In the aftermath of the 2008 recession, the banking industry underwent dramatic changes at multiple levels. This has created new and significant challenges for the boards of directors serving this industry.
“Today’s boards are under more pressure than ever before,” said Christopher Gruseke, president and CEO at New Canaan-headquartered Bankwell. “It is management’s job to run the institution, but it is the board’s responsibility to make sure, on behalf of the shareholders, that management does its job. It’s not a small task to be bank director.”
“Banks are under increased scrutiny,” said Susan O’Donnell, partner at consultancy Meridian Compensation Partners in Newton, Massachusetts. “That aspect of the director’s role is understood and known. Responsibility evolved and increased over the years. In addition to the risk role, banks need to make sure their directors have skills and experience to evolve, say with cyber risk and tech and AI issues. Banking changes and so must leadership.”
Lloyd G. Gibson, dean of the Ernest C. Trefz School of Business at the University of Bridgeport, noted that today’s banking industry is not having problems attracting board members. “Some people are very comfortable to be recruited with the risks associated with directorship,” he said, noting that turnover on most boards is infrequent. “Once on the board, members tend to stay on, not unlike members of Congress.”
Typical of a long-serving board is First County Bank. “We have a very low board turnover,” stated Reyno A. Giallongo Jr., chairman and CEO of the Stamford-based bank. “We only added a couple board members in the last few years.”
Many banks prefer not to set limits for their board members’ presence. “We have no maximum age limit and we don’t say that you can only serve X-number of years,” said Joseph D. Roberto, chairman, CEO and president at PCSB Bank in Yorktown Heights, adding that shareholders who believed the board needs new faces can vote off the long-serving directors in favor of
“There are some benefits to stability in this industry,” O’Donnell said. “It takes a while to understand the business. You don’t see that when you come on for several years and then move off.”
However, Waterbury-headquartered Webster Bank sets a 10-year term limit for directors and a cut off for service at 75 years of age. “It’s not an age limit, it’s a director guideline,” explained James C. Smith, Webster Bank chairman, stating this policy enables the board to “refresh and replenish itself as it goes along.”
Once a director is on a board, the responsibilities quickly become considerable. “Our monthly board meetings last three hours, and you need at least three hours to prepare for each meeting,” said Giallongo. “A board member has to be a person with a flexible schedule who is either self-employed or has a boss who does not mind having them out of the office for seven-to-eight hours a month.”
And within the board structure, there are diverse committees where directors work on specific issues. “Our bank has committees within the board focused areas including loans, audits and investments,” said Roberto, noting that committee participation is based on the members’ skill-sets. “We need to make sure that we devise the committees based on the strength of board members.”
And thanks to digital technology, board members are finding themselves on call at all hours. Nicholas Coriano, founding partner and CEO at the Bridgeport-based investment relations consultancy Cervitude Inc., observed that today’s directors are continuously updated through emails and text messaging. “Management needs to make sure there is continuous communications with their board, otherwise everyone is not on the same page,” he said.
Nor are the communications between management and the board expected to be a one-way endeavor. “Ours is expected to be more hands on,” said Judith Corprew, executive vice president for compliance and risk at Stamford-based Patriot Bank. “Our regulators want to see a board that is very well involved. The board is important to management team — and you don’t get that kind of understanding with a high turnover.”
At First County Bank, Giallongo said that his board serves as the proverbial eyes and ears of the institution by reporting on products being used at other financial institutions that could potentially become part of the First County product line-up. “They also bring up possible support for a local nonprofit that we may or may not have known or recommend a new business or market for us to pursue,” he remarked.
Over the past several years, financial institutions have placed a greater emphasis on moving away from the stereotype of boards consisting solely of older white men and becoming more inclusive of the wider society. “We want to have a diverse board and we do have a diverse board,” said David Lucas, president and CEO at Stamford Federal Credit Union. “Diversity is very important — we talk about it all the time.”
“Customer bases are more diverse and a bank may want its board to reflect the customer base, though it may not need to be an exact match,” said the University of Bridgeport’s Lloyd G. Gibson.
Philip J. Lane, associate professor of economics at Fairfield University, pointed out that diversity at the board level should go beyond race and gender considerations to include a diverse mix of opinions. “I want to have people smarter than me and think different from me, and who can raise questions that I had not considered,” he stated. “I don’t want all the people to think like me. I want very different opinions, with ideas turning about that will help us think stronger.”
One area where bank board diversity has rarely touched is the inclusion of millennials among the board members. “Millennials don’t ever want to walk into a bank,” Lane said with a laugh, also pointing out that not many millennials have the business experience and connectivity that would benefit a board’s operations.
But that doesn’t mean that millennials will not get their shot at bank board membership. “Most banks have advisory boards,” Lane said, referring to a separate function that often serves as a training ground for future board members. “This way, management gets to know their skill sets and weaknesses so in a few years they can get ready for election to the board.”