Ordering Refreshments

By Debra Cope

Bank Midwest in Spirit Lake, Iowa, doesn’t have board term limits or a formal committee rotation process, says Steve Goodenow, a fifth-generation banker and chairman of the closely held $908 million-asset bank. Yet in the past several years, the bank has dramatically reshaped its board with an eye on navigating the future.

In the past year, the bank has added three new directors to its 11-member board. “We have a good mix, including four women who serve on our board,” Goodenow says. One of those women is Mary Kay Bates, who succeeded Goodenow as president in 2016 and as CEO at the end of 2017. Delivering technology solutions has been a high priority for the bank under her leadership; approximately 80 percent of the bank’s customer transactions occur without a visit to the branch. The board will also have new committee chairmen for three of its four standing committees over the next year, Goodenow says.

Disrupt or be disrupted

The changes under way at Bank Midwest are part of a wider trend toward refreshing boards in pursuit of growth and transformation. Banks understand that a stale board can quickly become an ineffective board and recognize the need to be nimble and vigorous. Understanding and embracing change can be the key to remaining relevant and competitive at a time when financial technology, demographic changes and other forces are disrupting bank business models.

For six tactical tips on board refreshment bank directors and leadership experts, click here.
“If you’ve been on a board for many years, it isn’t the same world as it was 15 to 20 years ago,” says Sal Inserra, a partner specializing in financial services with Crowe LLP, and head of the firm’s Atlanta office. (Crowe is endorsed by the American Bankers Association for governance consulting services.) In his consulting work, he urges directors to be bold in looking at themselves and determining what they need to do to help bring the bank into the future. Candor is critical, he says, because most boards are effective at identifying what skills are needed by upper management, “but when it comes to themselves, sometimes it is as if they have no mirror.”

Bankers and industry experts stress that building a fresher board doesn’t mean diversifying for diversity’s sake, or even setting artificial limits on board tenure, retirement age or committee leadership. It does, however, mean fostering diversity of thought, identifying the skills and experiences needed at the board level to drive the bank into the future, and not being wedded to the way things have always been.

Good governance has been a priority at Bank Midwest for years, Goodenow says, but it was his sister’s serious illness that prompted him to take a closer look at board composition and succession planning about four years ago. His only sibling, Sara Blum, was a major shareholder who succumbed to cancer in 2017 at age 53. Her illness led him to reflect about what would happen to the bank if he was incapacitated. Though he was only 50 at the time, he was determined to put in place the next generation of leaders.

Innovation was already part of the bank’s DNA: Goodenow had begun a transformation of the bank and its services to meet customer needs in a single banking relationship and had overhauled the physical design of the bank’s “stores” to open up the layout and erase the distance between customer and banker.

Stepping down as CEO when he was in his prime was a radical move, and Goodenow continues to be bold. He is now mapping plans to step aside as chairman and become “a regular board member” in order to give an outside director the experience of leading.

Across the country at S&T Bancorp in Indiana, Pa., Christine Toretti is applying skills gleaned during a career in the male-dominated field of oil-and-gas exploration to her new role as chairman of the $7.3 billion-asset banking company.

That’s “new” with an asterisk, she notes. With 34 years on the board, Toretti is the longest-serving board member and knows S&T Bancorp inside out. Since becoming chairman in May 2018, she has put a laser focus on strengthening the board in order to position the bank for the future. The bank has been expanding beyond its original western Pennsylvania market into other parts of the state as well as Ohio and New York.

Injecting fresh blood has been a top priority, Toretti says. The bank has added four new members to its 14-member board since 2017. They serve alongside members with tenures ranging from four to 26 years.

“Today, we have people at the table who are willing to challenge management—not in a disruptive way, but in an additive way,” Toretti says. “You don’t need directors to be confrontational. You need people who can enhance what management is doing.” She singles out Christina Cassotis, the CEO of Pittsburgh International Airport, who joined the board in 2017 and is currently the only other female director, though others are in the pipeline. As an active CEO herself, “she is a rock star,” Toretti says. “Never shy, always forward thinking, always asking questions.”

Under Toretti’s leadership, the board has been taking a hard look at what the rise of the millennial generation—the 71 million Americans born between 1981 and 1996—means for the bank’s business model. The realization that some millennials are less interested than previous generations in owning homes and cars—or have a student debt overhang to deal with before they move into those products—has spurred the bank to probe where future opportunities might lie beyond outside of its traditional fortes in mortgage lending and auto dealer finance. Always a strong small business lender, S&T is building on that strength in areas of greater specialization, such as healthcare financing, Toretti says.

Enlisting today’s business leaders

Several observers say one old belief that should be put out to pasture is that it is difficult for anyone with a full-time job to serve on a bank board of directors. “That’s wrong,” says Jim McAlpin, partner and co-leader of the banking practice at the law firm of Bryan Cave Leighton Paisner in Atlanta.

“If you’re not working full-time, you’re not in touch with the world to the extent you were when you were full-time,” McAlpin says. Banks can afford to be choosy, because serving on a bank board is prestigious. “There are plenty of qualified candidates. It’s an honor within the community, it’s interesting work, and it keeps you in touch with pulse of the community.”

“It’s crucial to have people who are still involved in the working world,” adds Toretti. “They don’t necessarily need to be in the for-profit sector. There are some amazing people who are volunteers, running boards of foundations. The key is that they understand relationships.”

McAlpin urges directors not to underestimate the impact that digital transformation will have on their banks. A lot of them are not seeing it yet, but in a nod to Ernest Hemingway, he says that when it comes it will occur “gradually at first and then suddenly.”

“The largest banks are investing billions in retail technology,” he explains. But for many community banks, with their traditional focus on small businesses and commercial accounts, “good enough” technology has been enough for now. That won’t last, he adds. “As the next generation of small business owners emerges, those now in early 30s, banks will find that these individuals are not just technologically savvy. They’re technologically immersed. They’ll laugh at anything that can’t be done digitally. Banks really need to keep pace with that.”

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Debra Cope

Debra Cope is editor-in-chief of ABA Banking Journal Directors Briefing.