Benefiting from advisory boards

Recruiting local leaders to provide input is a time-honored way for banks to cement their community ties. Some of these handpicked leaders end up on the board of directors. Many serve on advisory boards.

“An ‘advisory board’ is generally a small group of individuals, separate from the board of directors, who regularly meet and provide advice or feedback to the board and management,” notes Peter Wilder, a shareholder in the banking practice of the Wisconsin law firm Godfrey Kahn. However, it’s important to remember that they are not board members or fiduciaries, he emphasized in a recent National Law Review article.

What advisory boards are is a potential source of meaningful insight into local markets for directors and management alike, says Martha Bartlett Piland, president and CEO of Banktastic, a marketing and branding firm.

Piland has served on three bank advisory boards herself, and she sees four ideal attributes for effective advisors:

• They have the pulse on the local business community and serve as the bank’s eyes and ears.
• They open doors and help the business development team make connections.
• They bank with the financial institution so they understand it.
• And they advocate for the bank in their sphere of influence, in good times and tough times.

For example, it’s powerful to have advisors who can speak up on the bank’s behalf during a merger or other transition.

Advisory boards should be compensated and advisors should feel that their time is well spent, Piland adds. It’s important to partake of their expertise: “Done well, your advisory board is talking for most of the meeting, not just listening,” she says.

Relevant data for community banks was not available, but all regional banks surveyed in 2023 by compensation firm Pearl Meyer reported providing some cash compensation to advisors, with 78 percent paying per-meeting fees. The median per-meeting fee was $250, with a range of $125 to $1,000 per meeting.

For some banks, advisory boards have functioned as a sort of farm team for the board of directors. Central Bank and Trust in Lexington, Kentucky brought its last three directors up from its market advisory boards. Windsor Federal Bank in Connecticut has also used advisory boards as a springboard.
Bringing advisors up to the board isn’t the goal for every bank, though. Chesapeake Bank of Kilmarnock, Virginia, has four advisory boards that function as bank ambassadors in each of its markets. But they’re not stepping stones to board service, says Jeff Szyperski, chairman, president and CEO of the $1.5 billion-asset bank. Advisers can excel at developing business in the community without necessarily having the governance skills a bank director needs, he points out.

And Piland knows a CEO whose bank has avoided advisory boards because of potential perceptions of favoritism. But if the advisory board consists of “the usual suspects,” she says, the antidote is to bring in fresh voices. For example, “Millennials are getting a $68 trillion wealth transfer by 2030,”’ she points out “They have side hustles. They’re entrepreneurs. It’s important to bring them into the fold and get fresh insights into your bank.”