|
Board of Directors Membership & Advising | Litigation Consulting | Estate Representative |
|
| Contact Us
Business Reorganization & Financial Restructuring Expert Witnessing & Litigation Consulting Group Board of Directors Membership, Advisory & Corporate Governance
The Andela
Consulting Group, Inc. |
"THE
ROLE OF BANKS' OUTSIDE DIRECTORS: This article was originally published in AMERICAN BANKER, The Daily Financial Services Newspaper, Thursday, March 24, 1994. BOARDS should be structured to create a synergistic relationship with management and to deal quickly with important issues. Banks that are public companies are subject to all of the new changes in shareholder activism, non-Bank corporate board governance and shareholder discontent pressures. They are also preemptively controlled by Regulators who have recently issued influential new guidelines. In response to this seemingly overwhelming shift in pressures placed upon the banking industry, the following recommendations are offered. They are intended as a new vision for the composition, structure and activities of Bank Boards. They present a synthesis of the recent non-Bank corporate governance changes and suggestions previously described and the Bank Board experiences of this writer. In my previous article, I described my suggestions for Board composition. This article offers suggestions for Bank Board structuring activities and compensation. It also clarifies my suggestions for a new relationship and working partnership between Directors and management. I. Board Structuring and Activities:Bank Boards may be structured to create a synergistic relationship between management and the Board and to deal quickly with unsuccessful policies, personnel and Board members. The following structure is suggested: 1. The Board should have a non-management Chairperson whose responsibilities are to set meeting agendas, ensure timely, appropriate and adequate information to Directors and coordinate the supervision, choice and evaluation of both management and Directors. (This is similar to the new bylaws recently adopted by General Motors.) 2. The Vice-Chairperson should be the Bank's Chief Executive Officer who manages the daily operations of the Bank, coordinates the information flow and employee availability to Directors and represents the Bank at public functions. 3. Individual Directors should be specifically assigned to relate to management in the specific areas where those Directors have expertise. To the extent possible, Board subcommittees should consist of outside Directors who have specific or related expertise in the subcommittees' specialized area. These subcommittees should meet monthly and require line management to present pertinent information. 4. Highly descriptive, but summarized and analyzed, subcommittee information should be provided to all Directors in advance of the full Board meeting. 5. At monthly Board meetings, the outside Directors should meet first, with line management possibly being required to present reports at such a meeting. The full Board meeting's agenda may then be revised. 6. No outside Director should be a member of the Board for more than five years, whether consecutive or otherwise. 7. Annual off-site "retreats" or weekends should be organized and include all Directors, both senior and some junior management, and a limited number of the separate consultants to Directors and management. These weekends are intended to establish professional personal relationships and an opportunity for candid conversations between Directors and management. 8. A "nominating and evaluating" Board subcommittee, composed of only outside Directors, should be established. This subcommittee should meet at least every six months. Its purpose would be to evaluate each Director's contribution and effectiveness and senior management's attainment of agreed upon strategic goals. It should first suggest remedial activities and provide warnings. If Directors have been inactive or ineffective, then they should not be recommended for re-election. However, this should not be allowed to become a "popularity contest." This subcommittee should be the primary source and forum for any suggestions to improve or replace senior management. 9. The Board "calendar" should allocate a portion of each meeting for a revolving specific evaluation of the Bank's functional areas. These areas include: (i) selection, evaluation, and compensation of senior management; (ii) corporate strategy and strategic planning; (iii) legal and regulatory compliance; (iv) capital allocation; (v) personpower planning, (vi) special or classified assets; (vii) asset and liability management; and (viii) marketing and business development. 10. Directors should be compensated primarily through stock options and reasonably low fee payments. Executive compensation should be primarily through incentives awarded for: (i) profitability; (ii) market position; (iii) productivity; (iv) product leadership; (v) personnel development; (vi) employee attitudes; (vii) compliance with public responsibility and regulations; (viii) investor and customer relations; and (ix) achievement of strategic goals (which are agreed to each six months by the CEO and the Directors). 11. The Directors should be advised by independent consultants and attorneys. These professionals will: (i) evaluate management's reports, (ii) do independent research to reveal issues and problems, and (iii) suggest alternatives used by other Banks or required by Regulators. Those professionals should report directly to the Directors, however, generally, their reports should be shared with senior management. 12. Outside Directors and senior management, supported by professional advisors, should jointly prepare reports for public dissemination. 13. Special annual full Board meetings should be held with the ten largest shareholders who are given the opportunity to critique, and suggest alternatives to, Directors and senior management. Reports of these suggestions should be disseminated to all shareholders. In the past, there has been a distant relationship between a Bank's management and its Directors. Management has been unable to take advantage of Directors' experience and overview because they feared Directors becoming overly involved in management's decisions. We are now in a new era of heightened shareholder awareness, regulatory dominance, and consumer and customer dissatisfaction. Bankers must now compete aggressively, yet retain their traditional conservatism. The best way to harmonize these apparently inconsistent goals is for management and Directors to forge a working "partnership" to better achieve the preeminent goal of increasing shareholder value in keeping with safe and sound practices. Only through the creation of such a mutually respectful "partnership" can Directors truly represent the interests of the Bank's owners, effectively evaluate management's activities, and monitor and supervise the creation of assertive, yet conservative, products, activities and restructuring. Through an operative "partnership" with Directors, management can best utilize Directors' skills to enhance management's successes. Within this new industry environment of synergistic tension between management and Directors, Bankers can anticipate receiving constructive suggestions for change. However, management will soon discover that the correct utilization of this new interrelationship is the best way to produce both compliments and financial remuneration for their achievements.
[Business Reorganization & Financial Restructuring ] [Expert Witnessing & Litigation Consulting Group] [Board of Directors Membership, Advisory & Corporate Governance] [Download Articles]
©2003
Andela Consulting, Inc. |