I tug,hart f ; #fli? c Ef I i ; f

advertisement
K&L I GATES
tug,hart
f ; #fli? c Ef I i ; f
k
•P~t re~„iu: . #
.~
~
°~~ ~"~• `u Ff{1 ~#~~ ~Z°~ ~#' ~
e~i
~?.
~
~v i:zar: a(~~a t ~ ; ~`~ ~
.~ ~`i ~~~~
=aft a^aw+Uar ~~f z: Et E S t ~ sv^~`~~~~"`'
ei
:~`+u}.
a
:~ #5f5 ~.~ a ~ ~~ , ~'} ! r ~,~~, '~•* z~Y ~ ate. 41z ~ ;} t `qt. r':} t "" ~ " ~ s . 3r r~ aa'
~, ~,~~'``~,y,~ss : s t a £
~s~~ f `
~ns,~ - zsk ~ L•I:~~:~ c~ 3 (##~~ 4,
~°" '
~'~,~~ ;~ *: as
~s ~
H~E~
~" ~Et ~><S# ~~~' k ~~
.
`v~ ~s c~ .fc"''„3
h~'~~ ~ ~ m ~ ~
as • s, '~i
#n?
y~
3~
a h~"€-~
~
a
,3~},R
t~E
~`
"~ `S a
s, &":, ~ "~ ~}4t
~ ~• } ~ ~# ht's
Ns ,~
~~ €~E
~ ~ j>
~i ?" ## ia• 3~i't~ r aak
~:
~ s~
'kta~~.~~j~ES~~~.~`~~,xa~~i~'
4 h~ r .•~"~ ~ta~ y~g . .~, t~~."~',va~~'a'Esaa~r~~~~1,tg£us&('#~
;
vaaia}a a~'
n
~,fi~ Lx ~`~~a e, "~a
,~,
.# .,s ~Y k+ s
1 .. ~i.~q,~$~'~i}
. .:
-~a?~'t aRV`e .^•
i :s ,s
.~~t s ~~E34~'4
a#
"ra
;i i~?w°i
i
~t x~~~"^s~ ~~ . k~~•
.ca1 ?~
~;r.
"€)~,va
'~
n}'~
-!
ss~a
d t~ ~ d
;=
Y~
'K
~'
"a}j
p
~'
sa~~•aa`3sw
sx~a
~ ~`~~ .f ~ ~~Z €., ;z'~tx :~~3~
:,~as ~#Y
z:~~~~
~ WS~S
~
i ~d~aa ~=r . -"~ "us.i~,-~aar~,•~r
.
`~~'v3:~,
',S`a%~~35
~~ ~~••
ht
.~~ 7 ~~ ~`.~ ~~"`r~;^fa ~~ i ~ i ~~~
~4~~ixl# ~
`~ i S 4 $4~~'Sva`,~
S ~ ~ i~,'N~ ~E y~
~Dir^'~,s~ai a .,1~»~~~ 's $''a~~~r
~ ~F}F a~ ~.a
s •. a1~~~r.
~~
~ ~
~naY~~
',~ ~ ~`g ` ~ Iasi ss s 9 ~ ~
. Y d ~€
~~,~
.
~
~
~
~r
~~
x
i ~~~r ~~
.?SU+'i
.ujS~`''~k~1 ~;# ski '&QM`F,s .. .3 .au~r , .. ~.. s. , ,
f ~t
.'s,s.}r~,~+ .,s,
t ~€a' ;~
~'l:~s,a~ :ts.s.;ss;~;
~+•~ ..• i~h`~"
::•: :~r!?.'
