By Jamie Beaulieu
For community banks, having a highly functional and strategic board is more important than ever. From the “regulatory tsunami” to an environment rife with tech disruption, boards need to remain nimble to help their banks stay competitive and focus on the needs of clients and customers. How can bank management teams contribute to healthy board composition, high-functioning meetings and a focus on strategy over tactics?
The role of a bank director is to select the CEO, with a focus on succession planning; to monitor the bank’s operations and controls; to approve the bank’s strategy and risk appetite; and finally to engage with the community. To ensure the board members fulfill this role, Kafafian Group President Jeff Marsico emphasizes composition, governance, education and communication. Ultimately, he warns, if a board is overly tactical, it can lead them out of their oversight role and create unnecessary strife among the management team on staff.
1. Healthy composition. Common-sensically, Marsico noted in a session at the 2024 ABA Conference for Community Bankers, the board should be sufficiently diverse to be representative of the community around them. Additionally, consideration of industry and skill set is equally important. Beyond members who have experience working at banks, the board should include members of the legal and accounting professions. And tech talent in the boardroom has moved from nice-to-have to near-necessity, he notes — with the lightning speed evolution of technology, cybercrime, AI and other such disruptors to the industry, having this knowledge on the board will help the management team stay lock and step with bank priorities.
2. Focus on the right things. A high-functioning board requires the CEO and board chairperson to have consensus on the appropriate level of engagement for board members. “They should have their noses in, but their fingers out,” Marsico says. He goes on to describe four potential scenarios that should be avoided when it comes to the characteristics of board members:
- The micromanager member, who says, “Management team? What’s that? I need to be involved in every decision.”
- The negative impact member, who can panic in a crisis and has a history of making bad decisions.
- The neutral/no impact member, who rubber stamps votes and doesn’t like to make waves.
- And finally, the monitoring and checklist member, who basically understands their governance and fiduciary responsibilities but has a “just don’t get me in trouble” attitude.
If a board is overly tactical, it can lead them out of their oversight role and create unnecessary strife among the management team on staff.
The bar to strive for, Marsico says, is the Performance Enhancer. These board members understand their role and continually strive to educate themselves. They have a 360-degree view of internal and external factors that affect bank performance. They empower management to oversee the execution of strategy and day-to-day operations. It is this board that will be a strategic asset and help the bank to operate successfully and efficiently.
3. Keep the board educated. To achieve this performance, Marsico points to educational opportunities as well as good governance, management and communication. He urges the management team and the board to be involved with recommendations for board education. It should be intentional and focus on preparing board members to execute their responsibilities. Board committees also play a key role in performance. While some committees are in place to provide ongoing oversight in specific areas of the bank, others should be formed by board consensus to address more specific or ad hoc issues as they arise. Each committee should have a specific purpose and charter along with a protocol for reporting findings to the full board, he says. Committee composition highlights the need for specialized skills and knowledge within the board composition. Boards can recognize the need for these skills through strategic planning exercises and seek new members out for inclusion as applicable.
4. Manage the meetings. Intentional communication and strategic agenda planning for board meetings will also help maintain the right level of board engagement. CEOs can be intentional with how they manage the consent agenda—items that don’t require discussion—to free up time for macro issues. Marsico reminds CEOs not to neglect reports from senior management team members. These reports should be targeted at the strategic level, and they are an opportunity for the board to become more familiar with the management team and their areas of responsibility. CEOs should be mindful to limit meetings between meetings so as not to distract the management team from running the bank and executing the strategy determined by the board, he adds.
5. Know when to rotate. Lastly, good management also includes protocols to end board service. While many banks use mandatory retirement ages, Marsico calls this a mistake. Even with mandatory retirement, lengthy board terms can result in groupthink and over-familiarity. Instead, he recommends banks use term limits to ensure boards balance the value of historical knowledge with fresh perspective to power the bank’s ability to remain both secure and competitive.
It’s imperative for CEOs to understand what causes their boards to sway toward tactical and attack those symptoms head-on, Marsico advises. Then, they can design board selection, education, agendas and governance to bridge the gap. This performance-enhancing board will be the strategic asset that the bank needs to be high-functioning and a strong contributor to the bank’s service to the community, its success and its profitability.
Jamie Beaulieu is SVP for CEO and executive education programs at ABA.
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