By Christopher Delporte
As banks establish and continually adjust their complex mix of objectives — growth, profitability, customer and shareholder satisfaction, technology, cybersecurity, fraud protection, and so much more — a large part of their ongoing success stems from ensuring continuity in leadership, particularly when things are going well. That doesn’t just mean a robust one-off hiring strategy; it means ongoing succession planning.
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Succession planning seeks to identify leaders in key positions who can help ensure an organization’s future success. It also can help to lessen the operational and financial risks that can result from a hurried transition. This is even more imperative as an increasing number of bank executives reach retirement age.
Avoiding the cliff
According to a recent report by consulting firm Russell Reynolds, banks are facing a potential “looming retirement cliff.” The report noted that C-suite executives at midsize banks spend an average of 15 years at their institutions and an average of six years in their current roles. That’s a lot of institutional knowledge; knowledge that banks should work diligently to capture.
The average age of current banking CEOs is 58, and nearly 25% of banking C-level executives are 65 or older, according to Russell Reynolds’ research. “This suggests that banks may soon be encountering a leadership vacuum that can only be countered with established succession plans,” the group’s analysts writes. “This gives next-generation leaders the time to develop, and the board the space to evaluate their growth against the external talent market.”
According to the report, effective succession planning goes beyond selecting new leaders. It also centers on cultivating and nurturing internal talent pipelines. “At U.S. banks with less than $250 billion total assets, there’s a limited pool of realistic, qualified senior executives who are ready for the CEO role,” Russell Reynolds analysts writes.
“Internal promotions tend to build organizational loyalty, support employee retention and capitalize on existing intellectual capital while avoiding the costs associated with outside hires and the higher risk of failure,” they say. “Mapping internal talent against succession needs is crucial for identifying and nurturing top performers who embody the bank’s culture and strategic vision.”
Michael Lewis, president and CEO of Kent, Ohio-based Hometown Bank, says that at his institution, the best successors are identified to the C-suite level through bank leadership, based on the candidate’s accountability, ambition, readiness and willingness to do more.
“We look for critical thinkers that desire to look beyond the task at hand, to think broadly about the impact their decision have on the operations of the bank,” he says. “We use the ABA Stonier Graduate School of Banking, the Ohio Bankers League and other industry resources to train and develop leaders within the bank.
“At times, our positions are developed with the staff members’ talents, skills and backgrounds in mind,” he continues, noting that position descriptions will “evolve to match the staff member’s skills and then, in turn, the position becomes a success because of ownership, leadership and guidance that comes from the staff member.”
Judy Long says succession planning at First Citizens National Bank in Dyersburg, Tennessee, has been part of the 136-year-old bank’s process for more than 20 years. Long, who has been with the bank for 51 years, the past 10 as president and COO, says people are identified within the bank who have the education, background and skillset to fill the positions.
She says candidates work with the leadership role they would replace, and the leader in the position acts as a mentor and coach — this includes mentoring her own replacement.
“For my role as president and COO of the bank, the successor was identified approximately three years ago and has been working directly with me since then,” Long explains. “The board [of directors] approved the role change last year. I will retire sometime in 2027 or early 2028. The individual named by the board will be ready to step into the role.”
Long says her bank’s in-depth succession planning starts with board of director positions, then adds a second phase of C-suite and executive positions. A third phase is regional leadership positions and then moves on to key leadership positions for bank operations.
“The plan names individuals currently serving in those positions and who is being mentored and coached internally to take over in the event of a change,” she says. “It also identifies positions that would have to be replaced with outside appointments.”
This type of planning, analysts say, also goes a long way to help organizations mitigate the fallout from unexpected departures, which often can leave banks scrambling to fill unplanned vacancies.
Investing in leadership development programs prepares future leaders and strengthens overall organizational resilience in the face of leadership changes, according to succession planning consultants at Russell Reynolds. “Too many banks believe they have top-notch C-suite development programs, yet they find themselves caught off guard when unexpected openings arise, leading them to seek outside talent,” analysts write. “This is an avoidable outcome and one that lies square on the shoulders of the board, CEO and chief human resources officer.”
Instituting a succession plan
Lewis says Hometown Bank relies on “a handful of factors to identify employees with the potential to move upward” in the bank’s succession planning hierarchy. Those include proven reliability across various aspects of the bank; community involvement; dedication to the success of the bank over personal gain; and willingness to learn and contribute beyond specific areas of expertise.
