With all of the M&A activity over the past few years, many bank boards have continued to grow. Does this really matter?
If it is your board, yes. A large board of directors can be unwieldy when scheduling meetings, making decisions, and obtaining consensus.
However, such a board can managed effectively through careful planning and the implementation of a committee structure that works. All of a board's responsibilities can be completed efficiently by dividing the work among four committees: executive, audit, nominating/compensation, and governance.
The executive committee does not usually hold regular meetings. Its members make themselves available between regular board meetings to expedite urgent issues and act as advisers to management.
The audit committee should meet at least three times per year. Its responsibilities include reviewing financial statements and key financial indicators; meeting regularly with external and internal auditors; and reviewing and approving external auditors and the system of internal controls.
Those responsibilities make it essential that the committee chairman have experience in finance or accounting.
The nominating/compensation committee (at most midsize and smaller banks the nominating and compensation committees can be combined) has become more important as executive compensation has grown more complex and attracting directors more difficult.
This committee should meet two or three times each year to review executive compensation and CEO performance; to review and recommend potential board members; and to determine how many directorships to fill, and with what skills.
The governance committee is likely to become more popular in the next year or 18 months as boards scramble to define their structure, information needs, and practices amid scrutiny intensified by bank failures and headlines about mismanagement.
This committee should meet at least twice a year. It should review cross-industry best practices in corporate governance, review committee charters and membership, and identify opportunities for director education. Each year it should also conduct a director evaluation and review the board book for completeness, clarity, and accuracy.