~„ Y
s€j•~~
°,, . ut ., a~
r Y~
c ~ a +s t +~ $ lusya>d#.~..
a =F
P"
`~
~ ~ '~a~
£a•.?~ . ;•
Sa'•~~
g~ az..1
'>` s a :i;~ ~:`a +.. ~a
~'ah ;~, ~~.F .V'~.' a~~•`
~
as #. ~~
n .~~,,1
.roa
w;
°
ra~a
~a`a
mz
~' ~~~` » k,
~'
~,
l,~'~~
"s•~"~'~`~~•'~ a .~`
~~si.u ~ ~ ~~~, ~~
~~~ ~ ,..~'~
i`a~~~'~A ~"~`, i'~j'i .a~£r vk ~~~~~~~~ "~ '~0''"~ !: ~xtv ~~~~r~{'t'i t1 i ~~r ~ ,~~~ ;.
a
~'~
4 k . 's'
?
ate ~
. r:~~..•,~x € sr~... .?i:?w~ ao, ~ n~a, .:;t ~v+:n ;~ ~.,_,. sa ,` ~.,~'T~'~?.. ~ l\if~° .r `~., .,.,cle~ i ~
.~. tl'..'mn.ISr } s x
,, ;a'ih ..~....n
ac
Stanley V. Ragalevskyy
Kirkpatrick & Lockhart Preston Gates Ellis LL P
State Street Financial Center
One Lincoln Street
Boston, MA 02111-295 0
617 .951 .9203
s tan .ragalevsky@klgates .co m
K&L I GATES
wkj,f,ft i,ck & I : 0l dil i`'i,ustprr (,, e
What is Boa r d Succe ssion Planning ?
■ Effective board succession planning is not simply
filling a di rector vacancy when one occur s
■ An ongoing, systematic process to ensure board
continuity and quality through :
■ Identification of the competencies and qualities
expected of director s
■ Assessment of existing board to identify gaps in
desired skills which are presently lacking or may be
lost in the future
E If s rr ,
&L I GATE S
K li' 1,j`ati t f'f Y & ~. ;1r, k h l r: 11v (`s,1.o a Gla1 I , y 1 .1 ~
What is Board Succession Planning ?
■ Improvement and Development of the skills and
capabilities of existing directors through a process of
education, training, mentoring and coachin g
■ Recruitment of new directors who will satisfy the
desired competencies and qualitie s
■ Development and integration of new directors into
board through education and training
K&L I GATE S
What is Boa rd Succe ss ion Planning ?
■ An integral part of a bank's governance process
■ Controlled by the Board, not the CE O
■ Tied to the bank's mission and strategic plan
■ Good board succession planning rarely just
"happens" but is a product of the directors'
collective commitment to thoughtful planning and
willingness to hold themselves accountable
K&L I GATES
or'O r 1',~ 1*F~ C t CI, ;i f
Board Succession Planning - A Challenge for the
Board
■ Board succession planning is a difficult issue for
boards to address
■ Only 1/3 of Fortune 1000 companies engage in board
succession planning
■ Discomfort over establishing standards and
evaluating current board members against them
■ Peer to peer evaluations are more stressfu l
■ Board entrenchment
L
I
GATES
K irkp{ tn r~ k
&
I_o
h,dri I
Board Succession Planning - A Challenge for the
Board
■ Things are changing - fas t
■ Corporate scandals ratcheting up expectations for
directors
■ Sarbanes-Oxley Act and NYSE listing standards
require public companies to conduct periodic board
self-evaluation s
■ SEC rules require public companies to disclose the
process used to identify and evaluate board
nominees
■ Knowledge explosion and "best practices" making
corporate governance "process" driven
K&L I GATES
& 1-ockfum 11
Board Succession Planning Has Become a Good
Governance Best Practice for Bank s
■ It is the right thing to d o
■ As a director, you have an obligation to leave your
bank in better condition than you found it and to
assure its continuity
■ You cannot fulfill that obligation if you make no
provision for your replacement
K& L GAT ES
I
II' k p a,I r +
k & !
oO urt
tc
{;
(iat'?S
E i rs il .
The " B low b ack" Effect
■ Once a board defines the qualities and skills it
wants from prospective directors, it cannot logically
exempt its present directors from those standard s
■ Evaluation of current directors is inextricably tied to
a board's succession planning effo rt s for
prospective directors .
