Community banks are missing an opportunity to drive success if they are not filling their boards with seasoned professionals whose backgrounds and talents map directly to the challenges facing banks today.
Traditionally, many board directors at community banks have trusted management to make the right decisions without probing into the details. This model is no longer effective, as community banks confront unprecedented challenges.
Today, successful banks are thinking of board members as assets that add value to an organization, and individuals who work hand-in-glove with management to drive growth and success. Private equity-backed banks have illustrated how this new model works by filling the seats of their boards with members who not only have industry expertise but actual experience in building and managing different facets of a business. The rest of the community banks can take a page out of their playbook to drive success as well.
Since 2008, many regulations have been introduced in response to failing banks whose leadership placed a premium on chasing rapid growth strategies without implementing sufficient risk management controls. The Dodd-Frank Act puts additional burdens on banks of all sizes and, therefore, on their board directors, particularly in the area of risk management. Clearly, bank boards today are under a lot of regulatory scrutiny, as well as pressure to bring more value to the table. For community banks in particular, the difference between board members with hands-on banking, compliance and technology knowledge and board members without can mean the difference between a bank's success and failure.
As the need for strong strategic leadership grows, here are a few questions to consider:
- Do the talents of your board members align with your business objectives?
- Have your business priorities broadened from loan generation to expense reduction, from in-house processing to outsourcing, and from organic growth to mergers and acquisitions? Do the capabilities of your board measure up?
- Is there enough flexibility in your board policy to rethink the terms of membership, or do the majority of your board members stand for re-election year after year?
- What is the average tenure of your board members, and how many joined the board before the credit crisis?
- Are your board members willing to do what it takes to add value?
- Is the CEO working with the board chairman to bring in the right talent?
In 2010, when Sterling Financial Corporation, the holding company of Sterling Savings Bank, was fighting for its survival, private equity financiers Thomas H. Lee Partners and Warburg Pincus invested over $170 million each. With their help, and that of other investors, Sterling got back on its feet. Immediately, the new investors examined Sterling's board of directors, and identified an opportunity to bring in fresh talent. In addition to the key legacy board members that understand the bank's products and market, Sterling supplemented its board with heavy hitters, including former presidents, CEOs, and vice-chairmen of large, established and companies including JPMorgan Chase, Bank of America, Morgan Stanley, Wells Fargo, the Federal Deposit Insurance Corp., Promontory Financial Group and Starbucks.
Greg Seibly, CEO of Sterling Financial Corporation, who led the bank's re-organization recently spent time with me discussing the value of boards that contain former industry veterans and practitioners. Without question, Seibly's board has been instrumental in turning Sterling into a thriving community bank, and Seibly wonders why Dodd-Frank didn't do the obvious, requiring business leaders with industry expertise and business acumen on every board to ensure they govern from a position of experience and knowledge. Seibly believes, "if some percentage were former financial services industry experts, it would likely enhance regulatory credibility."
