Community banking has long been a closed culture. Trainees are taught to do things a bank's way, and thus a fixed pattern is often passed on from generation to generation. These new people generally come from other banks - frequently the correspondents that serve them.

Yet if you look at the banks that have made their mark and truly changed the industry, you find that many have been led by nonbankers, people who had the perspective, experience, and backbone to question long-standing policies.

The most notable example was the hiring of John Reed, a veteran of the manufacturing industry, by Citibank. Mr. Reed recognized that a bank is simply a paper processor, just as a manufacturer is a processor of steel, plastic, or some other commodity.

But my favorite nonbanker-turned-banker story was played out at Old Kent Bank in Grand Rapids, Mich., a community bank that was electrified by Richard Gillette. He always credited his success to his years in the retail hard-goods business, experience that gave him insight into what customers really want.

Similarly, AT&T and many other utilities have had to bring in outsiders to shake up their organizations when the government ended the natural monopoly status they had had for so many years.

Remember when AT&T had no competition? Rates allowed by the utility commissions were set to give the company a fair return after absorbing all expenses. Spending was not honed to any degree because if costs rose, customers just had to pay more. (I once taught a class to AT&T employees and was criticized for flying coach class when everyone else always traveled first-class.)

Competition in communications changed all this, and AT&T found that bringing in executives who were not reared in a tradition of regulated pricing helped change the environment for the better.

In its 1999 survey of community bank presidents, the consulting firm Grant Thornton asked whether the banks would benefit from hiring nonbankers. Nineteen percent said yes. Though that is a low figure, it is progress.

It would be folly for me to try to spell out all the ways that nonbankers can be of value to community banks. But it seems there are two industries, retail and technology, that banks should be mining for talent. If nothing else, outsiders can get everyone to examine practices and beliefs that might be outdated.

If a banking-industry newcomer has improved the way things are done at your bank, we would like to hear from you and discuss your experience in this column.

As always, the best response will earn the writer the presidency for a day of our Schmidlap National Bank - a body of esteemed bankers that is growing steadily. Please mail responses to Paul Nadler at 14 Friar Tuck Circle, Summit, N.J. 07901, or fax them to (908) 273-7309.


Mr. Nadler, an American Banker contributing editor, is a professor of finance at Rutgers University Graduate School of Management in Newark, N.J.

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