■ Plugging gaps in the board through a succession
planning process should also get the board focused
on improving present performance
K&L I GATES
x$, I ..cit; k s lml
G,Rt es His
!.1 .1
The "Blowba c k" E ffect
■ There is a correlat i on between boards that
effectively plan for their own succession and good
governance . Boards at well governed banks tend to
have effective board succession functions because
they already have :
■ Board governance principles
■ Board committee charters
■ Effective strategic plannin g
■ Effective management succession planning
,
K&L I G ATE S
Indicators of a Need for Board Succession Plannin g
■ If your instincts tell you that your bank has a
problem with how i t selects and recruits directors,
your instincts are probably righ t
■ Your board may need to pay more attention to
board succession if too many of the following are
true :
■ Your bank has no job description outlining the
qualifications and responsibilities of director s
■ No new directors elected to board in past five years
K &L I GATE
, ~, k4i: k hd j,t 1 re s, ;cm Gatos € 1
Indicators of a Need for Board Succession Plannin g
■ 40% or more of directors have retired or plan to retire
from their primary occupations within the next four
years
■ Directors at your bank generally serve until they die
or become incapacitate d
■ Your bank does not annually assess the
effectiveness of the board and its member s
■ Your board neither provides nor requires directors to
partake in continuing education or training on banking
issues
K&L I G ATES
,h]P<at n r k, ,.
Indicators of a Need for Board Succession Plannin g
■ Your bank has a "3" or worse rating for the
management component in its most recent safety
and soundness examinatio n
■ Your board does not have a a chair who provides
strong leadershi p
■ Your board does not have meaningful succession
planning and development for its CEO and senior
officers
K&L I GATE S
Indicators of a Need for Board Succession Plannin g
■ Board succession planning takes real discipline and
commitment
■ Peer to peer evaluations are often dreade d
■ The imposition of accountability can be disquieting
• Unpopular with least productive directors
■ Easy for top tier decision makers to except
themselve s
■ Damage from ineffective board succession planning
not visible for years
L
I GATE .
I:
Ifis t
Getting Started - Preliminary Governance
Consideration s
■ There are many governance issues which a board
should consider before initiating a board succession
planning process . The most important are :
■ Deciding who will oversee the board succession
process (e .g ., the Chairman, the Governance
Committee or the full Board )
■ Legal restrictions on the size of the board or the
number of committees which need to be staffe d
■ The geographic and other constituencies which the
board has decided merit representation
K&L I GATE S
Getting Started - Preliminary Governance
Consideration s
■ The impact of laws or by-law provisions mandating a
retirement age or term limits
■ Any requirement that directors satisfy an
"independence" standard for board eligibility (e .g .,
does the bank have a policy that sitting directors who
retire from their jobs or professions, former CEOs of
the bank, relatives or close friends of directors,
vendors providing services to the bank, loan
customers or bank officers are not "independent" and
therefore are disqualified from serving as directors)
KuL I GATE S
Getting Started - Preliminary Governance
Consideration s
■ The existence of an advisory committee which
develops prospective directors or serves as a
transition point for recently retired director s
■ The impact of board retirement benefit programs
■ These considerations can impact how much
flexibility the bank will have to deal with the board
succession planning process
K&L I GATES
tcjckh
The Board Succession Planning Proces s
■ An overview of the Board Succession Process :
■ Define the qualifications for being a directo r
■ Conduct a board and/or director self assessment
■ Create a board skills matri x
■ Compare matrix against Bank's strategic plan and
mission to identify gaps in desired skills or attributes
among board members
K&L I GATE S
The Board Succession Planning Proces s
■ Develop plans to improve the performance and skills
of current directors who need further education and
experience
