Magazine article The Journal of Lending & Credit Risk Management

The Super-Community Bank Challenge

Magazine article The Journal of Lending & Credit Risk Management

The Super-Community Bank Challenge

Article excerpt

Many banks with less than $5 billion in assets are pursuing a marketing strategy of super-community banking, that is, practicing community banking on a large scale. Historically, community banking is a style of doing business that is almost totally dependent for its success on the CEO's personality and skills. The ideal community bank exceeds customer service expectations through local management and decision-making. Its board is expected to ensure community orientation, while senior management accessibility and employee continuity create a sense of warmth, comfort, and ease of doing business. Customers are made to feel that their relationship is valued - a feeling that is often reinforced by price cutting or flexibility. The focus on service quality is bolstered by reasonably competitive products, and profitability is ensured through tight risk management and tough cost containment. All of this is enforced or made to happen by the CEO.

While it can be said of every organization - large or small - that its tone or culture is set by the person at the top, it is particularly true of community banks. The question is whether this type of high control and centralized management is right for tomorrow's financial services environment. If super-community banking is a valid strategy, can tomorrow's super-community banks be substantially larger and still act small? Can they operate without a personality cult as the main management process, and if so, how?

CEO-Centrism

The answers lie in whether the CEO can institutionalize management for the larger organization while also preventing bureaucracy, process, and delegation from destroying the intimate community bank way of doing business. This is a substantial challenge because, as noted, in most thrift and commercial banks with less than $5 billion in assets, the CEO's style is still what drives the bank to success or failure.

In most small banks, the CEO is all things to all people: visionary, integrator, salesperson, risk manager, ethicist, energizer, supervisor, image maker, mentor, cheerleader, and financial officer. If the CEO has any strength of personality, his or her views become absolute, if only because he or she is the smartest person in the bank and the surrounding talent pool is limited. Some community banks do achieve true participative team management, but most do not.

Most CEOs assemble a group of soldiers who are good at executing orders. They may be a team and they may be consulted, but it is not decentralized, delegated management. The CEO may listen to them, but like the captain of a ship at sea, the CEO's word is final and his or her power is nearly absolute. Even boards of directors do not readily take on the CEO but instead grant him or her extraordinary confidence and leeway.

All this may sound hard or critical, because as Americans, we value democratic procedures and management. But it is not meant to be a harsh judgment, merely a statement of the situation's reality - even in cases in which the CEO honestly believes there is a team running the company.

Traditionally, community banks are highly centralized, small entities. This has been a formula for substantial success - at least until growth outstrips the CEO's capacity to manage details personally or decisively. Successful super-community banks will be run by CEOs who have:

* A can-do lending philosophy.

* An expansive vision of what the bank should be.

* An outgoing sales personality.

* Strong communication skills.

* Strong ethics.

Moreover, these CEOs must have a management style that:

* Makes every employee customer-centered, not bank-centered.

* Pays careful attention to costs, but does not pinch pennies.

* Inspires employees through example and admiration, not through quirky commands or fear.

* Is patient and teaching, not commandeering.

* Oversees or delegates, rather than supervises. …

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