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Don't Fumble This Ball
It’s the board’s duty to ensure the bank has the right leader at the top. That’s executed through regular performance evaluations, setting expectations and an effective succession planning process. But unfortunately, boards often fumble the ball on CEO succession, delaying what many directors consider an uncomfortable conversation.
Roughly half of bank CEO departures over the past decade have been abrupt or otherwise unplanned, according to recent research from Russell Reynolds Associates that examined CEO transitions at U.S. regional banks between $20 billion and $250 billion in assets. Twenty-four percent of CEOs retired without public mention of a CEO succession plan. Some left for personal or professional reasons, or were removed.
The market doesn’t like uncertainty, and the stock for those banks declined an average 8% a month after the announcement, according to the report. “This drop in market value affects shareholder returns, employee morale and customer perception,” wrote Robert Voth, who leads the North American consumer and commercial financial services practice at the executive search and leadership advisory firm.
Done well, Voth sees succession planning that aligns with executive development as something leaders can celebrate. It helps banks retain a promising executive when another institution tries to lure them away. “Executives see that the company is thinking futuristically,” he says, “not only about the success of the company but the success of the executives.”
Voth encourages boards to think deeply about the talent in their C-suite and recommends that directors receive a regular, in-depth review — roughly every 18 months — of internal talent, as well as potential external candidates who could fill key spots.
On a quarterly basis, the bank’s human resources officer should review progress on the succession plan and executive development with the committee tasked with succession planning, which is often the compensation committee. Voth adds that plans should consider time horizons of two to five years.
That means discussions about succession should start early — long before the CEO or other key executives think they’ll step down. That will make the conversation easier, since it’s just a normal part of the board’s business.
“A forward-leaning or experienced CEO, a good CEO, will want succession plan discussions,” Voth says. “That will energize her or his team, and it will allow for open discussion of the future of the company.”
• Emily McCormick, vice president of editorial & research for Bank Director
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