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How to Build a Better Bank Board of Directors

Jun 7, 2017 10:00:00 AM |

Caleb Ward

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Bank BOD-501035-edited.jpgAs banks evolve, so should your leadership team and board. Shareholders, analysts, investors, and even customers want proof of diversity, collaboration, and confident decisions. No longer can a bank board be a ‘good old boys club’ comprised of leaders from the local business community. Effective leadership reflects the composition of the customer base, it encourages objectivity, and it brings a broader set of collective skills to bear.

Tenured board members bring valuable continuity and historical perspective, but those assets are no longer sufficient. New members bring vital knowledge in pressing areas like cyber protection, human capital management, and risk management. The secret sauce is how the board and its individual members behave as a collective resource.

Key Considerations for a High Performing Bank Board[1]

  • The board director is willing and able to address pressing issues confidently, openly, and directly
  • The board is balanced team of high-contributing members capable of and willing to work together to make difficult decisions
  • A collaborative culture supports objective conversations, a forward-looking mindset, and necessary checks and balances
  • Knowledge, perspectives, and experience vary as much as age, gender, and cultural origin

The challenge for many banks—and many businesses of all kinds—is how to build and sustain a board of directors that accomplishes these goals and puts the organization on track for years of stability. It takes competence, integrity, and intention from each member, and a quality working relationship between members and bank leadership as they collaborate toward a clearly defined goal.

Success begins with setting a high bar for your board and its members. Every subsequent effort related to recruitment, culture building, retention, and continuous assessment should keep those standards at the forefront. We’ve compiled a list of best practices and toolkit that you can use to define, pursue, and sustain these high objectives to help you get started.[2]

  1. Regular Assessment

Conduct annual self-assessments to support continuous improvement on key issues, and sustain awareness of the appropriateness of purpose and resources. Clearly outline processes, benchmarks, and applications for the assessments and results. The format often reflects the culture—your assessment may be informal, or it may be highly structured. How your organization decides to conduct the assessments is less important than the commitment to regularity and rigor.

  1. Engagement Level

The board and leadership should work together to ascertain the degree to which they influence management decisions and company direction. Again, this decision may reflect organizational culture, and investment levels will fluctuate some, based on need. The important part of this decision is its commitment to collaboration.

  1. The Right Work

The tasks your board undertakes in many ways reflects the larger mindset of the bank itself—are they focused on familiar legal and regulatory obligations, or are they prioritized for higher impact? Just as a compliance mindset likely will limit the growth of your institution, this tactical focus will stifle board member engagement.

  1. Prioritize Tasks

Once you’ve assessed the necessary and higher level focus areas, you can evaluate which directors are most capable of leadership, who wants to take a leadership role, how the efforts drive toward shared objectives.

  1. The Right People

Board member recruitment is not a simple task. You’re seeking soft skills like independence, competence, expertise, and dedication. You also need technical skills spanning traditional financial wherewithal, human capital, technology, marketing, and more. Assess the composition of your board. Align experts with activities. Perform a gap analysis to identify the specific kinds of professionals you need to recruit. Communicate the findings with the current board, the nominating committee, and other recruitment resources. And remember that this is not a one-and-done effort—it should happen regularly.

  1. Evaluate performance

Similarly, individual performance evaluations are more than valuable – they are necessary to the resilience of the organization. Performed with regularity, precision and delicacy, this step can take the form of a peer review or more formalized top-down format, but should cover key performance indicators.

  1. A Collaborative Agenda

Agenda management is another area where collaboration is useful. While it’s important for management to communicate priorities, directors should have a real say in what gets presented, discussed, and decided during meetings. It’s a way to reinforce the engagement and accountability.

  1. The Right Information

Make sure your board actually understands the workings of your institution. Even directors who have served on boards for years confess that they don’t really understand how their companies make money. This is a ‘goldilocks’ scenario—you don’t want to overwhelm the board with volumes of irrelevant information, but you also want to give them the knowledge necessary to make confident decisions. Ask what they know, help them to ask the right questions, and keep the flow of information relevant and constant.

  1. Culture Counts

As we’ve noted, the banks have evolved dramatically in the past few years, and boards need to keep pace. If your board doesn’t reflect the culture or composition of your organization and its stakeholders, re-evaluate how you are bringing directors into to the fold and how well they are performing against your current and future objectives.

How you establish and sustain an appropriate, informed, diverse, collaborative board of directors will have an impact on your clients, your organization, and the members as well. As you consider your leadership structure, be anticipatory about the current and near term environment. In particular, pay attention to hard trends like cybercrime, the M&A environment, and the certainty of coming deregulation so your entire organization is capable of responding to pressing issues as well as future threats, opportunities, and compliance challenges.

We invite you to reach out to your HORNE Financial Institutions Leadership and Governance advisor with questions or requests for additional support.

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Caleb is an assurance associate at HORNE LLP. He specializes in assurance services for public and private financial institutions which include external audits, internal audits, regulatory compliance, and other attestation engagements.

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