Posted by Jeff Gerrish in Jeff Gerrish on Community Banking
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Does your bank's Board of Directors attempt to micromanage the operation of the organization?
As they know, or should know, management of the organization is not their job. Oversight is.
Frankly, although some directors who are prone to micromanagement profess to be unsure where "to draw the line," it is really not that hard.
Job #1: The CEO
The Board's job is, generally, to select the Chief Executive Officer, or perhaps have input on the top couple of officers of the bank, and then let them manage the institution.
As I have told dozens of boards over the years, if you feel like you have to micromanage your Chief Executive Officer, then find another Chief Executive Officer.
The reason you are micromanaging is that you do not have confidence in the CEO you have in place. Find a CEO that you do have confidence in, and step back and direct the organization, do not micromanage it.
What is micromanagement?
As noted, many directors profess not to know when they are micromanaging. To them, defining micromanagement is similar to the Supreme Court's difficulties with pornography. They cannot define it, but they know it when they see it.
That is really not good enough.
Some of the worst examples of micromanagement I have seen include the attempt by the Board to evaluate all senior-level employees directly; the decision by the Board to set compensation for every employee in the bank (that is right, right down to the teller line); and the second-guessing by the Board of the CEO's decisions and undercutting his authority with senior and other employees. And the list goes on.
In the perfect world (where, unfortunately, none of us live), the Board would select management.
Management would run the institution.
The Board would provide oversight for that management.
The Board would evaluate management.
And, the Board would set risk tolerances for the organization as a whole and receive reports and monitor enterprise risk issues.
Is what's going on really micromanagement?
Frankly, and this is particularly directed at those outside directors who may be reading this, do you really feel you are qualified to manage a community bank?
Let's say you currently own a hardware store.
Would you bring somebody in to manage your hardware store that knew nothing about that business?
If you are a medical doctor, would you allow a bank officer to perform surgery on one of your patients?
Of course not.
Then, why would you think that as a hardware store owner or a doctor, you can manage and run a community bank? This is akin to looking up your diagnosis of what you think you have when you go to the doctor and telling him or her how to diagnose you.
Stick to what you know, hire the best management you can (as your best insurance against liability), do not begrudge a well-paid management team, and let them run with it.
If they make mistakes, which they will, then require reporting as to how those mistakes have been corrected and how systems have been put in place so those mistakes cannot be repeated. If you feel you must micromanage your management, find a management you have confidence in.
The general rule should be "noses in and fingers out" by the board members.
About Jeff Gerrish
Jeff Gerrish is chairman of the board of Gerrish McCreary Smith Consultants, LLC, and a member of the Memphis-based law firm of Gerrish McCreary Smith, PC, Attorneys. He is a frequent contributor to ABA Banking Journal and ABA Bank Directors Briefing, and frequently speaks at ABA events and telephone briefings.
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