Providing a Credible Challenge

In her excellent article, “The Buck Stops With the Board,” Bank Director’s vice president of research, Emily McCormick, nails the most important job of every bank board squarely on its head, which is to provide a credible challenge to management.

“As part of their oversight responsibilities, boards are expected to exercise independent judgment, deliberate effectively and provide a credible challenge to the management team,” McCormick writes.


Bank boards of directors serve two masters: shareholders and regulators. Shareholders want to know that the bank is being managed with their best interests in mind. Regulators expect the bank to be run in a safe and sound manner. These two concerns are not mutually exclusive. I would submit that safety and soundness is in the best long-term interests of the bank’s owners.

Both shareholders and regulators expect the board to provide a credible challenge to management. This is not the same thing as taking an adversarial position against the management team. To ask questions, to dig into assumptions that underlie important decisions, shouldn’t imply a lack of trust in management’s competency or credibility. At the very least, the board needs to fully understand the reasoning and rationale behind the decisions that its management team makes, and that inevitably leads to an inquisitive process that can be summed up with a simple question: Why?

Unless the board is essentially asleep, in which case no serious question is ever asked.

A corporate board is a unique and sensitive social environment that is easily influenced by personalities and the power of group dynamics. Chemistry is very important. So, too, is collegiality, as long as it doesn’t prevent independent directors from asking tough questions or pushing back against decisions that they believe are unwise. The best boards achieve a delicate balance between civility and challenge, with an implicit understanding between the CEO and the board that the governance give-and-take shouldn’t be taken personally. 

The CEO is an important factor in any discussion about credible challenge because he or she is often the person being challenged. As a general rule, emotionally secure CEOs aren’t afraid to surround themselves with a strong board, and rely on them for candor, reality checks, advice and second opinions. It’s only the insecure CEOs who feel threatened when questioned by their boards or take constructive criticism personally.

I tend to think that intelligence is overrated and temperament underrated in evaluating leadership. A CEO with half the intelligence but twice the temperament will often be more successful than the inverse.

Sometimes the duty of credible challenge requires forceful action by the board, which has a fiduciary responsibility to step in and demand change when a majority of independent directors believe the bank is being run in an unsafe manner, or that shareholders’ interests are being threatened. That’s an uncomfortable position for directors to be in, but the failure to act can lead to far greater consequences than an uncomfortable board meeting. 
Jack Milligan is editor-at-large of Bank Director, an information resource for directors and officers of financial companies. You can connect with Jack on Twitter at @BankDirectorEd.

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