Skip to Main Content
PCBB Banc Investment Daily November 24, 2014
Banc Investment Daily
November 24, 2014

With Great Power Comes Great Responsibility

Whenever we hear the mantra "with great power comes great responsibility," Spider-Man comes to mind. Indeed, ever since it was uttered by Peter Parker's Uncle Ben in the 2002 film starring Tobey Maguire, it's been solidly linked to the character. Imagine our surprise then when we recently discovered that in the original comic, Ben didn't say it. In Amazing Fantasy #15, the wording is similar, but it appears as part of the narration, rather than as spoken dialogue. What's more, we learned that the motto (though not the exact wording) pre-dates Spidey by many years. It has come up in several speeches by public figures and it's also been attributed to Voltaire, the famous French writer, historian and philosopher. There's even a Biblical reference that states "and from the one who has been entrusted with much, much more will be asked."
Irrespective of its origins, the fact remains that power and responsibility are intricately intertwined in banking. This is certainly true when it comes to bank boards of directors, which since the financial crisis, have been given additional responsibilities and now face greater liability as well. As a result of this increased scrutiny, it shouldn't surprise anyone that it has become more difficult to recruit and retain qualified and engaged directors.
As year-end fast approaches, the time is ripe to review how your board functions and how members are compensated. It's a chance to make sure you're keeping pace with peers and can continue to attract and retain the best quality board candidates. Consider, for instance, that according to the Bank Director's 2014 Compensation Survey, more than 25% of chairman and independent directors who responded are dissatisfied with their compensation. It certainly bears investigation whether this could be the case with your board.
One trend along these lines is that more banks have shifted the responsibility for determining board compensation to a committee. In fact, according to Bank Director, the percentage was 60% in 2014 vs. 44% in 2013. This is a good approach because it takes the onus off CEOs and eliminates potential conflicts of interest.
While the majority of banks including PCBB utilize a compensation committee, nearly 10% of banks say they continue to rely on their CEO to set director compensation, according to the Bank Director study. If you're one of those banks, maybe it is time to consider using a broader array of factors to determine board pay and rolling it into a committee.
While you're looking at board compensation practices, it's also advisable to take stock of whether your board has equity ownership guidelines for directors. Such guidelines typically determine the minimum number or total value of shares that a board member should own and establish a time frame for acquiring the shares. These guidelines help assure that directors are making the best decisions for shareholders. Yet 41% of publicly traded banks and 51% of privately held banks don't have stock ownership guidelines in place, according to the survey.
Given the power bank directors hold, it's important to be able to attract and retain the best possible candidates. Periodically reviewing how your board functions is essential to maintaining a well-functioning group and a high level of investor confidence in your bank.