■ Identify and recruit potential director candidate s
■ Integrate new directors by training, mentoring and
educatio n
■ Rotate directors through committees when possible
to develop experienced director s
■ Monitor and update the process at least annually
K&L I GATE S
The Board Succe ss ion Planning Proce ss
■ Strong, effective leadership and commitment is
necessary
■ Governance committe e
■ Effective Chairman of the Board
K&L I GATES
I_o
, k hl l
The B oard Succession P lanning Proces s
■ Step 1 . Define the qualifications for being a director
■ Position description essentia l
■ Commitment to mission and strategic objectives
■ Primary rol e
■ Duties and responsibilitie s
■ Personal characteristics (e .g ., integrity, good judgment, high
standards )
■ Core competencies
Hip 1 F
The Board Succession Planning Proces s
■ Too many boards fail to define these criteria
■ Raises the expectations for existing director s
■ Step 2 . Conduct a board and/or director self
assessmen t
■ Can take several form s
■ General questionnaire about board effectiveness
■ Individual director self evaluation s
■ Director peer evaluations about each other
K&L I GATE S
The Board Succession Planning Proces s
■ Who sees the completed forms
■ Entire board (Yes, summary only )
■ Chairman/Committee (Yes, self-evaluation )
■ Directors being evaluated (No, report to Chair)
■ Facilitator (Yes, peer evaluations )
■ Evaluation forms - draw them carefull y
■ Don't go too fast - promote consensus, not division
■ Have policy on destruction of completed forms . No
email
K&L I GATES
U
The B oard Succession Planning Process
■ As part of self-assessment process, conduct an
assessment of the Chairman and his/her leadership
of the Board
■ Step 3 . Prepare a matrix summarizing each
director's skills and contribution based upon self
assessments and other relevant information . See
form .
li
K&L I GATE S
The Board Success ion Planning Proce ss
■ Step 4 . Identify gaps or areas where the board
needs improvement or where replacements will be
needed
■ Identify skills, competencies or other traits not
possessed by present board members (e .g .,
financial/accounting expert, lending expertise,
resident of an unrepresented community )
■ Identify any other skills needed to support the Bank's
strategic plans for the future (e .g ., expertise in
information technology or payment systems)
& L I GAT E
irkj, Ri t! a
k &, 1 o(,kht i k' Fr s1 (, 3 ~t ~ E HIS t
The Board Succession Planning Proces s
■ Identify areas for improvement of existing directors,
develop action plans to address improvement areas
and monitor the progress of those plan s
■ Assignment to audit committe e
■ Rotation of members through committees
■ Mentoring by senior board member s
■ Education programs
&L I GATE S
The Board Succession Planning Proces s
■ Identify situations where present board members will
be or should be retirin g
■ Age limits
■ Problem behavio r
■ Step 5 . Recruitment and transition planning to fill
vacancies with best available candidates .
■ Recruiting new directors
L i SATES
131,vS,Io11
C1, a(t ,s I IIi S,
The Board Succession Planning Proces s
■ Compile short list of outstanding candidates updated
periodically with needed skills identified in strategic plan or
needs assessment process . Jaundiced eye toward cronies,
friends and relatives . Only the "best people . "
■ Consider use of advisory committee as a "farm team" for
director development
■ Due diligence process
• Financial stabilit y
• Absence of black marks (bankruptcy, criminal record )
• Absence of disqualifying factors like blood relationships or
unusually close affiliations with other directors
l! ('
LI GATE S
The Board Succession Planning Proces s
■ Reputation and standin g
• Interagency biographical form
■ Formal orientation and mentoring program for new directors
■ Transitioning existing director s
• Be sympathetic, recognize contributions
• Be sensitive to financial strain s
■ Director fee continuation plan s
■ Create a modest, continuing role or status
Goodwill ambassador
o Advisory committee
Honorary / emeritus director
Carefully define parameters
&
L i GATE S
The Board Succe ss ion Planning Proce ss
■ Step 6 . Support candidacy of selected candidates
by integrating board succession planning efforts
with nominating proces s
■ Step 7 . Repeat the process every year
L
I GATES
K i i k1.atr r: AU I ric;k h ar, Pi,o,s1, si
