By Kari BarbicAs of 2018, millennials now hold the greatest spending power of any age group—just two years after they took over as the largest demographic in the workforce. As these early and mid-career professionals rise in the ranks, their ideas and values are shaping the communities they live in and the businesses they build. Yet, their presence remains scarce in America’s boardrooms.
With the exception of the technology industry, you’ll be hard pressed to find a millennial—or, for that matter, Generation X—board director at most companies. Banks of all sizes fall into a similar trend, with only 16 percent having a director 40 or younger on their board, according to a recent survey by Bank Director magazine. In fact, directors ages 50 and younger make up only 6 percent of board seats across S&P 500 companies, according to PwC. Meanwhile, the average age of board members continues to rise.
More banks are recognizing this age gap, however, and are increasingly looking to diversify their boards with younger members. But this trend is more of a “trickle than a flood,” as Jim McAlpin, a partner at Bryan Cave Leighton Paisner in Atlanta, puts it. McAlpin, who provides guidance and legal advice to bank boards, says it is critical for banks to reflect the changing demographics of their communities if they are going to remain competitive. “It’s the forward-thinking boards who are taking measured steps to evaluate their strengths and weaknesses and then make the changes needed to remain in touch as businesses change and grow around them,” he says. McAlpin also advises boards to take a realistic look at themselves and how much business they’re bringing in. “I bet it’s less than it was 10 years ago if your directors have remained static.”
So, what do younger board members bring to the table to increase a bank’s competitive advantage? “Energy and hustle,” for starters, according to Thomas Grottke, managing director at Crowe, which ABA endorses for governance, risk management and compliance services. “That’s not to say older board members don’t have energy, mind you, but younger members are earlier in their careers, building their networks, establishing themselves and developing centers of influence.”
Younger members can bring that same energy to the board room with new ideas and business models to challenge the way banks are reaching customers, according to Emily McCormick, VP for research at Bank Director. “You get this young go-getter on the board who’s intellectually curious and asking good questions, and that can shake things up in a positive way. Or at least get you to examine your practices on why you do things a certain way.”
A good place for a board to start evaluating its strengths and weakness is with a skills matrix. This can be as simple as listing out on a sheet of paper the skills needed on the board and cross-checking with what each member currently brings to the table, McAlpin says. “It’s a simple approach, but it will allow you to see what skills your board may be weaker in.” Outside resources for board self-evaluation are also readily available. “Using outside resources can help the whole process be more anonymous, making it easier for members to speak openly,” McCormick adds.
Most often, bank boards are finding technology to be the common weak spot in their skill set. Tech is changing the way businesses and customers interact with their banks and what they are looking for in those exchanges, experts agree. “What I caution boards,” says McAlpin, “is that you may not know that you’re losing customers because your technology isn’t strong enough. They may just drift away and not tell you why.” But by adding a younger business leader, he says, that person may be able to push and question practices in ways that the board hasn’t thought of yet.
The age gap is placing many banks at risk of not only losing touch with younger members of the community but also of losing continuity of leadership through succession planning. Grottke recommends maintaining a broad cross-section of ages—what he calls “cohorts of stability” to establish consistency of culture and mission. “Having a group of directors in their 30s to 40s, their 50s and their late 60s gives you a genuine crossover of experience and perspectives and ensures the next generation understands the philosophies of the older generation.”
“You’ve got to get new directors on your board. People can’t serve forever,” McCormick says. “You must have continuity of leadership on the board for the future for your bank. If you don’t have that plan in place, it’s definitely a risk.” In fact, this is a leading concern for most banks, according to Bank Director’s annual compensation survey. When asked to list the top three challenges relative to board composition through 2019, 45 percent said “developing a board succession plan.”
Preserving the mission of the bank is what drove the board of First Bank and Trust of Abingdon, Va., to diversify with younger members. “They determined that the best individuals to take on this role would be those who have an understanding of our bank’s particular culture and those who also have ‘skin in the game,’” says Raleigh Hayter, VP for credit review at First Bank and Trust. The board set out to select younger family members of existing board members, a couple of whom were also employed by the bank, including Hayter.
“The idea was that we as younger board members would continue to act in the best interests of our privately held company and also for the families involved,” Hayter says. He and other younger board members have embraced their new role, providing a voice for younger employees of the bank as well as helping to integrate technology into the business. “Within the past year, we have adopted a social media program to include Facebook and Instagram,” Hayter notes. “In addition, the bank moved to online account opening and online loan originations program, led largely in part by a younger, female board member.”
For some banks, however, finding younger members to fill spots might take some creativity. Forming advisory boards has become a popular way for banks to recruit and get to know candidates before there are positions to fill. This practice provides a larger pool of candidates, and can help boards broaden their search. “You may need to look beyond the C-suite,” McCormick advises. “Be ready to expand your idea of what a qualified candidate looks like.” This advice is especially important as leading candidates are often courted by more than one company or organization in their community.
F&M Bank of Timberville, Va., broadened its reach to the younger business community by developing a community advisory board to draw candid feedback from active community members and business leaders under 40. “This board has been really beneficial to us in regard to building new partnerships, learning more about what is happening locally, and observing how local business members approach marketing and branding in other industries,” says Holly Thorne, marketing director for F&M.
According to Thorne, F&M has seen no shortage of qualified board candidates. They have pooled their resources as a bank to identify community leaders, and even polled bank employees for nominees. As a result, their community advisory board has added value across the bank lending useful insights and acting as a sounding board for product offerings and how customers use the bank’s services, says Thorne. “The advisory board members are our community, and F&M understands the value they bring to the table. It’s a logical choice and natural fit to engage them in helping to shape our bank’s future.”
The transition to bringing a diversity of ages to a bank board may be slow, but ultimately it’s about making the right changes for the best interest of the bank. “The board needs to recognize this need for change themselves and lead,” McAlpin says. “And I do believe it will lead to a stronger more profitable bank over time.”
Kari Barbic is a writer in Washington, D.C.