Assessing Your Board’s Strengths and Weaknesses

If the composition of a bank board of directors hasn’t changed over a period of several years, is it a sign of stability—or stagnation?

The banking industry has gone through a period of dramatic change since the financial crisis, and a board that was up to the challenge of providing effective oversight in 2007 might not be today. Consider how much has changed in recent years:

• The regulatory environment has become much more rigorous, not only with more rules and regulations than ever before, but with a higher level of supervision by the bank regulatory agencies. Boards in particular are under greater scrutiny today.
• Much greater emphasis is now being placed on risk management. Primary regulators encourage (or require) banks of all sizes to adopt new approaches like enterprise risk management and stress testing, and to form board-level risk committees.
• The emergence of potential nonbank competitors like Google, Apple, Facebook and the Lending Club, many of whom are more technologically savvy and quicker to bring new products to market than traditional banks, may threaten to erode the industry’s market share.
• The exploding popularity of all things mobile is forcing banks to reassess their reliance on bank branches as their primary distribution system.

If the membership of your board is the same today as it was seven years ago, you should consider doing an assessment to determine whether its collective skill set and knowledge match up with the bank’s challenges. Most directors are generalists who bring their good judgment and experience to the board table, and while these are invaluable assets, it can be very helpful to have experts in specific areas of need.

One institution that has done an impressive job of refitting its board is Huntington Bankshares Inc. in Columbus, Ohio. The bank was one of many casualties of the financial crisis and in 2008 found itself with some pretty significant credit issues, a balance sheet that needed to be strengthened with more capital and a chief executive officer who had reached retirement age. Chairman and CEO Stephen Steinour was hired in January 2009 to lead the bank’s turnaround, and in early 2010 Steinour and the board did a thorough assessment of the board’s strengths and weaknesses.

“In conjunction with Steve, we developed a list of the qualities that Huntington needed on its board as we moved into the future,” says David Porteous, the bank’s lead director. “We had this incredibly talented board but over time we had [become] overweighted in some talents and in other areas [we were] underweighted.” Porteous says that exercise was “absolutely essential” because it identified the kinds of directors that Huntington would need going forward.

That process resulted in some of the bank’s directors stepping down while five new directors have joined the board since 2010. Peter Kight, managing partner of the private equity firm Comvest Partners and founder of technology pioneer CheckFree Corp., which was sold to Fiserv Inc. in 2007, brings a deep knowledge of financial technology to the Huntington board and chairs its technology committee. Steven Elliott, a former senior vice chairman at Bank of New York Mellon Corp., has a background in banking and risk management and chairs the bank’s risk oversight committee. Richard Neu, board chairman at MCG Capital Corp. and a former bank treasurer, chairs the audit committee. Retired KPMG partner and director Eddie Munson, who has an extensive accounting background, also serves on the audit committee. And Ann Crane, president and CEO of Crane Group Co., a family-owned company in Columbus, brings her experience with private businesses.

“We’ve been able to add a number of directors to complement what is really a strong core of directors,” says Steinour. “It allowed us to bolster the areas that we identified in 2010. And we continue to work on that as we think through director retirements and the incremental areas of opportunity for us to enhance the breadth of skills and knowledge on the board.”

Other articles related to governance:
Do You Trust Your CEO, and Do They Trust You?
Do You Have a Committed Board?