BOARD STYLE

Picking up on where we left off on Friday, several banks asked if we have additional suggestions on how to make the board and management more productive. While we have many, several good ideas come to mind. One of the most overlooked issues that we see is a combination that management overloads their board with worthless volumes of information and board members don't have the experience to read and interpret the reports. As background, we are fans of pulling board members out of all daily and tactical decisions whenever possible. We dislike board members on investment, ALCO and especially, loan committees. If your bank needs the experience and you have qualified members on the board, then we agree the board can be a valuable resource. If, however, you have board members making decisions because management needs the confidence or believes it is the right regulatory move, then you could be misusing board members and creating more risk for the institution. Having non-experts overseeing and making the decisions for experts just because they are on the board, makes little sense. If a manager needs another opinion, other members of management are often better equipped to assist. In similar vein, sometimes we see management reluctant to make the tough calls and so rely on board input. Hereto is another issue; board members acting as a crutch. Our point here, is that board members must act as unbiased, but aligned, parties whenever possible. By injecting the board in the decision process, you have automatically biased the board member's judgment, rendering objectivity compromised. It is far better to build up the confidence, tools and resources that management needs to make tactical decisions, while the board has an objective position to monitor and assess performance. From this aspect, monitoring is crucial. Providing concise reports that summarize ongoing and comparative performance, risk and changes to operation is essential. Make sure that all board members get an orientation of what to look for in the reports, how to measure performance against outside standards (like the local economy or against peers) and when to ask questions. For new board members, assign a senior board member to act as a mentor for the first year to make sure subtle knowledge is passed down. Mentors can also provide feedback more often than once a year that is essential for new directors coming on. Another issue that we often see with boards is the lack of urgency to get strategy accomplished. While it is true that management does not always do the homework they need to do to allow the board to make a timely decision, it is also true that some boards have a tendency to overanalyze initiatives. One reason for this is the fact that often board members do not have a full appreciation for customer demands. One great idea that we picked up from a Northwestern bank is having board members call 5 customers per quarter to check up on quality assurance. Not only does it help with sales, but allows the Board to hear what the management team hears on a daily basis. Management assigns customers so the most profitable get called and then board members report back to management. This allows direct feedback, so when board members hear about issues with branches, technology, products, management tends to get more support for corrective initiatives.