(A PDF version will all of the Best Practices for Bank Boards has been added to our White Papers.)

I frequently speak to groups of bank CEOs and directors at state and national conferences. One of my favorite topics is “best practices for bank boards.” The audience reaction always confirms my belief that bank boards of directors all face the same fundamental challenges, regardless of the size or geographic location of the bank and the shareholder base which they serve. Boards of directors are groups of people, and every group of people develops its own set of shared expectations and priorities. It can be helpful for a bank board to occasionally take the time to reflect on its approach to self governance and decision making, especially when this is done by examining the experience and success of other boards of directors in the industry.

This is the fourth and final article in a series on best practices for bank boards. (Parts 1, 2 and 3 can be found here, here and here, respectively.)   Over the past several decades my partners and I have worked with hundreds of bank boards. Regardless of the size of the entity we have noticed a number of common characteristics and practices of the most effective boards of directors. This series of articles describes ten of those best practices. The first three articles in the series focused on the best practices of selecting good board members, adopting a meaningful agenda, providing the board with the most useful information, encouraging board participation, making the committees work, meeting in executive session, making use of a nominating committee and director assessments, and participating in the examination process.  In this article I will discuss the last two best practices – developing real board leadership and making use of special purpose board meetings.

Best Practice No. 9 – Develop Real Board Leadership

Every board should periodically evaluate whether it has effective leadership. Just as no director has a “right” to sit on a board, which gives rise to the need for director assessments and evaluations, leadership positions are also not tenured. To be effective a leader must be engaged, prepared for meetings, willing to take on difficult issues, and, in my view, willing to lead by example. Burn-out and growing complacency can be expected in all leadership roles. The ability and willingness to recognize and address these issues when they arise, and not delay action over time, is in the best interests of a board and the bank and shareholder base which it serves.

If the CEO is also chairman of the board, is that arrangement working for the board? A test for whether such an arrangement is working is for the non-management independent directors to consider whether the board is truly making its own decisions. If not, then reconsider the existing leadership structure and, at a minimum, appoint a Lead Director to bring more balance to the board’s decision making process and better ensure a flow of important information to the board.

Also, consider rotating committee leadership on a regular basis, particularly among the most important committees such as audit, ALCO and loan committee. Fresh leadership perspective can be an effective risk management tool.

Best Practice No. 10 – Make use of Special Purpose Board Meetings

Have at least two meetings a year dedicated to focusing on the bank’s strategy and why it works (or should work) and its strengths and challenges. Include in one such meeting a discussion of “Buy, Sell or Hold,” since management needs to know the direction of the board on this fundamental issue in order to effectively run the bank and position it for the future.

Consider scheduling a special meeting to address any questions or concerns that directors may have but won’t express in a regular board meeting. For example, in this time of increased regulatory burden and more aggressive regulatory enforcement, many directors are interested in knowing what their personal liability exposure is and what protections exist, whether they ask or not. Directors are also very interested these days in hearing a more complete description of the impact of Dodd-Frank and the scope of authority and impact of the CFPB.

Finally, consider setting aside most or all of a board meeting to have the directors hear directly from the key senior staff of the bank. This can be helpful in the directors gaining confidence in the bank’s overall management team, and it can also be a source of insight into the strength of the institution. Good banking is fundamentally about good people, and in-person communication is the best way for the board to take the measure of the bank’s people.

I appreciate your time in reading this series of articles, and I wish you and your board great success.

This is the fourth and final article in a series by Jim McAlpin on Best Practices for Bank Boards.  It was originally published on BankDirector.com.