Advisory boards are like anchovies: You either love 'em or hate 'em.
Consultants say a growing number of community banks are embracing advisory boards - typically made up of community and business-group representatives that help the bank but aren't full-fledged directors. But the tactic can be a serious drain on management and, in some cases, can be a negative if not managed properly.
"I don't think they're a good idea," said Richard Foster, a former bank director who is president of Banconsult, a bank advisory firm. "My opinion is they don't work very well."
Nonetheless, John R. Koch, president of the $273 million-asset United American Bank of Memphis, has a sprawling maze of advisory boards that include 155 people on 14 committees. United has advisory boards for customer groups such as lawyers, accountants, or builders, and one for each of the bank's six offices.
The advisory boards "are one of the foundations of the marketing culture we have around here," Mr. Koch said. "It's not inexpensive, but we treat it as a marketing expense - a very deliberate, well thought out, and very worthwhile marketing expense."
The administrative costs alone at Mr. Koch's bank would make many chief executives blanch. Each committee meets three times a year, and each meeting - catered and sometimes held at a nearby hotel - takes a few hours of planning. Mr. Koch attends every one.
For all the trouble, Mr. Koch wouldn't part with his advisory boards. He said they fit right into the bank's slogan - "We Bring the Bank to You" - and are a way of instilling a constant sales culture at the bank. He views them as one of his best competitive tools, and a way to constantly communicate with his present and prospective customers on product design and service quality.
Although anecdotal evidence suggests that Mr. Koch is not alone, a survey of board practices conducted last year by the Virginia-based Director Resource Group show that very few banks have advisory boards. And those that do tend to view them as pains in the neck.
Only 16.7% of banks in the representative survey of 72 banks and thrifts reported having advisory boards, and more than half of those rated their performance as only "fair" or "poor." One-quarter of all advisory boards are used to put retiring directors or directors of acquired banks out to pasture.
"In general bankers view advisory boards to be very ineffective," said Roberta Wagner, president of Director Resource. "They can be useful for business development, but they can be a real cumbersome, tedious exercise."
She said that in some cases it can even be a net minus for a bank. If an advisory board member gets miffed about how meetings are planned or if they aren't conducted constructively, he or she can go around bad-mouthing the bank.
"But if you do it right, wow, what a marketing tool."
Mike Vanderpool, a senior vice president at Riverside (Calif.) National Bank said his bank's advisory board members are some of the most reliable sources of referrals he has.
"If you use them as some ceremonial thing, like an opportunity to expense a lunch, it's not going to be much use," he said. "It all depends on how you use them and what you expect of them."
Expectation are key, Mr. Koch said. He keeps a tally of how much new business his advisory board members bring in, the same way he does for his officers and full-fledged board members. If they don't measure up, "I remind them of their responsibilities."
