Academic journal article ABA Banking Journal

Do You Have the Right Board? Changing Tides of Corporate Governance, and an Increasing Emphasis on Risk Oversight, Have Directors and CEOs Rethinking Who Fills the Boardroom Chairs

Academic journal article ABA Banking Journal

Do You Have the Right Board? Changing Tides of Corporate Governance, and an Increasing Emphasis on Risk Oversight, Have Directors and CEOs Rethinking Who Fills the Boardroom Chairs

Article excerpt

Bob Rudy, chairman of Sports Specialists Ltd., a sporting goods marketing concern, joined the board of First United Bank and Trust Co. back in 1992. At the time he was the "kid" of the board, at 41.

Along the way, he says, the $1.3 billion-assets bank's board decided it had to do something about mandatory retirement. "So now we have a sundown clause calling for retirement at 70," says Rudy, "so that we are not populated by geezers." Of course, he reflects, he's now on his way towards becoming a geezer himself, but he says it's helpful to have opportunities to recruit fresh blood.

"The replacements we've brought aboard in the last five years," says Rudy, "have been much more targeted to serve the board with specific skills. Now you look for directors with skills in auditing and strategic planning, rather than in the old days when you picked someone because they were highly respected in the community."

Chairman and CEO William Grant points out that the NASDAQ-traded company, which serves western Maryland as well as portions of West Virginia, benefits from four financial experts on its board. The board-somewhat large by modern standards-consists of 16 directors, 14 being outsiders.

Rudy and Grant say that the bank's search for expertise took it to places besides finance. "We were looking also for people with marketing ability and a strategic planning bent," Grant says. Some of the recent recruits: a retired banking audit firm partner; a marketing and fulfillment expert who runs a huge warehouse concern as well as a call center; the former head of a Maryland CPA firm; and the former CEO of a $2.5 billion-assets bank holding company that was acquired.

First United didn't just trip over these prime boardroom candidates. It had to learn to find good ones. Five years ago, the bank ran three advisory boards tied to geographic markets. They weren't delivering any shareholder value, says Grant, so they were disbanded and replaced by a single advisory council zeroed in on marketing. Grant says this "farm system" produced all four of the directors referred to earlier.

First United's efforts are part of a growing trend to specialize or reassess board membership in other ways. Let's explore what other banks are doing, and then, how and why the industry is shifting.

Keeping up, keeping green

At $1.5 billion-assets Mercantile Bancorp, Inc., an 11-bank holding company based in Quincy, Ill., Michael Foster, retired top executive from an Archer Daniels Midland subsidiary, serves on the holding company board's governance, nominating, and audit committees, and says his institution will be hunting out new types of directors.

"Directors have an increased level of scrutiny, and they have to be more engaged and more involved," says Foster, 57. "We're going to approach the matter of future recruitment from several perspectives." Succession is a factor; three of the company's seven directors are over 65 and two more are nearing 60. Diversity of skills and strategic focus are two other key criteria that will be examined.

"As we decide further where the company is going, that will determine the direction that we head in for the board," says Foster.

Clearly, the recruitment effort will target candidates with the ability to help the existing directors shoulder more burden than ever. Mercantile went public about a year ago, and found life very different in the Sarbanes-Oxley world.

"Your insider directors can't do anything," says Dan Dugan, 65, chairman, president, and CEO of Mercantile Bancorp. "I used to sit on most committees, but as an insider I can't do that anymore." This has made service on the audit committee that much more challenging for outside directors.

Dugan is a veteran banker--CEO of his growing organization since 1980--and feels the drag of the times himself.

"The world's changing around me," says Dugan, "and I'm not sure that I'm keeping up. …

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