More than ever before, the community bank director's job is about selling.
"The position of bank director is more of a working position today than just one of prestige," said Richard B. Foster Jr., president of Banconsult Inc. in Okemos, Mich. "Banking is so competitive now that they have to use every legitimate asset they have to generate business - and that includes the directors."
Consultants said local boards give small banks a tremendous marketing advantage over their superregional rivals, whose boards, in most cases, convene in faraway cities. And community banks are now beginning to make the most of that advantage.
Some send their directors out on sales calls, knocking on doors for new business. Others have them attend regular monthly luncheons with prospective customers, hoping that enough elbow-rubbing will create new business.
To be sure, banks have always relied on their directors to refer customers to them or to at least bring their own business to the banks. But in recent years, more and more banks have established formal policies requiring a minimum number of new referrals from directors.
Having an active board is particularly important for the small banks just getting off the ground. The director's role in business development is crucial for the first $20 million to $30 million of assets, consultants and bankers said, but becomes less so as the institutions grow.
The eight-year-old Allegiance Bank of Bethesda, Md., for example, expects each of its 14 directors to bring in at least $1 million of deposits in the first year. At least three of its directors have already generated $5 million to $7 million each in new deposits during their tenures. Directors' progress is recorded in the bank's monthly report at board meetings.
"We've never fired a director for not bringing in deposits," said Leonard L. Abel, chairman of $130 million-asset Allegiance. "But it's an expected function of the board. As a small bank, we felt this was a good way to build ourselves up in the community."
Bank consultants stressed that financial oversight and ensuring the bank's safety are still the paramount responsibilities of bank directors. But right behind those duties should fall business development, they said.
Not all banks are getting that message, however. In a recent survey by the Director Resource Group in Warrenton, Va., 40% of the respondents felt that the bank director's role in developing business is "somewhat superfluous" or "superfluous."
In the survey's ranking of board responsibilities, bankers put business development last out of eight categories. Monitoring financial performance and policy development topped the list.
"Certainly we try to encourage our directors to recommend leads, but not a lot results from that," said Robert W. Shedd, chairman and chief executive of Century Bank and Trust in Coldwater, Mich. "Our directors have their own careers and are busy people, so we can't expect too much from them."
Others said that directors bringing in their friends or associates for loans can create difficult situations when the prospective customer's credentials are insufficient.
Most bankers said they forbid their directors from getting involved on the loan underwriting side. They don't want directors making implied promises that they can't keep, they said. Plus, forcing directors to become, in effect, salesmen could drive them off the board, others suggested.
But most said that to be successful small banks need to profit from their local boards. Directors are an effective, inexpensive resource that banks should fully utilize, they said.
Five days before its monthly board meeting, and twice during it, Empire National Bank in Traverse City, Mich., asks its directors to come up with referrals for new business. On one occasion, a director went on a sales call with a loan officer to a tooling company in the area.
"We spoiled ourselves with the brick and mortar," said James E. Dutmers Jr., chairman and chief executive of Empire National. "The thinking was 'build it and they will come.' But now with the interindustry competition, you have to go out and take the product to the household or business. Directors can help you do that."