Who Will Fill Your Talent Pool?

When Alan Kaplan graduated from college in the 1980s, his first employer, then named First Pennsylvania Bank, placed him in an intensive management training program that lasted more than a year. For months, the 17 people in his class got hours of daily classroom training. That was followed by hands-on work analyzing financial statements and learning about different aspects of the bank, including underwriting. “If you were really lucky, [a bank officer] would take you on a call with a client,” says Kaplan, now an executive recruiter and CEO of Kaplan Partners. “It was a great experience. It was like a graduate program in banking.”

Today’s senior bank leaders and chief executive officers, most of whom are in the their 50s or 60s, benefited from that training at the beginning of their careers. However, those programs, by and large, no longer exist. Changes in the economy and society at large have made the big banks that commonly offered those programs do away with them by the mid-90s, which may make it hard to fill CEO jobs in the years ahead. Some banks are making an effort to overcome that problem but it will be a tough road, especially for smaller banks that can’t afford intensive training programs. Bank boards very much have responsibility for tackling this problem, as regulators expect boards to oversee succession planning.

Richard Perkey, an executive recruiter for Russell Reynolds & Associates, says boards are responsible for making sure there is a succession plan in place to replace the CEO and other senior leaders, and it’s the CEO’s job to train the next generation of leaders. “There can be no question the industry has a serious bench strength problem,” says Richard Parsons, a former senior executive at Bank of America Corp. who retired and has published a book titled “Investing in Banks.” “[The CEO position] is a job that takes credit skill and a lot of judgment,” he says. Parsons thinks the lack of available talent is leading some banks to sell. In his review of publicly traded banks that announced a sale in 2014, nine out of 20 had a CEO that was 63 years old. Most were either 62 or 63 years old. The median bank CEO is 58 years old, according to Bank Director’s latest Compensation Survey.

As consolidation continues in the industry, some of the senior leadership problems for smaller banks will be solved by the fact that many of them will no longer exist. When Charlottesville, Virginia-based StellarOne Corp.’s CEO, O.R. Barham, Jr., announced his retirement in early 2012 from the $3 billion asset bank, not enough internal candidates were ready, which left the bank vulnerable to potential acquirers, says Lisa Cannell, who was StellarOne’s human resources executive at the time, and is now chief human resources officer at the University of Virginia’s Darden School of Business. When Richmond, Virginia-based Union First Market Bankshares Corp. (now known as Union Bankshares Corp.) came along and offered a premium to buy the bank, the board accepted, she says. The deal was announced in June, 2013. The proxy statement that year said Barham was 62 years old. “It took so long to get the decision made about who we were going to hire,” she says. “It was very disappointing to a lot of us.” (O.R. Barham could not be reached for this article).

However, Ben Plotkin, vice chairman of investment bank Stifel Financial Corp., doesn’t believe the graying of the industry’s senior executive corps, including CEOs, necessarily causes a leadership problem. He himself plans to work well after retirement age, and he thinks that in large part, community banks are selling because the business is not as fun as it used to be, not because the CEOs are too old. However, Kaplan thinks lack of senior leadership is one factor leading banks to sell when CEOs retire, particularly smaller banks in rural areas who have a tough time attracting talent.

Kaplan says he has noticed less rotation of managers taking place in the last twenty years than had taken place before. It’s affecting recruitment of senior leaders for banks. “Unfortunately, many times when we see really strong players who want to be a candidate for the CEO or CFO job, they have only worked in one area of the bank,” he says. Plus, the industry is becoming more complex, with new regulations, complicated stress test scenarios and enterprise-wide risk management impacting even small banks. “To be the CEO of a bank is a whole different job than being a regional president or running the commercial lending portfolio of a bank,” Perkey says.

CEOs need to understand regulation, emerging technology trends, and how to work with the board of directors. They should understand marketing, capital planning, strategic planning, leadership development and balance sheet management as well. It’s quite a broad base of skills and experiences that the next generation often doesn’t have, mostly because they were never given the opportunity to rotate into different departments or learn skills outside of their domain of expertise. Banks for years have been focused on expense reduction. Slim net interest margins make it hard to take high-performers out of their demanding jobs and put them into departments where they are less skilled in order to give them a more well rounded work experience.

While banking may be partially at fault for its talent problems, society has been changing as well. Other industries in the burgeoning financial sector began to attract young talent in the 1990s, among them hedge funds and venture capital firms, says Plotkin. Younger workers and employers show less loyalty to each other, offering a disincentive to train employees.

That being said, D. Bryan Jordan, the CEO of $27 billion asset First Horizon National Corp., the Memphis-based holding company for First Tennessee Bank, is trying to provide for a stable of senior leaders in the future through in-house training. The bank has its own emerging leaders program, at a cost to the bank of about $250,000 to $500,000 per year. About 24 bankers are currently going through the 12-month program filled with leadership and problem solving training, plus real projects that support the bank. Several weeks per year, they also travel to Memphis for in-person instruction. The training is on top of their day jobs, and often keeps them up until 10 p.m. working, Jordan says. Jordan says he is most focused on training the next generation of leaders for skills that go well beyond credit management, including adapting to technological change. “Banking is going through a significant inflection point…. it’s changing very, very rapidly,” he says. “We want to transform our business.“

Jim Edrington, an executive vice president at the American Bankers Association (ABA) in charge of professional development and the association’s Stonier Graduate School of Banking, says he’s encouraged that banks seem more interested in investing in training than in years past. This year, Stonier has the largest student population in at least 25 years, he says, with 680 students. “Banks have recognized the need to have that robust talent pipeline,” he says. (The two-year and three-year programs last for eight days each year and cost about $3,800 per year for ABA members, not including room and board.)

Still, such abbreviated programs don’t match the longevity of the sort of management training Alan Kaplan got in the 1980s at First Pennsylvania Bank. “Banks are more dependent on third parties now to provide some of that training, but I don’t think it’s a full fledged substitute,” he says. “If you want to be a survivor, you need capital and you need talent.”