Three factors have propelled a sudden interest in succession planning among community banks:

• First is the demographic skew toward an aging population. Bank presidents and CEOs, like the population in general, are getting older. It’s time to think about who the next generation of leaders will be.
• The second factor is the determination of many community banks to remain independent. A chain of unbroken leadership makes it more likely that a bank won’t have to be sold when the current leaders die, are incapacitated or leave for greener pastures.
• Third, as more community banks engage in strategic planning, the need to identify the principal players who will guide the bank into the future becomes more obvious. Indeed, in banks that have not previously engaged in succession planning, most such efforts grow out of the strategic planning process.

Nevertheless, the fact remains that the majority of community banks still do not have a formal succession plan. The banking regulators do not require institutions to establish formal succession plans, although the examiners look at how banks deploy their human capital and sometimes suggest that a succession plan would be prudent. But there is no statutory or regulatory requirement that provides the push that may be needed.

It is also a matter of mindset. Most bank presidents and CEOs are too busy steering the bank through choppy waters to worry about who will take over the helm when they leave. Indeed, a common characteristic of leaders is their desire to retain command. Their natural inclination is not to think about succession.

Prudent risk management principles, however, argue for a deliberate, ongoing succession planning process in every bank. But where do you begin?

A succession plan starts with the board of directors. The board, or a committee of the board, determines the core competencies of the CEO and identifies the behavioral traits and leadership skills they would like to see in the individual who leads the bank. In turn, the CEO focuses on senior positions that report directly to him or her. The information developed by the board is then used to create job descriptions or profiles of the upper-end management positions in the bank.

Behavioral assessment tools, such as Everything DiSC profile, may then be used to gauge the strengths and weaknesses of various individuals in the bank’s management organization. DiSC uses a series of questions to determine whether a given individual is dominant (“D”), influencing (“I”), steady (“S”) or conscientious (“C”).

Based on a person’s answers to the questions, he or she is identified within one or more of the categories, and the traits are matched with various management rungs and working environments. Objective tools like this one help eliminate the intuitive element in career tracking and replace it with quantitative information.

Once individuals are identified who fit the traits of a future leader, they should be interviewed to more fully explore their capabilities and ambitions. Inputs from the people they work with helps create a more complete picture. Finally, an education, training, compensation, and mentoring plan can be devised for those individuals named in the succession plan. Then, when the time comes, they will be ready.

Geri Forehand of Forehand Strategy Group is a certified professional consultant to management and a strategic partner with The Pacific Institute. He may be reached at gforehand@thepacificinstitute.com.