In the boardroom: Small Banks Warned to Plan CEO-in-Waiting

Too many community banks don't know who will take over if the chief executive officer retires or dies, and the result could be an untimely sale.

Industry experts say succession planning should be a major priority for community bank boards of directors. As management ages and competition for executive talent grows stiffer, some banks are finding themselves unprepared to replace their leaders-a crucial weakness in an age of often predatory acquirers.

"We find that at a lot of smaller institutions, there is no succession plan," said David Baris, executive director of the American Association of Bank Directors. "If the CEO gets hit by a Mack truck, what happens? It's not clear."

What often happens is that the bank winds up being sold.

And it may end up in the hands of someone like Joseph Kesler, a bank executive who has a keen eye for a shallow management team. The president of First National Bank and Trust Co., Carbondale, Ill., said that when he's searching for acquisition targets he takes a good look at banks with older chief executive officers and a dearth of strong managers.

"It puts the board in a very bad situation," Mr. Kesler said. "So we do use that as one of our criteria ... for potential acquisition candidates."

Richard B. Foster, a lawyer at Banconsult, an Okemos, Mich., consulting firm, said too many boards leave it up to management to decide who's next in line for the top job. He said the board should insist that the president or CEO train successors.

"Sometimes, the president does not want to train a competent successor," Mr. Foster said. "It's hard work. And a good successor could be snapping at the president's heels."

Jon A. Doukas, senior consultant at Professional Bank Services, Louisville, Ky., said it's probably not wise to name a successor before a CEO is gone. If the CEO announces his retirement, then the 18 months to two years before his departure might be a good time to reveal who's taking over.

First National's Mr. Kesler, 41, said he refuses to identify his potential replacement. But he is busy grooming several employees for advancement.

"We think if you identify somebody, that changes the dynamics of the organization for the worse," Mr. Kesler said.

Federal regulators "encouraged" First National Bank of Pasco, Dade City, Fla., to adopt a succession plan, said J. Lamar Roberts, president and CEO of the $40 million-asset bank. "They probably looked at my gray hair and said he's probably not going to be around forever."

Mr. Roberts, 56, said he has since picked a potential replacement but won't name him publicly. He doesn't want the competition to spirit the employee away.

"You have to protect what you got," Mr. Roberts said.

Naming family members as successors is still common among family-owned community banks, said Jeffrey C. Gerrish, a banking lawyer in Memphis.

At First Savings Bank of New Jersey, Bayonne, N.J., Michael Nilan, 32, was recently named to succeed his father as president and chief executive officer. Patrick F.X. Nilan, 66, is retiring July 1. The younger Mr. Nilan is currently chief operating officer.

Mr. Gerrish of the law firm Gerrish & McCreary said he typically doesn't recommend against naming family members to succeed top executives.

"I can look at some banks and say, 'That kid can't run the bank,'" he said. But in most cases, it all comes down to the qualities of the individual who's next in line, not "the last name or blood line."

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