In the last round of exams there was an increased emphasis on board evaluation. This heightened attention is a direct reflection of how regulators view the importance of governance. Responsibilities for directors have grown exponentially and with that expectations for the depth of knowledge and breadth of skill sets desired. Board evaluations can be seen as a compliance task or as an opportunity to improve the skillsets of your directors.
High performing banks have high-performing directors and they ensure their evaluations are uncovering areas of growth. So, if you are after some new skillsets in the board room a board evaluation process can be extremely useful.
There are many reasons why your board might be underperforming: They don’t have banking background, they have inadequate exposure to the information needed to govern fully, they have limited opportunities to strategize as the agenda is filled with regulator-driven items. But the most common reason a board underperforms is that they don’t know how.
Directorship is just like any other job: It requires guidelines, stated expectations, and concrete responsibilities and evaluation methods. How else will a director give the bank what is needed if we haven’t told them how?
Directors need to know when to take charge, when to collaborate, and when to stay out of the way. For most, this is not intuitive. There is no school for directors (although I mean to change that), so it is our responsibility to provide the guidance and tools they need to excel at the job.
There is a difference between expected knowledge and reality. Are they gaining the information and skills needed to effectively govern for the future? Or are they just catching up with the concepts of the past? If you cannot bridge the gap between strategic and tactical, you are learning the wrong things.
Board training begins before anyone even enters a board meeting. You have to have the right people in the right seats. A well-developed board succession plan should encompass the duties, responsibilities, and expectations for each director currently and in the future. Before a board is qualified to lead, they need to be clear on what is expected of them and willing to be evaluated and coached based on those expectations.
Board involvement is the key to long-term strategic success. Effective governance takes intellectual commitment, strategic preparation, active participation, and personal growth. You can’t govern effectively if you aren’t active in the board room. You can’t be active if you aren’t prepared. And you can’t be prepared without a commitment to development.
For Directors to gain the information and skills needed to effectively govern for the future, they need to move away from being educated on the concepts of the past. Their focus on understanding the realities of today’s marketplace and skillsets that go along with it will enable them to guide the institution in a manner that will increase franchise value.
Successful boards need to focus on the connection of the strategic and the tactical:
- Being able to cite and give the status on the identified strategic goals in the strategic plan.
- Being able to make the connection between the current strategic plan and the long-term strategic goals of the organization.
- Monitoring long-term strategic goals at the same time as short-term goals.
- Maintaining the connection between the board agenda and the information needed to actively participate in each board meeting.
- Connecting what information is needed and the format in which it needs to be delivered for maximum understanding.
- Effectively holding management responsible without creating an erosion of that relationship.
- Asking what management needs to achieve the tactical goals they have been charged with, and whether there is a strong understanding of the reason behind those needs.
- Knowing what method will be used to continuously gain current information.
- Connecting behavior in the board room to quality of decisions made and tactics executed.
Ultimately, the board is responsible for obtaining the strategic goals of the bank. They are responsible to ensure that a Board Succession Plan is written and that it includes concrete statement of expectations for their role. Finally, they are responsible for self and group evaluation and completely open to the coaching that should follow.