Cl i f s
Four Important Director Succession Issue s
■ The board needs a strong chairma n
■ Leadership by an effective chairman is a critical
element of a successful director planning functio n
■ Strong leadership by a Chairman of integrity and stature is
necessary to drive the director self-assessment and
improvement process
■ Chairman should :
• Set the agenda and tone for effective board functioning
E i Es' E ~
K&L I GATE S
Four Important Director Succession Issue s
• Make sure strategic issues are discussed adequatel y
■ Assure that individual directors are developed to their potential
• Promote effective relationships among board members and
management
• Ensure that the performance of the board and individual
directors is assessed annuall y
• Assure that the board is engaged and accountable
• Promote trust, teamwork and communicatio n
• Ensure board decisions are implemented
• Provide coherent leadership
L i GATE S
1, h
Pr
Four Important Director Succession Issue s
■ It is important for the board to review and assess the
quality of leadership provided by the Chairman when
assessments of board members are performe d
■ Rotation of the Chairman's position may be
appropriate in certain situations
K&L I GATES
Fr
Four Important Director Succession I ssues
■ Mutuals have unique board succession planning
issue s
■ Director support and belief in mutual form most
important defense to preserve mutualit y
■ Stress history, mission and purpose of mutual ban k
■ Recruit only those who appreciate and are willing to support
the continuation of the mutual charte r
■ Directors of mutuals have no one looking over their
shoulders to encourage or prompt effective board
succession plannin g
• Greater accountability and self discipline required
K&L I GAT E S
10r,k hI 1rY Plf,estf}Ir G ,at :
1 1 11 S- il k
Four Important Director Succession Issue s
■ Mandatory retirement age s
■ Third rail of board governance issue s
■ Tendency today is to have mandatory retirement age
(72-75) in the By-Laws
■ Age discrimination laws inapplicable to directors
• Exemptions for incumbent directors commo n
• Waivers for no more than one director
K&L I GATE S
.Four Important Director Succession Issue s
■ Difficult issue - money, pride, loyalty
■ Balanced approach needed
■ Be fair to the bank and the directors but the best interest of
the bank comes firs t
■ The best interest of the bank requires :
■ A board where every director uniformly satisfies a high
performance standard
Directors who are the best people in the communit y
■ Periodic turnover on the board to continue to attract the best of
the current generation and make room for them
K& L
I GATES
Y
Four Important Director Succession Issue s
■
A balanced board with a fair mix of director s
■ Service on a bank board is a serious responsibility, not an
honor
■ Workable solution on retirement age issues
Mandatory retirement ag e
■ Allow directors to stay on only as long as they fully satisfy the
uniform performance standards expected of every other
directo r
■ This may be hard to enforc e
■ Allow no more than one waiver from any mandatory retiremen t
age
K&L I GATE S
Four Important Director, Succession Issue s
• Have a transition pla n
Address financial issues by director retirement or fee
continuation pla n
Address loyalty and dignity issues by director emeritus or goodwill
ambassador statu s
• Avoid "termination" perceptio n
• Board focus to be oriented to deal with tomorrow's strategic
issues
L I GATE S
,:.
Dealing with Ineffective Director s
■ Directors can be ineffective for many reasons (e .g .,
lazy, uninterested, diminished capacity, distrusted)
■ The single best way to get them off the boar d
■ Make them work hard -real hard!
■ Raise the bar for all director s
■ No exceptions, no "gentleman's C"
K&L I GATE S
Iir
HIS LIP
Conclusion
■ More community bank boards today are realizin g
■ Not having an effective board succession planning function puts
the bank at greater risk
■ Having continuity of leadership at the board level is importan t
■ Having a vibrant board representative of the best people in your
community can give your bank a sustainable competitive
advantag e
■ A bank which develops an outstanding board through effective
board succession planning will be more likely to survive today's
difficult competitive environmen t
BOS-1136432-0
Download