In a U.S. CEO Outlook Directors Quarterly published in July of 2016 by KPMG, the article “It’s Now or Never” highlighted the finding that two-thirds of CEOs polled believe that the next three years will be more critical than the last 50 years. Of course, that publication was before the recent U.S. presidential election! Regardless of what you perceive the opportunities and challenges of the current and pending economic environment might be, change management and the ongoing assessment thereof are relevant for boards of financial institutions as well as for the banks themselves. What better time for assessment than the first month and first quarter of the new year!
This is the time of year when boards of financial institutions typically pause to assess their upcoming calendar for the next twelve months, reassess committee assignments, and prepare to conduct the annual review of the CEO following conclusion of year-end results. It is a great time of year to also consider a board assessment.
- When was the last time the board did a robust, objective assessment of itself?
- Are you aware of the strategies a board should be using when conducting an assessment of its governance?
- Depending on the culture of the board, is yours the cohesive board that can objectively ask board members to assess themselves and simultaneously conduct a peer review?
Boards that conduct objective annual assessments are typically the boards that govern most effectively.
In 2016, one of the banks we helped conduct an annual board assessment for, including a self-assessment by individual board members and a peer evaluation of each board member by his/her board peers, had several “aha” moments when the results were tabulated. The bank had been making acquisitions over the past few years and had acquired competent new board members who complemented the legacy board members. As the bank has grown and successfully weathered the great recession, CEO succession, and acclimation to new growth markets, needed skill sets and background required on the board have changed as well. There was increasing tension within the board because some of the newer board members with significant board experience had a different set of expectations about what constituted a relevant, quality board meeting, and what did not. Committee structures needed to be revamped, and as the bank grew, the value of the work done by the committees, including the expertise needed on those committees, had grown and changed as well. That annual assessment, and the discussion that resulted, became so valuable that this particular board is doing it again in 2017! Why? The board wants to benchmark the progress made as it has invested in using the results to take its governance role to a higher level of effectiveness and increase its appreciation for diverse thought.
At Wipfli’s community banking forums this past fall, held in Illinois, Wisconsin, and Minnesota, board governance was one of the topics Wipfli chose to focus on. Nearly 300 bankers and board members engaged in thinking about the quality of strategic governance. Among the highlights shared was the increasing need for diversity of thought on the board that encompasses the fast-paced changes that technology is unleashing, coupled with the millennial demographic predicted to become more than 50% of the customer base by the year 2020. Polling of Wipfli’s own attendees (see charts), either board members or CEOs, demonstrated the healthy, desired mix of tenure―legacy members who have weathered various governance storms, including the recent great recession, and board members newer in tenure who likely bring fresh ideas and diverse thinking. As board governance takes on an increasingly higher priority, this mix of skill sets, background, thinking, and expertise can only contribute to a community bank’s success. Be wary of boards with little or no turnover, with experience that only relates to yesterday’s priorities and, heaven forbid, with no technological savvy.
By far, Wipfli’s own client base affirmed the dynamic role of change in governance and the need for ongoing change management to ensure current board thinking and ongoing board education keep pace with the need to provide oversight to the CEO and bank leadership as they develop and update strategic priorities.
With the above firmly in mind, we offer our “Top 9 Musts” for boards to consider strengthening as they assess current and future governance priorities and begin a new year!
- Know thy Shareholders!
- Dependence on dividends
- Importance of return
- Relationship with the bank
- Know the End Game…and Reassess Annually!
- Key: It has everything to do with strategy!
- Periodically Ensure a Valuation of the Bank…Even if Tightly Held
- Level-sets reality!
- Assists the board with alignment of strategy balanced with shareholder expectations
- “Connects the dots” when setting market competitive executive compensation
- Approve the Strategic Plan
- Multi-year, updated annually
- Quarterly updates
- Regular strategic dialogue
- Update the Board Succession Plan
- Mandatory retirement?
- Tenure limits?
- Skill/Competency matrix
- Have Plans
- Strategic Plan
- Board Succession Plan
- Management Succession Plan
- Disaster Recovery Plan
- Technology Plan
- Enterprise Risk Plan (ERM)
- Secure, Retain, and Reward the Best Leadership Team You Have Ever Had!
- Conduct a Board Assessment
- Evaluate thyself!
- Peer assessment
- Be courageous!
- Let Your Committees do the Heavy Lifting!
- Governance Committee
- Audit Committee
- Compensation Committee
- Risk Committee
As the New Year kicks off and new leadership of our great country is being inaugurated, we challenge community banks to give the proper due diligence to governance strategy to take the Board to the highest level of performance yet! Leadership and shareholders are depending on it!
Have a healthy and prosperous 2017!