A Five-Part Strategy for Building Strong Boards

Strong boards don’t just happen. They are intentional. They are almost always the result of a plan.

Here is a five-part strategy that I believe can help build a strong bank board.

The process begins with composition. The people serving on your board are its basic ingredients. The sum total of their personalities, skill sets, personal and professional experiences, and commitment is what the board chair has to work with.

Do they bring a measure of diversity to the governance process, or do they all come from similar backgrounds? It’s a fact that most bank boards are made up of directors who are predominately white males over the age of 60, and yet the average bank’s customer base, workforce and community feature much more diversity than that.

Though often perceived as a political issue, academic research confirms that diverse boards make better decisions, resulting in stronger financial performance. I would define diversity broadly to include not only race, gender and ethnicity, but also skills and experience — all of which adds up to diversity of thought.

Second, choose directors that match up with the bank’s strategic plan or can help the board address a critical issue. If your bank is expanding into a new market where it has little experience and few contacts, wouldn’t it be smart to add a director who knows the market and the players? And if your bank’s five-
year strategic plan includes a listing on a stock exchange like Nasdaq, wouldn’t it be beneficial to add a director with public company experience? And of course, most bank boards today are looking for directors with a technology or cybersecurity background.

Still, once you’ve identified the need for a director with a specific experience or skill set, how do you find them? Larger banks tend to rely on executive recruiters, while community banks generally do their own recruiting. Boards sometimes struggle identifying women or minority prospects — not because these candidates are in short supply, but because boards often fill vacancies with people they already know from within their directors' own social or business networks. So if your board does its own recruiting, a third strategy is to fully assess the talent available in your market and look beyond your immediate contacts.

In my experience, many directors flinch at the mere mention of performance evaluations, but I find them essential to maintaining a strong performance culture. (In the interests of full disclosure, Bank Director offers boards its own evaluation tool as part of this membership program.) A fourth strategy is to hold your directors accountable by evaluating both the board and individual directors. That might not sound collegial, but we all perform better when we know we’re being measured.

And a fifth strategy is to pay your directors well. The Bank Services article for August, written by Emily McCormick, Bank Director’s vice president of research, details how boards that pay their directors an annual retainer compensate higher than those that pay a per-meeting fee. Serving on a board is important work. Directors should be compensated accordingly.
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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Since its inception in 1991, Bank Director has been a leading information resource for senior officers and directors of financial institutions. Chairmen, CEOs, CFOs, presidents and directors of banks and financial institutions turn to Bank Director to keep pace with the ever-changing landscape of the financial services industry.