The following article appears in the current March/April edition of The
Texas Independent Banker magazine.
What Your Board of Directors Should Know: Creating a Strong (and Effective!) Community Bank Board of Directors
By Kelly Goulart
We all recognize that bank directors must make decisions that impact
three very distinct stakeholders - shareholders, depositors, and
regulators. There is another distinct stakeholder for a community bank
board: the very community they live, work, and worship in. The fact
that we call on our community bank board members to help supervise and guide a
critical part of communities across the state means that a community bank board
member must be balanced, competent, and committed to the task. Not an
easy chore when trying to identify and develop candidates for the job.
First, a board member should be balanced. One critical task is
making sure that whomever is selected reflects the community, but is not
duplicative of another board member. Individually they understand the
market and have a strategic vision for the bank that resonates with
shareholders and senior management. Those individuals understand
that the role of a board member is to focus on the sustained value of the bank
while growing their community, and how they can contribute to both. However, board members and candidates should have
diverse profiles and thoughts. A diversity of skills, expertise and
experience promotes discussion and a certain amount of what we like to call
"efficient friction." This kind of balanced board membership can
bring real value to the bank by addressing the wants and needs of each group of
stakeholders and providing strategic vision.
A board member should be competent. Gone are the days when Aunt
Tilly was put on the board for the simple fact Aunt Tilly\'s family has had a
member on the board for 50 years. Any candidate being considered should
bring strong business expertise to the board, preferably banking
experience. Simply put, the day of the amateur part-time board member is
over. Look for community business leaders who understand the wants and
needs of the various stakeholders, understand the concept of risk
management, and can make tough business decisions. But just because
they are strong business leaders does not mean they will be equally effective
as board members. They need to be consensus builders. Each board
member should work toward making sure the board functions as a team and that it
understands and "owns" the strategy of the organization.
Finally, a board member should be very committed to the role.
Being a member of a community bank board takes a certain level of dedication
that not every person can muster. For example, any individual being
considered should be unequivocally dedicated to the continuing educational
demands that will be placed upon them. This requirement should be clearly
addressed in both the appointment process for selecting candidates and in the
responsibilities for continuing board members.
Karen Neeley, IBAT General Counsel, in a recent email wrote, "I would
suggest that one important issue is director training. They need to be
educated not only on their core duties and responsibilities and liabilities but
also more specifically on topics such as BSA/AML and fair lending. They
absolutely must understand "conflict of interest" issues, code of
conduct/ethics requirements (including Bank Bribery Act), and confidentiality
requirements. Regulation O and Regulation W are very important for them
to understand as well." That level of education and understanding will
require a board candidate who is committed and willing not only to learn, but
So any prospective board member should
be balanced, competent, and committed. That should be made clear from the
very beginning. The last thing that should happen is, after joining the
board, an individual says "I had no idea it was going to be so much
work!" One way to help avoid that is by providing every prospective (and
existing) board member with a written "job" description. That job
description should address the role of the director and what exactly will be
expected of them, including the time and educational commitment. Everyone
should have a very clear understanding of the strategic function of the board
and should sign off on a job description that includes their role and specific
responsibilities before joining the board. It\'s a good idea for the board
to revisit those written "job" descriptions at least annually so they can
sharpen their focus.
Kelly Goulart is IBAT\'s Regulatory Compliance Manager.