Bringing bad news generally is unpleasant, whether its management springing it on the boss or the chief executive officer springing it on the board.
I spoke recently with two bankers to better understand how they involve their directors in risk management and to learn what fosters free discussion in boardrooms policies that keep untoward surprises to a minimum.
Zalman Segal, the chief executive officer of Bank Leumi New York, said he shares every piece of relevant information with his board. We have had no surprises in the last 10 years, even when the news was negative, he said. Mr. Segal sees his board members as partners, he said, and readily asks for their guidance.
Charles Hamm, the chairman of Independence Community Bank in New York, said the CEO must be forthcoming, and that no issue should go unattended. His board, he said, has a climate of consideration.
It is my responsibility to help define the questions instead of jumping to an answer, Mr. Hamm said. Honesty is not a system of discovery and blame. Management has to be open, and board members must be encouraged to raise any questions on any subject.
In times of economic change, board members should ask management to revisit the banks strategy to ensure that the expectations and assumptions upon which it was based have not become obsolete. New strategies bring new risks that have to be identified right away so they can be acted upon right away.
Mr. Segal keeps his board up-to-date about opportunities created by regulatory developments, and with their help and input he evaluates Bank Leumis strategic direction and whether it has to be redefined. He feels that such opportunities have to be scrutinized.
Mr. Hamm recommended alerting the board six months before a decision on a weightier matter such as risk or strategy is needed, and giving them as much information as possible.
You need courage to govern, he said, and warned directors and management not to listen to analysts before deciding on risk issues. Focus instead on the risk elements that drive profitability.
Ms. Seymann is the president and chief executive officer of M One Inc., a Phoenix consulting firm specializing in bank management and technology planning.
