ABA Banking Journal - February 2008 - (Page 48)

COMMUNITY BANK MANAGEMENT group faction, or an individual. “If I could just get these two guys off the board, my life would be so much easier,” is a sentiment frequently heard in private conversations. Controlling — The aim here is to maintain control and direction setting, and not cede any real authority to the other party. This is often accomplished by not “making waves” or addressing any tough issues directly. In other interactions, the party in control may give lip service to the other, while eventually ignoring or overruling their inputs. The other party is there largely to ratify or implement the decisions—the proverbial “rubber stamp” relationship. We have seen repeatedly in controlling relationships where the board is left out at the periphery of direction setting (which should be a key responsibility of any board today). In such cases, the strategic plan is completed by the CEO and his/her management team, and a filtered version, purged of details or controversy, is then submitted to the board for “approval.” Another common occurrence is where the board itself is dominated by a powerful single director, or a small group. In one instance, a controlling faction became disenchanted with the CEO of a West Coast bank, and despite strong organiza- also produce a climate that inhibits trust and candor. Collaboration is a common trait of an emerging relationship. But when it exceeds its intended boundaries, it can easily lapse into micromanagement. In one situation, a new member of a board was elected largely because of her outstanding reputation as a marketing wizard. Unfortunately, her knowledge and enthusiasm for all aspects of marketing led her to repeatedly query and challenge the effectiveness of specific advertisements and special promotions, and encroach on the supervision and evaluation of marketing and business development personnel. The bank’s top management was left in a quandary as to how they could continue to gain from her well-intended inputs and expertise, but avoid her constant second guessing of decisions by operating managers. Optimizing — This is where both parties collectively achieve their potential by defining and adhering to appropriate roles; sharing authority, information, and decision-making; and providing critical oversight of the other to fulfill their required duties. Both are fully engaged, properly focused, constructively involved, and consequently, high-functioning. This creates a climate of mutual respect, trust, and candor. was “more involved in one year” in an optimizing environment created by a new CEO, “than in 15 years combined” with the prior management team. Unfortunately, the ugly truth about board-management relations is that few institutions are operating at the optimizing level. A recent survey by USC’s Center for Effective Organizations (et al.) confirms this: only 24% say their board regularly voices opinions which conflict with the CEO’s; just 37% indicate their board consistently acts with courage and takes appropriate action. Our own observations over two decades are consistent with these findings. Historically, we have found board-management relations at most institutions to operate at either minimizing or controlling levels. Today, we are seeing an increasing number of emerging and, to a lesser extent, optimizing environments. But there remains much room for improvement at most institutions. The key question is determining which level you are operating at, and at what cost to your institution. The costs of these suboptimal relationships can be enormous. Absent a logical, consistent, and comprehensive strategic direction, achieved through careful deliberations between the parties, the institution is at great risk of being blind-sided in addressing the critical issues facing it. Collaboration is a common trait of an “emerging” board relationship. But when it exceeds its intended boundaries, it can easily lapse into micromanagement tional performance relative to his peers and the support of the majority of the remaining board, the CEO was ousted by the controlling faction. In another example, the board so dominated that it frequently ignored its own management team, and the expertise it possessed was wasted. Emerging — Here, both parties are making an honest attempt to share authority and involve the other party in decision-making, but some festering issues (e.g., micromanagement, personal biases, insufficient communications) result in suboptimal relations and performance overall. Strong personalities may 48 FEBRUARY 2008/ABA BANKING JOURNAL In cases of optimizing relationships, we see the directors maintain a strategic orientation in their thinking, focus on the overall direction of the institution, and keep oversight at the forefront of their duties. Optimizing boards avoid managing the organization, and do not immerse themselves in operational details. They place the interests of the institution and its stakeholders first. All directors are actively involved in a variety of meaningful ways. And management is effective in educating and providing all necessary information to the board in carrying out its oversight mission. One director remarked to us that he learned more and Meetings can easily deteriorate into timewasting perfunctory check-offs of agenda items. Other negative consequences include ineffective management and/or oversight, missed growth opportunities, and exposure to unnecessary risks. Working better, together So how can your institution move towards developing an optimizing relationship? After all, many CEOs live in fear of their boards. Indeed, their very career rests largely in the hands of these directors. Similarly, boards are often intimidated by their CEO; afraid to question or challenge, and risk becoming the www.ababj.com/subscribe.html http://www.ababj.com/subscribe.html

Table of Contents Feed for the Digital Edition of ABA Banking Journal - February 2008

ABA Banking Journal - February 2008 Contents On ABABJ.COM: Have You Visited Our Brand-New Website? Editor's Column "That's Edutainment" Snapshot: Tier 1 Ratios Stable so Far 100th Anniversary: Then and Now ABA Resources ABA Chairman's Position Don't Despair Pass the Aspirin Cover Story: Socially Responsible Banking Profitably - Incoming America's Community Bankers Council Chairwoman, Dorothy Bridges Demonstrates the Way A True "Rags-to-Banker" Story Retail Banking: On the Money Hunt Community Bank Management: The Ugly Truth About Board Relations Does Core Really Matter? Security 2.0: Not Just a New Kettle of Phish A Personal Case of Mal-Serendipity DOD Credit Regs Demand Attention Mailbox Banker's Mart To Advertise/Index of Advertisers The Economy

ABA Banking Journal - February 2008

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