If any bank has trouble finding directors, it’s Eastern Bank in Boston, Massachusetts. That’s because the mutual bank has a board with 140 people on it.
To be clear, the $10 billion asset mutual bank’s board of corporators, as it’s known, is filled with community stakeholders, nonprofit leaders and others who can graduate to join a sort of advisory board with 75 people on it known as the board of trustees, and eventually, to the board of directors, which has just 15 people on it.
“You have to cast a wide net,” says Deborah Jackson, director of Eastern Bank and chair of the nominating and governance committee, as well as president of Cambridge College. “If you’re just going to the usual suspects and the network that you have, you’re not going to achieve the goals of diversity of background and demographics.”
The strategy has paid off in terms of diversity. Of the 140 people on the board of corporators, 40 percent are members of a minority group or they’re women, compared to 10 years ago, when only 10 percent were, providing a diverse group of future leaders that could be tapped for the bank’s board of directors.
Also, a few years ago, when Eastern Bank looked around and realized that all of its directors were about the same age—and would be hitting retirement around the same time—it set off a multi-year process to expand the pool of potential directors. The bank engaged a search firm and sought input from its various boards and management team for names of individuals who might be good additions.
Many banks still find relationships and recruiters are the keys to finding new directors. “There’s no new magic technique,” says Robert Voth, leader of Russell Reynolds Associates’ Consumer & Commercial Financial Services Practice. “It’s still a very high-touch, highly personalized search process.”
While the search methods may be similar, the needs certainly have expanded. Banks have an incredible amount of regulation to contend with, along with an increasing amount of cyber risk, giving pause to any director who might consider joining a bank board. Boards in many cases are looking for directors with technology expertise, cybersecurity, risk management and compliance skill sets. Finding these individuals in many cases means casting a wider net.
When Jackson was recruited to Eastern Bank’s board in 2000, the bank was making its move from the suburbs into Boston. Jackson was well established in the city, having been CEO of the Red Cross of Eastern Massachusetts and vice president of the Boston Foundation. “They were looking to have the bank leadership at the board level look more like the communities they were serving,” she says. “If diversity isn’t starting at the top, it’s not happening anywhere in the bank.”
But finding directors based on a single attribute is the wrong approach, Jackson believes. “I’m not just a woman who happens to be African-American. We come in packages as people, so our recruitment acknowledges that. There’s never just one thing. That would not be successful.”
Her committee develops a list of director candidates that are presented to the 140 stakeholders each year. The committee also is responsible for nominating trustees, as well.
With such a large pool of nominees to provide annually, “we look everywhere,” Jackson says. The list developed with a search firm five years ago is still active, and new names continue to be added. The committee is constantly looking at a matrix of current director skill sets, backgrounds, genders, races, ages and ethnicities, and comparing it to the constituents. A formal evaluation occurs annually. “We identify where we have gaps, and we look at succession planning.” That also means looking at committee chairs and recruiting candidates who might fill those roles in a few years.
A New Opening
Eric Fischer, former senior fellow at Boston University and former partner at Goodwin Procter, believes that banks should be focused on finding directors who are “tech savvy and have some understanding of how best to market to millennials as well as use big data to win that customer base. The key should be the composition of your board and whether it has the right combination of skills. You have to do that while maintaining the chemistry of the board, and that’s tricky.”
It’s an area that Eastern Bank has succeeded in, Jackson says, especially where tech executives play an important role. Part of that success has come by being in Boston, which has a vibrant tech sector. But Jackson says “none of the outcomes you see on our board are luck. It’s strategy.”
A bank division, Eastern Labs, functions as an innovation hub. That has paid off in attracting directors with a tech background. “It has really had an impact at the director and governance level to think very differently about how we approach innovation. We quite deliberately went after those in tech as a result.”
But the field of potential bank directors with tech experience is very small—and does not hold the same prestige as it once did. “Now, when you look at people in their 20s and 30s who are already accomplished in the tech area, they are a little more concerned about whether that’s the best use of their time,” Fischer says. Instead, he sees more of a tendency to find academics with tech backgrounds rather than tech CEOs.
Part of the challenge, Voth says, is that banks must be willing to bet on an up-and-comer. He notes that when Jeff Dorsey, CEO of Twitter, was appointed to the Disney board of directors, “everyone said, ‘Who is this?’ I said, ‘Everyone will want him in three years. Get him now.’”
That creates a challenge for banks who “want the already baked executive,” but with digital companies, by the time “they have evolved, you have missed them,” says Voth.
Still, with rapid changes in technology, banks might be wise to start broadening their idea of what makes an ideal director.
New Areas of Expertise for Bank Directors
Your bank is seeking new directors with skills that align with how the world of banking is changing. So where should you look?
Where to look: Retail, hotels and restaurants.
Why? According to research by New Voice Media, 49 percent of customers left a business relationship in the past year due to poor customer service; half of them attributed the decision to feeling unappreciated.
Digital and Data Analytics Expertise
Where to look: Fintech firms are an obvious place to start, but consider other consumer-oriented technology companies, too.
Why? Technology is continuing to evolve and to generate more data. Understanding what that data says—and being able to take action—is vital.
Where to look: Consider brands that have done well with millennials. Tech companies such as Lyft, Instagram, Amazon and Google might be hard to draw from as a source for your bank board, but look for the knowledgeable people at smaller brands.
Why? By 2020, millennials will start to enter their peak earning years. And they bring some attributes that are bank-friendly. According to research by First Data, millennials are expected to control $7 trillion in liquid assets by 2020 and generate 46 percent of all U.S. income by 2025. According to the Center for Intergenerational Kinetics, 49 percent of millennials hope to start a business in the next three years, and 30 percent currently own a small business of some sort.