Academic journal article ABA Banking Journal

Sound Succession Planning Begins with a Fresh Definition

Academic journal article ABA Banking Journal

Sound Succession Planning Begins with a Fresh Definition

Article excerpt

For many community bankers, succession planning isn't something they've really done in a planning context at all--though they may think they've done it.

All too often, the heir apparent has been known for years, but nothing concrete has been done to prepare that person for stepping into the CEO's shoes. The heir's "grooming" may be more wishful thinking than training.

However, often the foundation for succession is never truly poured, because the CEO thinks he or she will live forever, and discounts the risk that death or disability will come much sooner than they may think.

And even without death or disability, there is the inevitability of retirement, out of the wish to do otherwise or the acknowledgment that the time has come to pass the baton. Community banking is clearing coming to a outer edge of a major changing of the guard. In the 2004 edition of the ABA/ABA Banking Journal Community Bank Competitiveness Survey, just over half of the CEOs then running community banks were 55 or older, and 75% were 50 or older.

Unsuccessful succession

To consultant Meg Vinton, there are two things wrong with this so-called approach to succession planning.

First, it is episodic. Vinton, president and CEO of Emersus Consulting, Inc., Salt Lake City, sees succession planning as an ongoing process, not a do-it-and-you're-done affair.

She told bankers at the ABA conference that planning involves more than the corner suite, and requires the systematic identification, assessment, and development of leadership in the organization, in order to enhance overall bank performance. Too often, the heir apparent has been selected without a hard look at his or her qualifications.

Second, lax succession planning is dangerous. CEO turnover, especially, can easily become a political powder keg, due to potential public, employee, and shareholder reaction when it is bobbled. Even small community banks can fall victim to aggressive acquirors.

Lack of planning can put a bank into the dangerous position of making succession choices at the eleventh hour, or, worse, becoming vulnerable because succession wasn't addressed at all, or the successor wasn't adequately prepared.

In spite of risks, Vinton said, boards and CEOs give succession planning short shrift. In the 2004 survey, more than a third of the sample did not have a succession program in place.

Vinton said several practices distinguish top performers from the herd. One is that they are continually on the lookout for talented executives, while the herd is driven solely by vacancies. Another is that successful succession planners tend to tie their planning into the institution's strategic planning.

The implication of this, Vinton said, is that the herd solely looks for candidates who fit into the bank's existing culture--the status quo means of looking at markets. If that's where they want to be, that's fine; but not so if they want the bank to change its ways.

By contrast, successful succession planners tend to search for candidates based on where management and the board wish to take the bank. Thus, they hire people who can change the culture, not just maintainers.

Making succession work

Vinton presented six steps to assist in succession planning:

1 Form a succession committee that will design a process to find a candidate or candidates who fit the bank's future direction.

This committee must take the step of analyzing the job or jobs it will be filling to determine what abilities are needed to fulfill its duties. Where a leadership position is involved, the group must determine what type of leader is required to push the bank and its teams in the desired direction.

Vinton said that job analysis is a critical part of the succession challenge. This is because members of a bank's board frequently have very different notions, from one to another, of what it is the CEO does all day. …

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