We ask a lot of our boards—sometimes more than the pay or liability risk would warrant! Fortunately, most community banks have board members who are personally engaged and invested enough to go the extra mile for your institution. To my knowledge, no one has studied this, but I expect that the higher the board’s engagement, the better the bank’s financial performance.
To continue to improve board engagement, here are three things CFOs and CEOs should be doing for their boards. Our Dashboard team firmly believes that taking these steps will also have a positive effect on your bottom line.
Eliminate the monthly “data dump”
Although your financial institution’s board members are busy professionals, it is frustrating when some of them show up to your board meeting frazzled and unprepared for the work at hand. Is there a “data dump” to blame?
One of the biggest complaints board members have is that management tends to load them with a whole bunch of data right before a board meeting, according to Mark B. Nadler, co-author of the book, Building Better Boards, in an interview with inc.com: “This sort of data dump doesn’t equip the board to talk about what’s going on.”
My colleagues and I go a step further, suggesting that data-dumping days before the board meeting actually deters some of your board members from performing their strategic duties. Unintentionally, you may have pushed them into reacting in one of two ways:
- They’ll be so pressed for time and overwhelmed by the immensity of your board package that they’ll simply avoid it, hoping you’ll go through the important information at the meeting.
- They’ll work hard and fast to sort through all your spreadsheets, reports and explanations, but will not have the time to identify and consider the strategic implications prior to the meeting.
Of course, most of your board members will do what they can to be knowledgeable and prepared for every meeting. But with technology so readily available, why make it so hard on them?
A better practice may be to give them access to Dashboard. A steady flow of timely, relevant information is much more manageable and engaging than a massive monthly data dump. Plus, daily exposure to your institution’s daily financial metrics and their movements can increase the board members investment in, and knowledge of, your business. They’ll come to board meetings ready to discuss strategy.
Increase the board’s knowledge of cyber threats and security
Cybersecurity needs to be front of mind because it is the existential threat to any bank, according to Rodgin Cohen, senior chairman of Sullivan and Cromwell and preeminent counselor to the financial services industry. Additionally, the U.S. Treasury views cyber attacks as one of the key threats to U.S. financial stability.
Cyber attacks cost financial services companies more than companies in any other industry, $18 million vs. $12 million, respectively. Financial services firms also fall victim to cybersecurity attacks 300 times more frequently than businesses in other industries. The typical American business is attacked 4 million times per year, while the typical American financial services company is attacked a whopping 1 billion times per year.
Whether you bring in industry experts, your own people, or your vendor partners, your board should be spending time understanding cybersecurity threats and how your institution is (or isn’t) protected from them.
Bring up difficult topics
You know when they’re there, so don’t let difficult or uncomfortable topics fester and grow under the surface. Bring them out in the open and set the ground rules for a calm, respectful conversation.
Boards should strive for a culture of open dissent, according to Jeffrey Sonnenfeld, associate dean at Yale School of Management in a blog called, What Makes Great Boards Great. They should have the capacity to challenge one another’s assumptions and beliefs, because endless affability doesn’t move the needle forward.
Difficult topics can be gut-wrenching and personal, like what to do about an underperforming executive—a person you like and serve on the PTA with. Or, how to confront a board member who never comes to meetings prepared.
Other topics are difficult because the board is still debating them and hasn’t reached a decision or compromise. Often these topics are centered around strategic planning, spending, costs, compensation, risk management, M&A, and shareholder activism.
Depending on the difficult topic, you may want to:
- Call each board member before the meeting and tell them the topic will be discussed. There’s no need to drop a bombshell on the board.
- Bring in a moderator to lead the discussion to a compromise, ensuring that each board member feels heard and respected.
- Bring in an impartial third-party expert, perhaps from a business school, law firm, or federal agency, to provide additional viewpoints and options.
The bottom line
Serving on a board is largely a labor of love. “You’ll never pay (board members) for the actual value of the time spent,” said Flynt Gallagher, president of Compensation Advisors, which cosponsored a board compensation survey with Bank Director.
Most board members work tirelessly on behalf of your institution because they are engaged and invested in its success. By eliminating the data dump, involving board members in cyber security issues, and addressing difficult topics head-on, you can strengthen the board’s relationship with your institution and continue improving your financial performance.