Is your Board of Directors Ready for the Future?

Trent Fleming, a financial industry consultant, told The Financial Brand that many bank boards may not be prepared for the future. He said board members need to be more involved in strategic planning processes and cover not only compliance, but dig deeply into operations and technology matters. Fleming said that technology is “no longer simply a part of back office operations” but a main way that a significant portion of customers now conduct business with financial institutions. New technology also can offer opportunities by reducing costs and increasing customer service.

As regulatory pressure and oversight increases, bank boards also will need to have the knowledge and skill to deal with regulators. As early as a year ago, The Wall Street Journal reported that the Federal Reserve and other bank regulators were holding frequent meetings with individual directors at the country’s biggest banks. In many cases, they were demanding detailed minutes and documentation of board meetings and were singling out boards in internal regulatory critiques. The Journal reported they were reviewing the information directors receive from bank management and asking about things like succession planning and how directors gauge the downsides of certain transactions.

The 2008 financial crisis also showed that some boards didn’t understand the risks firms were taking. The Fed has since instituted more oversight and scrutiny of boards.

Sarah Dahlgren, head of bank supervision at the Federal Reserve Bank of New York, said in a 2015 speech that they were seeing “enhanced engagement” with boards and senior management. “While the level of engagement varies across firms, in general, we are seeing boards being more active in asking questions, providing oversight of management and engaging with supervisors,” said Dahlgren.

Fleming said boards need to develop plans that create a vision for the next five to 10 years and will guide management in executing the plan. He said boards must be able to understand the current state of the industry, including the financial environments, technology and local economic conditions. Financial institutions’ boards also should think about their retail and commercial banking strategies, their physical plant and delivery channels, financial goals and their technology infrastructure.

“Most financial institution board members have never been in a planning meeting that delves deeply into operations and technology matters, let alone lending, deposits and customer delivery channels,” said Fleming.

Fleming also said that to build an understanding of the complex issues and opportunities, financial institution boards may need to diversify their demographics and expertise. He said organizations must also have “concentrations of knowledge” ranging from risk management systems to leveraging technology for new opportunities. “The board must also direct management succession planning across the organization, and insist on solid planning down to the department level,” said Fleming.