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Treasury announced that it had appointed two directors to Ally Financial's board of directors, noting that the firm still owes money it borrowed from the Troubled Asset Relief Program.
August 15 -
Dr. Daniel Vasella, chairman of multinational pharmaceutical company Novartis, has been named to the board of directors at American Express (AXP).
July 20 -
After nearly 10 months of pressure from its largest shareholder, data and technology vendor CoreLogic will implement a series of changes to its board of directors, including the addition of three independent directors and the announced resignation of board chairman D. Van Skilling.
June 12 -
The facts in the JPMorgan Chase (JPM) "London Whale" case are still being sorted out, but that hasn't stopped analysts — myself included — from pondering its policy impact. Much of what the bank's CEO, Jamie Dimon, calls punditry has focused on whether the $2 billion-plus loss proves points on the Volcker Rule, TBTF, CEO compensation and, perhaps, nicknames.
May 21
"Good governance depends on the totality of the system, not just its individual parts." – William G. Bowen, "The Board Book"
What is the difference between a good bank and a great bank? The answer isn’t the CEO, the location or the state of the economy; it is the group of visionary leaders and strategic thinkers that make up the board of directors.
The board of directors must anticipate the unexpected and quickly execute strategic alternatives when a problem arises, regardless of its severity. Failure to do so could result in their financial institution becoming one of the 425 banks that failed in the last three-and-a-half years or joining the 800 or so banks on the Federal Deposit Insurance Corp.'s problem bank list. Neither option should be acceptable.
Stephen Davis, executive director of Yale University's Millstein Center for Corporate Governance said
Directing a bank based on yesterday's paradigms and yesterday's operating standards will not allow the bank to achieve the level of success and financial performance within its potential. Not to mention the investors and regulators expect or, in fact, require progress reflected in the form of increased shareholder value. The following are four key actions each board of directors should focus on.
Allow no substitute for a strategic plan. Progressive leadership must have a well-defined vision for the future. This vision should be expressed in the form of a multi-year strategic plan that includes loan, investments and deposit goals. Further, plans must reflect average maturity and yield on earning assets as well as average maturity and cost of deposits. The plan must also include a month by month income and expense budget. Because of ongoing volatility and economic disruption, the board must always be willing to take a fresh look at their current strategy and make adjustments when required.
Have a written job description for the director. The job description defines the director's specific functions and leadership requirements mandatory to support the bank's mission. The job description should include at a minimum: individual/collective responsibilities, term of service, director selection process, required time commitment and continuing educational requirements.
Separate the CEO from the board. Outside directors add value and credibility. Building a board with inside directors is frequently thought to be the path to achieving a smooth functioning team and providing support for the CEO. However, this philosophy can develop into a herd mentality, resulting in a severe breakdown in board oversight. It is wise to stack the board with a majority of outside independent directors not beholden to the CEO. When the CEO also serves as the chairman of the board, management is answerable to a board led by management. How can that work efficiently? Splitting the roles of chairman and CEO will have a profound impact on board dynamics, stimulate more open discussion and eliminate an overtly friendly environment, which never ends well.
Conduct annual board evaluations to add tensile strength to the bank. Like any other division or department, the board should undergo a periodic evaluation. Board members or more ideally an outside consultant should conduct a periodic review. This evaluation should include a review of the overall performance of the board as compared to a defined set of parameters as well as an individual assessment of each director's performance. Further, each standing committee should also be evaluated on its performance as required by each committee charter. The results of these evaluations should be abridged and presented to the board.
In time, a weak board allows a good bank to become disoriented, make strategic mistakes and lose sight of its mission and objectives. If not corrected, these financial institutions could be forced to sell at a multiple far below its real potential, or in extreme cases, simply fail.
Garry Barnes is an author, banking consultant and lecturer who has formally served as President and CEO of banks in Arizona, California and Utah. He can be reached at
