One casualty in many recent bank acquisitions has been the advisory board-long an asset in building business and boosting community presence.
What makes the disappearance of many such boards ironic is that most were created as a result of prior bank mergers. The scenario usually ran like this:
A local bank would be discussing selling out. But members of its board of directors recognized that would mean the end of their service. They would lose the status of being on the board and the chance to travel to bankers' conventions. But in most instances the most meaningful impact was the loss of the opportunity to meet periodically with other business leaders to learn what was really happening in their communities. Those intangible benefits far outweighed the $100 they received for attending each meeting.
And the acquiring banks also faced a potential loss as directors left the fold. The directors serve as ambassadors in the community, adding stature to the banks they serve. In addition, they act as key business developers for their institutions. And calling upon their skills as businessmen or professionals, they can serve as sounding boards and counselors.
So advisory boards were set up to keep former directors as part of the bank family, even though they would no longer have a policymaking role.
Such boards were developed by community banks as well as by larger acquiring banks. Smaller banks usually did so if they acquired a bank in a nearby town or established a branch far from their home community.
But what do advisory boards really accomplish?
First, in their customary quarterly meetings, the top bank people would inform the advisers on bank policies and operations, and local economic conditions.
Bank advisory directors, like the full-fledged directors, report that the information they glean from the meetings is they best part of the job. But advisers gain the information without assuming any of the liability bank directors' jobs entail.
Many advisory board meetings turn into soft sales pitches for bringing business into the bank, with contests for leaders in categories such as trust and loan referrals.
Advisory board members report that when they bring in potential borrowers, the bank will go the extra mile to accommodate them because of the director's endorsement.
Most important, the advisory board members are treated as special people in the bank hierarchy. Attendance at the advisory meetings is a top priority for bank officers assigned to serve the group or address the meeting.
So the maintenance of advisory boards appears to be a win-win situation, in which both bank and the board members benefit.
And such boards are tremendously useful in another way. Many banks have a major problem getting older directors to retire. Some of these individuals look at the board meeting as a chance to get out of the house, socialize, and reminisce about past glories. Such distractions can deter the board from attending to business.
When a bank can link the enforcement of a mandatory retirement age from the board of directors to a chance to serve on the advisory board, it becomes easier to persuade board members to step down.
The active advisory board members can become resentful if adding the old-timers makes their meetings less effective. But that scenario is still better for the bank than if its board of directors has members that aren't focused on the business at hand.
A final point: I have heard of a number of larger banks giving up their advisory boards after a merger, but I have not heard of any community banks disbanding their advisory boards. If I am correct, the maintenance of advisory boards is an advantage that will help community banks fight for profits and business.
