With the onslaught of new regulations and the abundance of corporate misconduct news these past couple of years, even the most experienced and comfortable directors are questioning whether their boards are equipped and designed for success.
For bank directors, this situation is often exaggerated, since their companies - and boards - have grown by acquisitions over the years, and the restructuring of their boards has not always been deliberate or strategic.
Though there is no quick fix in most of these situations, here are some ideas for how to begin assessing your board's composition and dynamics.
Board composition considerations fall into two categories: diversity and the mix of experiences and skills. An important goal for any bank board is for its composition to reflect the communities the bank serves. If this is done effectively, an additional benefit is that the board will more accurately reflect the bank's employee base.
Not only does a diverse board bring together different perspectives, but it also tends to enhance the bank's community relationships, reputation, and often its customer service. The number of women and minorities serving on boards has been steadily increasing as corporations recognize the importance, and the benefits, of bringing in new perspectives.
To assess whether your board has the appropriate mix of skills and experience, chart each director's knowledge in various areas, such as finance, HR, credit, technology, mergers and acquisitions, regulatory issues, and marketing. You may find - particularly if your bank has grown by acquisitions - that you have high degrees of skill duplication on your boards but still have holes in the skill base, despite a large number of directors.
Each board's specific needs may differ. For example, experience negotiating acquisitions is not necessary if the bank does not plan to be a buyer. The chart should be updated annually to ensure that the skills represented on the board are those most relevant to the bank's strategy.
To increase diversity and ensure the right mix of skills and experience, boards are increasingly turning to nontraditional director recruitment resources. Begin by looking within the communities that the bank serves - civic boards, nonprofit organizations, and universities are all excellent places to begin.
However, all of this said, ensuring that your board is sufficiently diverse and has enough skills is only half the battle - in fact, with many boards I see, that is the easy part! Equally important, and in some cases more so, is something far less tangible: how your board works as a team.
My colleagues and I use the terms "mechanics" and "organics" when assessing boards. Mechanics are primarily logistical issues - such as board size, committee composition, processes, and organization. These issues can be assessed and changed fairly easily, and they are often subject to regulations, because they are easy to see and measure from outside the boardroom. The skills chart is an exercise in mechanics.
Organic issues, on the other hand, involve board dynamics and interactions and are not easily detected by outsiders, nor are they easily changed.
Making a board truly effective takes more than structuring it according to regulatory guidelines and industry best practices, and more than making sure all that the necessary skills are represented and that there is an adequate level of diversity. It takes trust, respect, and open communication. These are the biggest areas where I see problems on boards - and they can't be solved by adding more skills or checking off regulatory boxes.
To assess your board's organic issues, begin by applying the classic high-performance team model. This often yields more insight into the board's effectiveness than any other exercise. The elements of a high-performance team are:
- Shared commitment to common goals.
- Individual responsibility toward achieving the goals.
- Interdependence.
- Open communication and trust.
Much of what makes any group of people successful boils down to chemistry, and while you can't always create good chemistry, you can take steps to foster its development.For a board, this means setting the stage for building trust and respect. This means that there are no "outside coalitions," criticisms are not directed at individuals, and everyone is encouraged to participate in lively dialogue.
Second, respect the background, experience, and skill that each director brings to the table. Solicit opinions from everyone, especially from people who have experience in the area under discussion.
The last, and most key, piece is to regularly evaluate the board's processes and communications. This will help you identify areas that need improvement.