According to the team at Russell Reynolds, echoing much of what bank leaders shared with the ABA Banking Journal, every succession plan should consider four steps.
First, think of succession as a constant process. It protects the organization from experiencing gaps in critical roles, but it motivates and develops ambitious, high-potential employees. “Succession is not a one-off event; it is a cyclical process. As jobs and people grow and evolve, development and succession decisions should be regularly reconsidered” by leadership, according to Russell Reynolds analysts.
Second, identify mission-critical roles. Good succession planning begins with a sound understanding of the organization’s vision and strategy. The organization can then identify the “mission-critical” roles that form the foundation of its succession plan. C-suite succession is critical, but there are other roles of equal or even greater importance to consider.
Third, nurture high-potential internal talent. This must involve multiple stakeholders, “embracing the philosophy that talent is owned not by a business unit or function, but by the enterprise,” Russell Reynolds analysts write. Talent must be supported and allowed to grow to its full potential and be assigned to where it can add the most value to the organization.
Fourth, apply a methodology-based approach. Understanding the demands and characteristics of mission-critical roles is often referred to as “success profiling.” “Using valid, reliable and differentiating assessment methodology specifically focused on these success profiles helps identify those who can step up to the challenge of the role in question,” analysts write. Successors who are immediately ready are not always available. So, banks must also identify longer-term successors, who may need two to three years of targeted attention and development. This process, analysts noted, also can alert the bank to the need to consider external candidates where no viable successor is available.
Hometown Bank’s Lewis says “without a doubt” that succession planning can create incentive among employees.
“Having examples of individuals that have started in entry-level positions and are succeeding at higher levels provides inspiration to the next generation of bankers,” he says. “And when employees can see the bank spending time and capital to better everyone, this only serves to improve the overall success of the bank. This approach has allowed Hometown Bank to hire almost every executive internally.”
Finding the best fit for unique cultures
Banks that serve niche customers particularly can benefit from implementing a formal succession planning process. Not only does this help to transfer institutional knowledge, but it extends important cultural elements within the institution.
Founded in 2013, Bank of Bird-in-Hand, located in Bird-in-Hand, Pennsylvania, with several branches in and around Lancaster County, is unique for its service and ties to Amish country (all seven branches have drive-through windows to accommodate a horse and buggy). Having its base in a community with highly specialized customer needs also directly affects the bank’s approach to personnel development.
President and CEO Lori Maley says that culture fit plays a big part of the bank’s succession planning.
“Pre-planning is very important to us. In addition to C-suite positions, we also focus on next-generation leadership, a level below the C suite, and even the level below that,” she explains. “Those individuals benefit from additional training or perhaps going back for more education, a higher degree.”
Maley said the bank looks for three primary characteristics in candidates: hungry, humble and smart — based, in part, on the book The Ideal Team Player: How to Recognize and Cultivate the Three Essential Virtues, by Patrick Lencioni.
“Smart doesn’t necessarily mean book smart,” Maley says. “It means people smart; you can read people and interact with them. So, it is not necessarily a level of higher intelligence, which these people also have, but it’s that they’re fast learners and driven — hungry — to do better. We look for those characteristics and have been lucky to find them. Our job is not to make followers. It is to make more leaders. People who are team players can get along even when there are differing opinions and can manage things with finesse. That is part of the culture, leading with excellence, integrity and teamwork. Candidates must reflect these core values.”
Bill O’Brien, the bank’s chief lending officer — one of the bank’s original 10 employees along with Maley — has reached retirement age. In addition to his formal role at the bank, he has a special relationship with the Amish community in the area.
“The Amish call him the ‘gelt chappie,’ which means money man in Pennsylvania Dutch,” she explains. “So, how do you replace someone like Bill? Our bank reflects the community we serve — the Amish and their sense of integrity. And he is a trusted advisor to them. So, it makes succession even more challenging.”
Maley says the bank would like to fill the chief lending officer position internally, and over the last few years a prospective candidate has been shadowing his soon-to-be-predecessor, not just to reinforce the tangible abilities necessary for the job, but also to develop the all-important intangible soft skills.
“They go to breakfast with the Amish together, and they have built that rapport — transferring that trust and the unique and special relationship,” Maley says. “Because so many Amish people know Bill’s phone number, he’s actually going to turn it over to the bank. It was a way to continue that important mode of communication. He may not have seen someone in 20 years, but as soon as they need a loan, they’re going to call that number.”
