Many regard John Wooden as the best coach in college basketball history: his team won 10 National Collegiate Athletic Association championships in 14Ys, going unbeaten for four of those seasons. The best sports coaches tend to not only be good technicians, but they are also able to get the best out of their players, harnessing the leaders’ capabilities and supporting the team as it works toward a shared vision. The same could be said of successful boards of directors. As the business of banking becomes increasingly complex, community financial institutions (CFIs) need to ensure they’re able to keep up with and adapt to the pace and scope of change. Individually and collectively, a qualified and committed board of directors plays a critical role in steering the institution in the right direction. To this end, a CFI needs to ensure its board has an appropriate balance of members in terms of diversity of experience, personal attributes, opinions, and education. What’s more, regulators expect a CFI’s board to be able to demonstrate an understanding of and involvement in several key areas, including operations, strategic planning, and risk management. Knowledge and experience of the trends that are fundamentally changing the banking landscape — such as technology, digital transformation and cybersecurity — are also increasingly essential. It’s important to remember that no single board member can encompass all of the values we outline. Rather, it is the collection of the board members with their different strengths that is essential to building a profitable, growing organization. Here are some skills, attributes, and characteristics essential to the makeup of a well-balanced and successful board of directors:
- Strong leadership skills. Beyond helping to set a CFI’s strategic direction, the board needs to be able to galvanize and inspire senior management and employees to get behind and work toward a shared vision. The ability to lead well is therefore imperative. Successful directors are expected to be strategically engaged while entrusting the institution’s management team with translating that strategy into daily operations. An effective board chairperson will be strong without eclipsing the other board members’ contributions to discussions.
- Sound banking and business experience, acumen, and knowledge. An understanding of the complex world of business, operations, finance, and compliance is important, particularly given the regulatory environment. Directors with a deep background in business and finance can draw on their past experiences to negotiate current challenges.
- Commitment, honesty, and integrity. Legally, board directors have a duty of care to the organization; this requires loyalty and the ability to put the CFI’s interests first and always act with integrity. Joining a board demonstrates a substantial commitment not only to the CFI, but also to its community. Directors need to be committed to their board responsibilities and activities, which include keeping abreast of the institution’s affairs, preparing for and attending meetings, and reviewing audits and other reports.
- Independence and engagement. Good directors think independently, are inquisitive, exercise their own judgement, and follow through on their convictions. They need to be sufficiently engaged with the institution to be able to provide constructive guidance and also have the courage to challenge the status quo, ask difficult questions, and express dissent when necessary.
- A desire to learn. A key attribute is a commitment to being willing to learn new things, fill knowledge gaps, and develop new skills for as long as a director serves on a board. For example, a CFI’s directors should stay abreast of all matters related to the current state of the financial industry, educate themselves on new technologies and other advancements, and be able to act on lessons learned.
- Technology expertise. The rapid digital transformation of the industry makes it essential to have at least some “tech-savvy” directors — a firm understanding of technology strategy and performance is key. In fact, a study by Bain found that a “tech-savvy” board was one of the strongest correlators to high performance in banking in terms of shareholder return, cost-to-income ratio, and net promoter score. Depending on how advanced a CFI is in terms of technology, its requirements could range from having board members with experience in major technology modernization to individuals who can envision what might be possible.
- Deep understanding of the business. To perform their duties effectively, board members should be exposed to and have a solid understanding of the institution and its different operational areas, including governance, risk, technology, and information security to name a few.
- Community involvement. Similarly, the board should include some directors who not only have a good understanding of a CFI’s local communities, but who are involved with, and ideally part of, those communities. Board members who demonstrate strong connections within the community can help make introductions between the CFI’s staff and community members or other business leaders.
- Open to review and feedback. For a board to remain strong, independent, and effective, directors should be open to periodically evaluating their ability to perform their duties — through board assessments and other methods — and respond appropriately to feedback. Annual reviews of board members’ skills and performance are an effective way to track growth and identify any gaps.
- Knowing when to pass the baton. While some boards may have mandatory retirement guidelines in place, this should not be the only point at which the board considers membership changes. The board’s mix of skills should be regularly evaluated against the challenges and opportunities facing a CFI — and, if necessary, changes should be made to bring the necessary diversity, expertise, and perspectives to the table. Directors should have the capacity to acknowledge when it might be in the best interests of the CFI for them to step down.
The art of creating a good board is not about the individual members, but about the team. While no single board member is expected to possess all these skills and attributes, the board as a unit must have all of the skills that support the bank as a business, have a tolerance for regulation, and drive building the organization’s values.
