Don't discount the idea from the director or banker across the table
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Last week I had the opportunity to attend the American Bankers Association National Conference for Community Bankers. A good gathering of several hundred community bankers from across the nation, as well as vendors and others involved in the industry. My purpose in attending, other than connecting with numerous clients and friends, was to facilitate an outside directors' peer discussion. I facilitated the discussion with the assistance of a veteran nonexecutive chairman from a New England bank, Robert Todd of Bridgewater Savings, Raynham, Mass. [A transcript of the peer session will be made available in coming weeks. Watch this blog for details on how to obtain it, free of charge.]
The outside directors' group consisted of approximately 65 outside directors of banks from small size to multi-billion dollars from all sectors of the country. Since the meeting was intended to be a "discussion forum," I asked the group what they wanted to talk about. They proceeded to provide a list of topics for discussion which would have lasted a couple of days, not the hour and a half allotted. (So much for anyone who thinks boards aren't "engaged.")
What was truly on the directors' minds?
How about director succession, getting incompetent or elderly directors off the board, management succession, evaluating the CEO, director-CEO relations, director's duties in connection with mergers and acquisitions, strategic planning, lending, directors' liability, D&O insurance, and dealing with the regulators (one director even admitted that her bank was under an "Order").
Best practices, from the field
The discussion was interesting and wide-ranging, with the directors sharing various practices at their banks. At the conclusion of the discussion, one director, who had remained quiet during the discussion, came up to me and indicated that although the discussion was interesting, he was much more interested in "best practices." I informed him that I thought that what we had had was a discussion of "best practices." Many of the directors shared what worked at their banks, i.e., something that could evolve into a best practice, and what did not work at their banks, i.e. something that we could discard when we are talking about best practices.
A good part of the discussion for the entire group involved what to do with elderly directors as they begin to lose their ability to participate in the governance in the bank. Many of the banks present had a mandatory retirement age. Many also used the creation of a Director Emeritus position as a way to move these "senior" directors off the board. (These have been the topics of several recent blogs.)
This one director who wanted to discuss best practices indicated that his bank not only had a mandatory retirement age, but it also had created a director emeritus position. The bank had so many mandatory retirements and director emeriti that the group of emeriti was almost as large as the full board.
He asked me what I thought a "best practice" should be. The best practice with respect to elderly or incompetent (they are not the same) directors in the perfect world (where none of us reside) would simply be for the board to remove the director from the board. The best practice would be to not create an emeritus position that would allow the director to linger on long after he or she has lost the ability to contribute to the governance of the organization.
Unfortunately, since none of us live in the perfect world, many of the banks, even present in that group, took the "chicken way out" with respect to getting older directors off the board by using mandatory retirement, and then compounded it by creating the director emeritus slot. Keep in mind, it is easy for me to state the best practice ; it is also enormously difficult to do the best practice, i.e., no mandatory retirement, no Emeritus, in community banks because of the politics, reputation risk, perception in the community, and the like.
Unfortunately, best practices are not always practical alternatives.
A reading from the room
In general, at the ABA conference meeting, I did note that the mood of the industry was significantly upbeat. The regulators were also represented not only on the program but in the Exhibit Hall. I had a lengthy discussion with a representative from the Comptroller's Office. The OCC is in the process of absorbing the Office of Thrift Supervision as required by Dodd-Frank. The combination of the OCC and the OTS appears to be going well, but I suggested to the OCC representative that perhaps the OTS employees would "seek to take back their agency." I told him I had visions of OTS employees gathering for a protest march in front of OCC headquarters. (I don't think he was amused.) We will see what happens.
About the Author
Gerrish formerly served as Regional Counsel for the Memphis Regional Office of the FDIC, with responsibility for all legal matters, including cease-and-desist and other enforcement actions. Before coming to Memphis, Gerrish was with the FDIC Liquidation Division in Washington, D.C. where he had nationwide responsibility for litigation against directors of failed banks.
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Gerrish can be reached at This e-mail address is being protected from spam bots, you need JavaScript enabled to view it , and the firm’s website, www.gerrish.com. - You can get word about these columns the week they are posted by subscribing to ABA Banking Journal Report e-letter. It's free and takes only a minute to sign up for Click here.
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