As the Baby Boom generation enters retirement en masse and the banking industry faces unprecedented challenges on the regulatory and technology fronts, among others, succession planning is more important than ever.
That’s for a number of reasons, not least of which is sheer demographics. About 10,000 Baby Boomers turn 65 every day, though of course not every single one of them will retire the minute they hit that magic number.
Furthermore, Massachusetts is home to a high number of community banks, many of them mutual, and many of those community bank CEOs got their foot in the door via the in-house training programs of yesteryear. But as the story goes, those training programs have all but vanished, and those CEOs are largely nearing retirement age.
Those factors, coupled with the ongoing recovery from the Great Recession and the stock market’s relative good shape, are leading many bank and credit union CEOs to consider retirement over the next several years, said Richard “Chip” Goode Jr., managing partner of the executive search firm Kiradjieff & Goode.
“There is no question today there are greater regulatory pressures, technology’s become a big investment issue for a lot of organizations, so I think a lot of people are saying, ‘I’ve had a great run, but it’s time now for me to retire,’” he said.
Even setting aside the graying of both America and the banking industry, succession planning is top of mind because it’s just good business sense. Goode said that boards are more aware now than ever of their fiduciary duties as they concern good corporate governance, and compensation advisor Arthur Warren added that regulators have increasingly turned up their focus on succession planning, as well.
Goode and his firm might get involved at any stage of the succession planning process, he said. Sometimes, a financial institution may have one or two internal candidates they’re considering for the position, but keeping in mind their fiduciary responsibilities, the board may want to compare that person with other potential candidates – just to make sure they get the best possible candidate for the job.
“It varies. It’s not a perfect science. We’ve seen a number of situations where they alternately choose the internal candidate, and then there’s a number of other situations where they decide to go with the external candidate,” he said. “Each one is different.”
Consensus seems to be that many banks face a dearth of talent as they look to replace outgoing executives in the years ahead and they may have to think a little bit differently about what their next CEO should look like.
William M. Parent, president and CEO of Blue Hills Bank, estimated that his own background and skill set, largely in finance and private equity, might have been rejected by 90 percent of banks around the time that he was recruited to lead what was then Hyde Park Savings Bank.
“I had no prior CEO experience; I was not a commercial lender. I had a finance background, I had a private equity background,” he said. “What I was fortunate to be able to do was explain to the board that the breadth of those experiences gave me the capability to be a successful CEO. At least it put me in the same position as anybody else.”
It can be difficult, if not impossible, for a community bank to develop its own in-house training program, but Parent thinks that community banks may also have an edge in luring talent away from big banks with a more attractive workplace dynamic.
“Now I think there is an opportunity, and there may be a requirement, to look at a broader grouping of backgrounds that people have,” he said. “But I do think there are still very capable folks in some of the larger institutions that will become more interested in senior positions in the community bank space.”
The work doesn’t stop once a successor is chosen, either. Goode said that if a client of his winds up choosing an external candidate, his firm uses a proprietary on-boarding program to work with the board and the retiring CEO to help ensure a smooth transition. And Warren said that such transitions often require special compensation strategies to incentivize the outgoing CEO to stay with the organization through the transition and also retain that CEO’s direct reports.
“I’m optimistic about the future of the industry overall,” Goode said. “There still is a very high quality group of well qualified, competent people in financial services organizations that I’m very confidence in the next generation and the leadership transition.”
