Lack of Succession Planning Threatens Banking Industry

By the year 2016, it’s estimated that 60 percent of today’s CEOs in the banking industry will be retired -“ and there aren’t enough candidates in the leadership pipeline to handle the demand. At the same time, the industry is taking a hard look at profitability and performance. The spotlight is on developing new products and revenue sources, and organizations will require carefully crafted business strategies to address the effects of regulatory reform, technology change and market movements. The competitive advantage in the years ahead will go to those banking institutions that have the foresight to plan for their future talent needs to meet these critical challenges.

To avert a crisis in leadership, management must seriously consider their current mission plans -“ one year out, five years out, ten years out -“ and determine whether they have the people in place to achieve those goals and objectives. The first step toward developing an effective succession plan is to review and evaluate the current situation, focusing on an analysis of the strengths and weaknesses of the existing talent pool. A formal evaluation process should reveal areas in the organization that require bolstering.

Next it’s necessary to develop and implement an action plan. Required elements in the process include:

  • Ensuring a proper training and development experience for current employees.
  • Knowing the A and B players on the organizational chart. This should include a formal evaluation process that is done at least once/year.
  • Initiating a mentoring system.
  • Cross-training employees.
  • Nurturing the unique culture of the organization. This would also include maintaining the organization’s brand identity.
  • Putting into place a recruiting and hiring plan if talent is not available internally.
  • Developing effective retention strategies. These could include incentive/bonus plans as well as stock/equity plans.
  • Communicating the plan from top down to all levels.

Once developed, the action plan is not static. Success and failures must be monitored and assessed, and revisions made where needed. It is always important to look back at the past twelve months and fine-tune the plan, factoring in changes in the organizational structure and executing contingency plans for unexpected developments. That’s especially critical in today’s difficult economic times. Banks are facing tremendous challenges and unfortunately some key players aren’t talented enough to handle these problems. It can require a different skill set to cope with some of the tremendous pressures being put on the executive teams in this day and age.

Some banks are heeding the warning signs and preparing for their future leadership needs. A $250 million Midwest community bank, for example, presents an example of good succession planning. Because the CEO was planning to retire at the end of 2008, board-level discussion of his replacement started during the last quarter of 2007. Tapping into internal talent was a distinct possibility, so the first step was an assessment of the internal talent versus external candidates in the marketplace. The bank had done a good job of evaluating the players in the organization and had a formal review/evaluation process. They started this process by defining the search profile. Next it was determined that external candidates were probably going to be more qualified and better suited; however they wanted one internal candidate (an EVP) to be considered in the search process along with external candidates. A search was then conducted. The result is that the new CEO has been hired and on board before his successor retires, ensuring a seamless transition with no loss of continuity.

The benefits of thoughtful succession planning are many, and they go beyond finding replacements for departing management. It reduces the likelihood of crisis if a key employee leaves and keeps the mission of the bank on track. Perhaps just as importantly, it forces accountability and talent assessment at least once or twice a year.

Brian Rhonemus is the managing director of the Financial Services Practice at Angott Search Group and he has been servicing the banking and recruiting industries for more than 25 years. Angott Search Group has achieved distinction as one of the nation’s largest and most successful search firms. For more information, contact Rhonemus at (248) 650-4800 or via email at [email protected].

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Richard Blanchard
Rick is the Managing Editor of Corp! magazine. He has worked in reporting and editing roles at the Port Huron Times Herald, Lansing State Journal and The Detroit News, where he was most recently assistant business editor. A native of Michigan, Richard also worked in Washington state as a reporter, photographer and editor at the Anacortes American. He received a bachelor of arts from the University of Michigan and a master’s in accountancy from the University of Phoenix.