The Real Risk in Banking’s Future

To view this article in its published format click here: The Real Risk in Bankings Future

In my 30 years of association with the banking industry, I have never heard a CEO or Bank Director disagree with the old saying that “people are our most important asset”. However, too many CEOs and Board Members pay lip service to this cliché and fail to deliver on this imperative for the bank’s future.

There are roughly half as many banking institutions in the U.S. today than there were when I joined the First Pennsylvania Bank Management Training Program in 1984. Yet few bankers or Directors today would disagree that despite this significant industry consolidation, the need for strong banking leadership is more important than ever.

A Bank Board’s singularly most important responsibility is the selection and oversight of the bank’s leadership. Making sure that the CEO sets the tone at the top, and selects a great team, are vital to long term success. Along these lines, it is the Board’s responsibility—not simply the incumbent CEO’s—to focus on leadership succession in a pro-active way. Simply allowing the “next in line” to be presumed as the best successor may be selling the institution short. The Board’s management of the complexities of leadership succession requires pro-activity, strong communication, and sometimes dealing with the elephants in the room.

Community Bank Boards are accountable for ensuring that the bank’s leadership builds a talent pipeline not only to successfully compete in the market, but to survive and thrive for the long term. Some community banks, especially smaller institutions, may immediately respond by saying that they cannot afford such an approach. My reaction would be “you cannot afford not to invest in the future leadership of your institution”. Investing does not need to cost big money, but failing to develop the next generation of leaders, in a worst case situation, could put the institution itself at risk.

Here is a quick list of actions that Boards can encourage on the path to developing senior bankers and potential future leaders of the institution:

  • Start early! Succession and Talent Development are long term programs, not short term projects. Planning 3, 4, or even 5 years ahead for succession provides plenty of time for alternatives to develop.
  • Take an honest assessment of the talent throughout the institution, even if this means using an outside resource to provide an objective perspective. You need to start by knowing who has upside potential and is worth investing in.
  • Explore mentoring. The personal involvement of their boss (often the CEO) is a great motivator and retention tool. Wherever possible, consider a cross-mentoring program where senior execs in one area mentor up-and-comers in another department. This is easy—and free!
  • Rotate key people into new areas of responsibility. Not every role change requires a step up—many productive career moves are lateral. Give your stars meaningful exposure to other areas of the bank if they are really contenders for a future top job. You can’t afford not to, even if it means moving someone out of an important role and allowing someone new the chance to step up in their place. Well rounded banking skills are crucial for future leaders.
  • Consider outside coaching for your true future leaders—the handful of folks who could someday run the bank. At some level, succession becomes less about technical competency and banking knowledge, and more about how people manage and lead others.
  • Send your top people to industry conferences, whether national, state, or private organizations. There is not only strong content at many gatherings, but the development of peer relationships with non-competing fellow bankers is vital.
  • Get involved! Not with every employee who attends a training seminar, but with the future leaders. Boards and rising stars need exposure to each other, and often the Board can provide selective mentoring where appropriate as well.

Terms like “talent development” and “succession management” may seem like they only apply to or can be afforded by mega-banks. The truth, however, is that many talent initiatives do not need to be big or fancy. For Boards and CEOs that accept the premise that “people are our most important asset”, investing in the future leadership of the institution should come naturally. Failing to focus on “talent” as the differentiator in your bank’s performance and long term viability could put the institution at significant risk of survival.

Alan J. Kaplan is Founder & CEO of Kaplan Partners, a retained executive search and talent advisory firm focused on serving community banks. Based in Philadelphia, Kaplan Partners is the country’s only retained executive search firm member of both the PBA and the ABA.

THE NEW TALENT DYNAMIC: Key Questions Boards and CEOs Need to Ask Now!

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In today’s challenging business climate, the most important success factor for every business remains the quality of the company’s leadership team. Even in an uncertain economy, industry leaders continue to reinforce an important message: it’s all about people. Surprisingly though, companies seeking to fill a key executive role often avoid a crucial yet sensitive question: does the pool of known prospects and active job seekers offer the strongest and most comprehensive group of potential candidates to meet our critical talent needs?

Organizations seeking to fill a specific high level position often choose to first look at the talent available through their network or via job posting efforts. The key question for Boards and CEOs is whether the organization is shortchanging itself by not looking at the entire relevant labor force, versus a narrower pool of known local prospects. After all, the ranks of active job seekers still represent well less than one tenth of the entire workforce, and under 4% of the college educated labor force today. The lack of a broad group of highly talented prospects—who are actually willing to consider a career change in this climate—can quickly compromise a company’s plans to add a top player or upgrade a key role.

Thus, while many businesses truly believe that the quality of their leadership will define the future, savvy institutions acknowledge that even in a soft economy there is still a shortage of top tier talent. For companies and Boards willing to reexamine their talent management strategy at this challenging time, here are ten key questions to consider:

1. Do we really have the right leadership team in place at this critical time for our organization? When we take an honest look, do we really have all the horses we need to pull the wagon? Is this an opportune time to upgrade our weakest link?

2. We have a plan of succession, but do we really have capable and ready successors in place if we need to implement that plan? Would our Board and executive team choose to follow the chosen successor?

3. What are we doing to better prepare our leadership for the challenges ahead in this highly competitive and uncertain climate? How is talent development being managed in the organization today, when frequently the budget for “training and development” has been slashed at precisely the wrong time?

4. Why would a star want to come and work for our company? Are we taking advantage of the weaker competition to recruit premier players who can move the needle for our company? How are we truly different?

5. Do we have an appropriate “total compensation” program in place, including incentive plans and equity programs that are competitive? When was the last time we evaluated our compensation strategy?

6. If we are not currently using incentives or equity in some form (including phantom equity), are we inhibiting our ability to attract top talent? Should we be looking at new issues of equity grants (if available), while valuations are down, to help retain our best people?

7. Do we have a performance management system in place to objectively evaluate our leadership, and one that aligns our business plan with the right financial incentives? Is our Board of Directors tuned in to the organization’s talent management and succession efforts?

8. Are we losing our better people and retaining our mediocre ones? If the best people generally have the most career options, what are we doing to provide strong reasons for our key players to remain with the organization?

9. Does Human Resources provide strategic business value, to help optimally align our human capital strategy with business strategy? Or, is HR a classic tactical support function?

10. Does our Board recognize the “human capital imperative” in our business today? Are we shifting the board’s HR focus from a simple compensation emphasis to a broader role as a Human Capital and Compensation Committee? What training can be added for Directors to support the shift towards this orientation?

In the end, a good strategy that is poorly executed will not enhance corporate performance, and savvy business leaders recognize that successful execution is all about having the right people in the right roles. Now more than ever in these challenging times, for firms in nearly every industry sector, the most important success factor in business remains the quality of a company’s leadership team.

Alan J. Kaplan is CEO and Founder of Kaplan Partners, a retained executive search firm based in Philadelphia. You can reach him at 610-642-5644 or alan@kaplanpartners.com