BID® Daily Newsletter
Feb 24, 2010

BID® Daily Newsletter

Feb 24, 2010

DIRECTOR EDUCATION - STRUCTURE/QUALITIES


Community bankers are dealing with an environment of extreme stress and the board plays an even more critical role in helping to reduce that stress. It is the responsibility of directors to not only oversee and support management efforts; but also to closely review recommendations and ask questions to help surface/control new risks. Being on a bank board can be fun, but it is also a way for directors to assist the company in its time of need (by sharing expertise, supporting management and thinking about ways to help the bank improve and advance).
By structure, most community bank boards have bank officers ("inside" directors), as well as other directors who are not employed by the bank ("outside" directors). Outside directors are on the board to bring their experiences with them from their own fields of expertise, as they provide both perspective and objectivity. Doing so gives banks a stronger pool of experience to draw from, when evaluating options, considering strategic direction or addressing problems.
There are also certain specific qualities that make for a good director. Basic qualities include a strong character, an inquiring mind, wisdom, practicality, sound judgment and independence. Beyond these traits, as banks expand their products or services, directors with more technical skills, specialization or specific background may also be needed. Here, directors that bring a varied level of specialized experience may be sought out, in order to support the expansion of the bank. Given the strain the industry is currently experiencing, more banks than ever are focusing outward, as they seek to expand their directorship to better manage the issues at hand.
It is also the responsibility of directors to test themselves before accepting a seat on a bank board. All directors should have a basic knowledge of the banking industry, the financial regulatory system and banking regulations. Beyond that, directors should be willing to put the interests of the bank ahead of themselves, avoid conflicts of interest and understand the customers served by the bank. Directors who test positively in these areas should also be sure they have the background, knowledge and experience to assist the bank in a meaningful way. Finally, it is important that all directors have a willingness and ability to commit the time necessary to prepare for and regularly attend board and committee meetings. Directors who can support all of these requirements are now ready, able and willing to serve on the bank board.
Once a director is on a bank board, it is critical that focus remain on making sure the bank is operating properly. When times are difficult, uncertainty can surface and issues arise that no one saw coming. While it is true that examiners will come through a bank 1x per year to check things out, that does not relieve the obligation of the directors. In fact, regulators hold directors responsible for knowing the condition of the bank. As such, it is important for directors to leverage senior management, hire auditors and bring in outside experts to ensure problems have been identified and corrected long before examiners show up. Doing this on a regular cycle and taking actions to improve are ways to stay ahead of issues and improve the bank.
Finally, it is important for directors to set the tone from the top and to make sure expectations for effective risk management are clearly communicated and understood. Being informed, setting a strategic direction and locking down risk tolerances are all part of the process. Once done, policies can be approved that will set standards for the nature and level of risk that can be tolerated. No one said being a bank director was easy, but certain qualities, experience and expertise can go a long way toward helping a management team during such a stressful period.
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