7 Things Bank Boards Should Focus on in the Year Ahead

September 10th, 2018

board-9-10-18.pngThe world of corporate governance today has a brighter spotlight on boards of directors than ever before. While bank regulatory relief has provided a long-awaited respite, bank examiners seem to be zeroing in on governance, director performance and board succession. Here are 7 things directors should have on their radar screens in the year ahead:

  1. Defining Innovation. Digitization and innovation are the buzzwords, but truly embracing the transformations taking place all around us can be daunting.  Pondering how technology has altered our client relationships and acquisitions means thinking out of the box, which may be a challenge for some directors and bank executives. A refresh of the bank’s website is not an innovation—it is table stakes.  True innovative thinking requires more proactivity and planning, and likely some outside perspectives as well. Boards should encourage management to craft a plan to address to these challenges, which are key to remaining relevant.
  2. Talent Management. Historically, boards viewed talent management as the purview of executive leadership and the CEO, except when it came to CEO succession. In today’s talent-deficient environment, though, boards need to hold the CEO and senior team much more accountable for developing the next generation of leaders and revenue generators. If your bank wants to perform above the mean, then the senior team must be composed of very strong players well suited to execute your strategic plan. A true linkage between the business strategy and human capital strategy has never been more critical for success and survival.
  3. Revisiting Compensation Strategies. Balancing the tradeoffs between enhanced compensation packages and performance/accountability has become a significant challenge for compensation committees and CEOs. In this competitive talent climate, banks need to make sure that their compensation practices properly reflect the bank’s market and goals, motivate the right behaviors, and incentivize key players to both perform, and remain, with the institution. Fresh board thinking in this area may be appropriate, particularly for banks that have been less performance driven with their incentive programs, or do not have the currency of a publicly listed stock as a compensation tool.
  4. Enhanced Accountability and Self-Assessment. Just as boards need to truly hold their CEO accountable for institutional performance, boards need to hold themselves accountable as well. Governance advocates are pushing for boards to assess their own performance, both as a group and individually. Directors should have the fortitude to evaluate their peers—confidentially, of course—to identify areas for improvement. Directors should be open to this feedback, and work to improve the value they bring to the institution.
  5. Onboarding New Directors and Ongoing Training. Plenty of data reinforces that new executives as well as board members contribute more rapidly when there is a formal approach to ramping up their knowledge of the company. Expectations of new directors should be clear up front, just as any new employee. A combination of information and inculcation into the institution provides context for decision-making; clarifies the cultural norms; and often reveals the hidden power structures, including the boardroom. A strong onboarding program forms the foundation for ongoing board education. There should be an annual plan for each director’s education to maintain currency, refresh specific skills, and to stay abreast of leading governance practices.
  6. Board Refreshment. Are we truly building a board of diverse thinkers with the range of skills needed to govern appropriately today? Age and tenure have become flashpoints around continued board service, in reality they avoid dealing with declining contributions and underperforming directors. Every board seat is a rare and precious thing, and needs to be filled with someone who broadens the collective skills and perspectives around the board table. Board nominating and governance committees need to manage accountabilities for existing—and particularly for prospective—directors, and be willing to make the tough calls when needed. Underperforming directors should be encouraged to raise their game or be asked to step aside.
  7. Leading by Example. In today’s information-driven society with endless social media channels and instant visibility, C-Level leaders and board members are under the microscope. Lapses in judgment, breaches of policy or inappropriate behavior, once validated, must be dealt with quickly and decisively. The company’s brand reputation and credibility are always at risk. The board itself—along with the CEO, of course—must set the standard for ethics and compliance and lead from the front. Every day.

Bank Boards will continue to be under scrutiny no matter the environment. More importantly, a bank’s board must be a strategic asset for the institution and provide strong oversight and advice. The expectations of good governance have never been higher, and successful boards will raise their own performance to ensure success and survival.

AKaplan

Alan J. Kaplan is Founder & CEO of Kaplan Partners, a retained executive search and talent advisory firm headquartered in suburban Philadelphia. Kaplan Partners is the country’s only talent advisory firm member of the ABA and ICBA, as well as a partner with Bank Director.  You can reach Alan at 610-642-5644 or alan@KaplanPartners.com.