As I survey the banking scene, I am amazed at how something as simple as getting older can affect the future of community banking. Of course, you may think that everything is going great and you are wondering whether aging or more specifically, dementia, is settling in on this consultant. I assure you, while I am not getting any younger, I still remember to show up to work and I am doing my best to help our industry be more successful. To that end, this article is about how aging and our lack of planning is severely affecting future leadership and thus potentially the sustainability of our time-tested community banking industry.
Several years ago, my wife surprised me and whisked me off to Punxsutawney, Pennsylvania for a birthday trip that will be forever etched in my mind. You may think that a trip to PA is kind of lame unless you realize that my birthday is in February – the second day of the month to be exact. More particularly, it’s on the greatest and least appreciated holiday of the year, Groundhog Day. Unfortunately, there is no Parade of Roses or Macy’s Day Parade to honor the humble and ever faithful prognosticator of the weather, the groundhog.
Punxsutawney, Pennsylvania, to you people who aren’t sensitive to underappreciated critters and birthdays, holds the largest Groundhog Day celebration in America – perhaps even the world. The town received widespread attention as a result of the 1993 film Groundhog Day, which was set there and portrayed Punxsutawney Phil, Pennsylvania’s favorite son (groundhog?). The movie starred Bill Murray as Phil Connors, an arrogant, egocentric Pittsburgh TV weatherman who, during a hated assignment covering the annual Groundhog Day event, finds himself in a time loop. He repeats the same day again and again, waking up each day to the Sonny and Cher song, “I Got You Babe”. Phil could have been Yogi Berra’s inspiration for his “deja-vu all over again” quote.
How long, you may ask, was Phil stuck? Although no one really knows, in 2014, the website WhatCulture combined various time duration assumptions and estimated that Phil spent a total of 12,395 days—just under 34 years—reliving Groundhog Day. The good news is that after indulging in numerous self-destructive activities including multiple creative suicide attempts, he re-examined his life and priorities and ultimately broke the loop to settle down with the love of his life. Hopefully, you and I can learn our life and banking lessons in fewer than 34 years!
You might be wondering what in the world Bill Murray and the movie, Groundhog Day, have to do with the future of our community bank leadership? A fair question! In short, I think too many of our banks and bank boards are stuck in a loop, year after year, thinking that the succession problem will solve itself. Therein lies our industry problem: year after year, management and board continue to wake up to Sonny and Cher and no successor.
Now, you might ask, what in the world do Bill Murray and the movie Groundhog Day have to do with succession planning? A fair question but in short, I think that too many of our banks and bank boards are stuck in a loop thinking that the succession problem will solve itself—only to continue to wake up to Sonny and Cher and no successor.
As I meet with banks around the country, several things are apparent. First, many of the executive officers are starting to look more and more like my parents: they’re old. Second, when I meet with their boards of directors, the age issue becomes even more pronounced – they are even older than the executive officers! Third, and most important, few are giving the attention they should to planning for the next generation of management, the board or aging stockholders. To make matters even worse, the communities many of these banks are serving are aging out as well. Very few young bankers are willing to move their families to Nowheresville, USA. This creates a toxic aging mix and a very serious problem for all the banks and the regulators charged with oversight of our community banks.
Now, I will be the first to admit that I’m no spring chicken, and truthfully just as bad as my clients when it comes to thinking about a succession plan. Unlike Bill Murray – waking up to “I Got You, Babe” – we don’t have an unlimited number of days to get it right.
Although most companies recognize the importance of succession planning in attracting and retaining excellent employees, according to a 2017 Bank Director Compensation Survey, sponsored by Compensation Advisors (a member of Meyer-Chatfield Group), “48% of bank directors and executives—including chief executives, human resources officers and chief financial officers—say their bank does not have a successor to replace the CEO when the top executive retires or leaves…. Yet, just 17% say that developing a CEO succession plan is a top compensation challenge.”
Perhaps in a metropolitan or regional banking market this would not be a problem. For states such as Arkansas (where I reside), though, 50 of our community banks are located in rural markets like Dumas, McGehee, Delight, Salem and Corning, to name just a few of our more isolated rural markets. To compound the pain, according to one survey, 44% of the respondents who had identified a potential internal candidate were very concerned about losing the internal candidate if he/she did not get the job, thus exacerbating the succession issue and kicking the can down the organization chart. Turns out they were right to be concerned. Almost a third of the internal candidates who were passed over left the bank or retired.
Hopefully by now, you’ll agree that we community bankers have a problem. Even if some of us are calendar-challenged and still believe that we’re only as old as we feel, I can assure you that our state and federal supervisory examiners are not so chronologically deceived. In fact, they have identified succession as one of our major risks for the upcoming several years. They are going to consider our age in their risk matrix, even if we don’t want to.
So, how do we break the time loop, recognize our need for successors, identify qualified leaders and live happily ever after?
So, how do we break the time loop, recognize our need for successors, identify qualified candidates, and live happily ever after?
First, recognize that succession has to be a priority for the executives, board, and owners. Your bank is too important to your community to leave it to chance.
Second, identify the most critical links in the chain of command. You may be a healthy 42-year-old CEO but have a 64-year-old chief of operations whose untimely demise would be devastating to your bank. He or she needs to be first on the board’s list to begin planning for. In some banks, the loss of a chief operations officer would be far worse than the loss of the CEO.
Third, establish a succession team made up of key board members (usually including the chairman of the board) and at least the CEO to come up with a board-approved succession plan.
Fourth, before you begin your search for Mr. or Ms. Successor, identify the job responsibilities of the executive that are at the top of your list for a successor. I warn you that this process can be even scarier than the loss of the person in that it may begin to dawn on your team how critical that person really is. We find that some banks may have to materially reallocate job responsibilities across several positions to be able to identify a viable or realistic successor for some executives or CEOs.
Last, don’t wait until the last minute to begin the identification process. It takes time to find a viable successor for key jobs. Unfortunately, 41% of banks tended to do succession planning only on an as-needed basis, according to the Pearl Meyer survey. At a minimum, regardless of the executive’s age, the succession team should prepare an emergency plan (for those worst-case scenarios) and a 3–5 year plan. In more rural markets, a longer planning horizon will be needed to take into consideration younger existing employees who need grooming to assume leadership positions in the future.
In today’s uncertain banking and regulatory environment, our banks have plenty of issues that need some improvement or clarity. Punxsutawney Phil, while an adorable weather icon, is not a very good weatherman. His weather predictions have only been correct 39% of the time. With succession planning, our average needs to be higher. It is such a critical issue that it needs to be addressed sooner rather than later so we can all get on with our lives and live happily ever after.
Oh, and by the way, if you ever get the chance to go to the Groundhog Day celebration in Punxsutawney, you would be joining me and visitors from across the globe in a uniquely and highly entertaining American experience!