Most chief executive officers of banks agree that they want to run the show but rely on the objectivity of their board of directors.
Todays boards are helping CEOs establish an overall direction, look out for challenges in the external environment, and identify gaps between aspiration and capability. Bank CEOs want their board members to question strategy, set compensation policy, and make them aware of external circumstances and opportunities.
The board should also help monitor the companys progress toward meeting its goals and factor in the companys success, or lack of it, to compensation models.
The toughest decisions that board members make involve what not to do.
With shareholders applying pressure for short-term earnings and growth, there is a tendency to acquire your way to success, frequently by making investments that are inconsistent with the boards strategy. Many banks buy cyclical nonbank businesses and then kill them by overlaying the banks corporate culture on them. Then the banks enter in to the screw em up or sell em mode.
To prevent this, CEOs seek board members who bring diverse experiences and competence to the boardroom, judge risk and reward fairly, and understand their links to the CEOs compensation.
Chuck Pearson, CEO and co-chairman of Waypoint Bank in Harrisburg, Pa., says he looks to his board for counsel on broad issues at the company. My board needs to feel we have the right strategy in place and the fundamental policies to support it, he said.
He added that he expects questions about the companys performance and expects his board to measure him against that performance. Waypoints compensation committee expects the CEO to present a self-evaluation against specific EPS and ROE goals.
E. Lee Beard, president and CEO of First Federal Bank in Hazleton, Pa., says she has reasonable expectations of her board: She looks for its members to come prepared to fulfill their role by reading materials sent to them, doing outside industry readings, and attending seminars to keep current with the changes and challenges in the industry.
These forums help her directors think strategically while not becoming unnecessarily involved in the day-to-day details of running the bank.
Ms. Beard and her board members hold informal evaluations/conversations throughout the year, and although the process is informal, we have formal standards with bonuses tied to exceeding mutually established goals, she said.
Stan Bailey, chairman and CEO of Superior Federal Bank in Little Rock, Ark., said he expects his directors to offer an independent and unbiased view of the direction of the company. He appreciates their experience on common issues and their market knowledge.
Superiors compensation committee formally evaluates the CEO against financial performance goals. The entire board expresses concerns and compliments, Mr. Bailey said.
The banks board members examine both financial and nonfinancial objectives. They look at how challenging a year a bank had, how well it executed its plan, and the progress it has made on management succession.
We have a structure for a formal process, but we have some subjectivity built in, Mr. Bailey said.
Quipped one chief executive who asked not to be named: We dont need friends or golf partners. We need the board to represent the best interests of the shareholders and to support our efforts or question them at the appropriate point in the process.
Ms. Seymann is president and chief executive officer of M One Inc., a Phoenix technology consulting firm.
