Searching for the Next Generation of Bank Board Leaders

Corporate boards have historically been predominantly comprised of men, who are either C-suite executives or major investors. Corporate boardrooms in many circles are referred to as men’s clubs with women representing only one fifth of the 1,210 board seats at 100 of the largest U.S. public companies. Banks however, represent a positive trend in board diversity with 22 percent of board seats held by women at the top 25 banks. A study of 2,360 companies conducted by Credit Suisse found that companies with women board members have a higher return on equity, of 4 percentage points on average, when compared to companies with no women board members. While there is a correlation, companies with diverse leadership are also better able to attract top talent, improve their customer orientation and drive employee satisfaction, which all lead to increased returns and profitability.

Board Diversity
The lack of women in board seats is a direct correlation to the lack of women in senior management or C-suite roles compared to their male counterparts. Several large public companies are making great strides to cast away previous recruiting tactics, bringing in new and refreshing initiatives around diversifying the board makeup. Many believe boards should be representative of a company’s customers and employees, but the statistics show that is just not the case. While directionally there has been a shift, it has taken decades to arrive at this point. Boards of today should embrace diversity in the broadest sense, whether that involves gender, age, culture or ethnic diversity, because the net effect of a broad range of perspectives and expertise is board effectiveness.

The Expertise Trend
Moving away from a narrow representative board and focusing instead on functional needs on boards, where specific members will have functional experience, whether in risk, operations, technology, compliance or audit, is another forward-thinking strategy. Proven C-suite executives bring a wealth of knowledge and experience, but surrounding those folks with functional experts will only add to the success and diversity of the board. Driving diversity in thought and experience will lead to more constructive dialogue inside the boardroom, ultimately driving the effectiveness and success of the board and company as a whole. Diversity at all levels is a driving thought behind board hiring, but the statistics still show that although a focus, boards have significant room for diversity growth whether relating to industry, sector, gender or ethnicity.

Aging Board
The average age of board directors at S&P 500 companies has increased from 60 to 63 years old during the past 17 years. Experience is a critical attribute, but in the changing economic environment of today, companies are forced to take a front window approach. Institutions are setting a mandatory retirement age regardless of performance. In some cases, this might hinder a board in the short term, but potentially drive diversity and enhance the board’s overall effectiveness when boards are forced to replace their older members with newcomers. In PwC’s Annual Corporate Directors Survey, of the 934 directors who responded, age was one of the top three reasons attributed to the lack of performance and the need for replacement. While a great percentage of companies have a mandatory retirement age, there are extenuating circumstances when that is waived. The same is true for term limits. It is good to keep those in the 10- to 15-year range, but once again, they can be waived in certain instances if the board deems it necessary.

Bank board recruiting continues to evolve and many banks are seeking non-banking professionals to complement existing banking boards. Just recently, Boston Private Bank and Trust recruited Kimberly S. Stevenson, the current chief information officer at computer manufacturer Intel to its board. Given the amount of reliance on technology within the financial services industry, her background represents the positive trend towards diversity in gender and industry. Assembling a compatible, diverse and successful board is a challenging goal, but a worthy one where the pay-off is measurable and invaluable. With a rapidly changing workforce, boards will be forced to stay current with the broader trends. There is a need for more diverse boards to complement the next generation of senior management.