In the boardroom: Musical Chairs for the Board Chairmanship?

The chairman of a community bank is likely to hold the job a pretty long time-often for a generation. But California's SGV Bancorp gets a new one every two years.

The West Covina thrift has long rotated its chairmanship. Last month it elected Benjamin S. Wong to the post for the next two years; Mr. Wong, a West Covina city councilman and who owns a restaurant owner, succeeds accountant Royce Stutzman, who will still be a director.

SGV's policy is an anomaly in an industry that prefers consistency and stability.

"It's not unheard of, but it is fairly unusual," said George Freibert, chairman of Professional Bank Services, a Louisville, Ky., consulting firm. "Rotating the chairmanship may have the appearance to some of dissension or lack of stabilization on the board."

SGV, parent of $370 million-asset First Federal Savings and Loan Association of San Gabriel Valley, has used an informal revolving-door policy in choosing chairmen of its five-member board since 1992. The policy was initiated by Irven G. Reynolds, who served the first two-year term and "just felt that it would be nice to move it around."

"I don't see anything wrong with rotating the chairmanship," he said.

He said having a new chairman every two years doesn't make the board or management "unstable," and serves to strengthen directors' ties to the thrift.

"It gives each member something to look forward to," he said.

Mr. Wong said the thrift will likely continue the tradition.

"It really is a board of equals," he said. "The rotation of the chairmanship reinforces that equal status that we all feel for each other."

Campbell Chaney, an analyst at Sandler O'Neill & Partners in San Francisco, said such a policy was more appropriate when SGV was a small mutual and the chairmanship was more of a ceremonial position.

SGV converted to stock form in 1995. Now, Mr. Chaney said, officials should abandon the rotating chairmanship.

"As a stock association, you do want a chairman to put his stamp on the company," he said. "It's important that they have some direction, with one team."

Mr. Freibert and other consultants said they could think of no other bank or thrift with a revolving chairmanship. And though he conceded that he is not very familiar with SGV's setup, Mr. Freibert questioned the wisdom in general of creating such a structure.

In choosing a chairman, banks should "carefully select" a single person and stick with that choice for as long as the individual wants to remain in the job, Mr. Freibert said.

"The whole idea of rotating it ... frustrates the purpose of having a chairman of the board," Mr. Freibert said. "To me, it sort of makes the position meaning-less-and it's a very important position. The question begs to be asked: Who's really running the board?"

Mr. Freibert said he advises board members to pick a nonexecutive fellow director as chairman. Ideally, he said, it would be someone who can work well with management while representing the interests of shareholders first and foremost.

Finally, he said, the chairman should be well respected and ethical-"the best statesman and ambassador that the board has."

For reprint and licensing requests for this article, click here.
MORE FROM AMERICAN BANKER