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The Real Risk in Banking’s Future

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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.