Trending at #BDComp14

This January, at Acquire or Be Acquired, I wrote that most successful banks have a clear understanding and focus of their market, strengths and opportunities.  So one big takeaway that builds on this idea from our annual Bank Executive & Board Compensation conference (#BDComp14 via @BankDirector): it is time for a bank’s compensation committee and HR officer to reassess their viability of their performance plans and incentive programs.

Today’s agenda covered a lot of ground; namely, how economic, technological and demographic trends are reshaping the financial community. With nearly 300 attendees with us in Chicago, I heard a lot of interesting comments and questions made throughout the day. Three that stood out to me from our “on-the-record” presentations:

  • The Fed’s policies are forcing banks to ask tough questions: When will rates rise? Should I make fixed rate loans in the 4% range? How will this play out? How does it affect my stock value? (Steve Hovde, the CEO of the Hovde Group)
  • It is not what you do for people that they remember; it is how you make them feel. (Scott Dueser, the Chairman & CEO of First Financial Bankshares)
  • When it comes to Dodd-Frank, I thought we’d be through it all, but its still going full force (Susan O’Donnell, a Partner at Meridian Compensation Partners)

Trending topics
Overall, the issues I took note of were, in no particular order: loan growth is now paramount to profitability; with cybersecurity risks growing, protection is becoming more and more costly (especially in terms of time & resources); standardized loan products are reducing competitive advantages of community banks (naturally impacting compensation plan participants); if compensation plans are overly complicated, step back and ask if your are trying to solve for something else; culture and performance is what it’s all about.

More to come from Chicago tomorrow…

Does Anyone Want To Work At A Bank?

Admittedly, the question driving today’s title is not the easiest to answer.  Without the training programs once offered, without the cache of an Apple and without the stability of a career path, you might wonder why any smart, ambitious and talented professional would take a job in banking.  Surprised I’d write this from Chicago and Bank Director’s annual Bank Executive & Board Compensation conference?  Read on.  

A sunny day in Chicago
A sunny day in Chicago

As I start to write today’s piece, it strikes me that without the help of LinkedIn, I don’t immediately know a single person my age (37) that works for a traditional bank — let alone operates at an executive level.  This is a HUGE problem for the future when one considers the growing divide in public perceptions of banks with the actual business operations in place.  Look, I’m not throwing stones.  Heck, I would have loved to get into a management training program when I graduated from W&L in 1999.  Its just that almost every big bank that historically trained the “next generation” of bankers had shelved their programs.

While I don’t work directly for a financial institution, I am lucky to spend days like today finding inspiration from bank executives, board members and services providers.  Mostly, these are people who see the banking space as one that does need change, but does not deserve dismissal.  So as the Swissotel starts to fill with “traditional bankers,” I anticipate three big themes; namely, the recruitment, development and compensation of a leadership team and the workforce of the future.

In Terms of Recruitment…

If you subscribe to the idea that “tone from the top” is key for building a culture of success, take heed of our editor’s opinion.  Jack Milligan recently blogged on “The Bank Spot” that “the #1 best practice for a bank’s board of directors is to hire a high performance CEO.”  In his words:

Of all the things that boards do, this might be the most obvious – and yet it’s also the most important. A good CEO works closely with the board to develop a strategy that fits the bank’s market and has the potential to create a high level of profitability. They bring in good talent and do a good job of motivating and leading them. And they have the ability to execute the strategic plan and deliver what they said they will deliver. Having a high performance CEO doesn’t guarantee success, but I think it will be very hard to be a high performing bank without one.

In Terms of Development…

In my mind, having the right leader in place dramatically improves the attractiveness of an institution to potential employees.  Here, I look at what bankers like Ron Samuels and Kent Cleaver are doing in Nashville at Avenue Bank and Mike Fitzgerald at Bank of Georgetown in Washington, D.C.  Creating a culture where one is pushed to contribute to the bank’s growth seems obvious.  But I can tell you, putting people above products and financial profits isn’t always the easiest thing to do (right as it may be).  Developing talented executives takes both patience and confidence.  Indeed, one must be comfortable doing more than simply empowering others to be a team player.  Here, a passage from L. David Marquet’s (a retired Captain in the U.S. Navy) “Turn the Ship Around” bears quotation.  The premise: don’t empower, emancipate.

Emancipation is fundamentally different from empowerment.  With emancipation, we are recognizing the inherent genius, energy and creativity in all people, and allowing those talents to emerge.  We realize that we don’t have the power to give these talents to others, or ’empower’ them to use them, only the power to prevent them from coming out.

It might be easy in a highly regulated environment to see this logic and find excuses to it not applying to banking.  But if a submarine captain can transform one of the worst performing boats into one of the most combat-effective submarines, perhaps these words might be re-read.

In Terms of Compensation…

Not to throw a wet blanket on the last two points, but as our team found in a recent survey, bank boards recognize the need to tie compensation to the performance of the bank in the long term, yet they continue to struggle with how to get the pieces in place to attract and reward the best leaders to meet the institution’s strategic goals.  So I find it particularly interesting that less than half of the banks we surveyed tie CEO pay to the strategic plan or corporate goals, and more than one-quarter of respondents say that CEO compensation is not linked to the performance of the bank.

##

I’m checking back in tomorrow from the conference.  If you’re on Twitter and interested in the conversation, feel free to follow @BankDirector, @AlDominick and #BDComp14.

Its Aloha Friday

Cherry blossoms in DC
An example of organic growth in Chevy Chase D.C.

Earlier this week, as part of Bank Director’s annual Bank Chairman/CEO Peer Exchange, I was lucky enough to spend time with key leaders from 40+ community banks averaging nearly $900M in asset size. As I reflect on various growth-focused conversations I had with CEOs of NASDAQ-listed banks, I think I’ve found a common thread. Each person runs an institution profitable enough to make acquisitions — all while maintaining adequate capital ratios.  The interesting part (for me at least) concerns the strategies these executives set to build their brand and tactics put in place to “organically” grow their franchise.  As our industry continues to rally back from the past few years of pessimism, it really is fun to hear success stories.  So what follows are three thoughts from this week that builds on my time at the Four Seasons in Chicago.

  • While M&A offers immediate growth to the acquirer, I’m hearing that “stocking the bank for talent” is a real long-term challenge. While a bank’s CEO and Chairman must work even more closely to drive bottom line performance while enhancing shareholder value, I left Chicago convinced this team must more aggressively identify — and groom — the next generation of bank leadership. Without the big banks providing management training like they once did (an unintended pipeline of talent for community banks), its time to get creative. For example, while most at our event appreciate the need to get mobile, few community banks have the senior strategist on hand to do so right now. While that opens the door to outside advisors to support an institution, it does present longer term dangers as customers expect access to their banks sans branch or ATM use.
  • Keeping on the tech-to-grow theme, I read an interesting “big data,” bank-specific piece by McKinsey on my way home to D.C.  Personally, I’ve been interested in the various tools and tactics banks employ to analyze their massive amounts of data to detect/prevent fraud, devise customer loyalty plans and proactively approach consumers. This overview, complete with video, touch on these points and show how some are using big data and analytics to sharpen risk assessment and drive revenue.

Aloha Friday to all, especially my niece and sister-in-law on their birthdays.