible new Board candidates?
- Have you considered an Advisory Board that can act as a “farm team” for future Board members?
Training and Education
- Do you have an orientation program for new Board members?
- Are Board members receiving the annual required training and also being supplemented with “need to know” hot topics?
Board Self-Assessment Process
- Does your Board evaluate its performance at least annually?
The items above may seem basic; however, without these building blocks of a solid base, your Board may find itself locked in dysfunction.
If you answered “no” to many of the questions above, perhaps your Board is more ceremonial in nature. A “Ceremonial” board displays the following characteristics*:
- Board chair or CEO is all powerful and directors are passive
- No productive dialogue occurs in or out of the boardroom
- Management tightly controls information flow and generally may not share the right information or the right amount of information
- Information is summarized at a high level and may not enable the Board to fully understand the importance of the information shared
- Board meetings are focused predominantly on compliance only
- Board meetings may seem more social in nature
- Board “rubber stamps” CEO’s decisions and does not adequately question or vet decisions or direction
If you answered “yes” to many of the questions above, your Board is likely more progressive in nature. A “Progressive” board displays the following characteristics*:
- Board works collaboratively and cohesively as a team—they “gel”
- Directors and senior management share mutual respect and trust
- Select directors emerge as facilitators or channel lively discussion
- Everyone participates, consensus is frequently achieved on key issues
- Self-evaluation provides opportunity for continuous improvement
- Directors take their roles and the performance of the financial institution seriously
- Information is focused, timely, regular, and digestible
- Management anticipates the Board’s needs and responds appropriately to those needs
- Directors learn the business (but don’t manage it)
- Board and CEO jointly set 12-month agenda
- Board focuses on issues that are value-added/anticipatory versus strictly compliance-related
*Source: Boards That Deliver, Ram Charan
As your Board considers your financial institution’s future, what is the most effective foundation on which to build: The Ceremonial board or the Progressive board? Research and results suggest the Progressive board.
A Progressive board and governance model can 1) ensure competent and capable leadership; 2) advance a strategic mindset; 3) serve as the role model of a culture of accountability, 4) align CEO/senior management goal setting and compensation with achievement of strategic measures; and 5) protect and enhance shareholder value.
If you would like to learn more about Wipfli’s Board Governance Services, please visit https://www.wipfli.com/industries/financial-institutions/board-governance or contact Marcie Bomberg at email@example.com.