We recently heard of a regulatory team that during a safety and soundness exam played “Management Bingo.” They took senior executive’s business cards, put them in a bowl and picked one. The CEO (if he was not picked) had to quickly tell or show an action plan for the succession of the executive that was chosen. If the CEO were chosen (and they put two cards in if the CEO was also President), then the Board would have to show a plan.
The exercise, while odd, was instructive to demonstrate if the bank in question had thought through a plan for its executives and board members. A common refrain among banks is that succession planning is a struggle and often gets relegated to an afterthought.
Many of the CEOs we talk with these days express concern about the lack of bench strength in their companies. They are worried that they lack sufficient “ready now” candidates to replace planned and unplanned losses of key leaders. For every position without identified talent, the future continuity and performance of the bank are at risk. When we do management surveys for other banks, most board members and senior managers give their institution a “5” on a scale to one to ten.
If you are among the banks that think they can improve when it comes to succession planning, here are five tips that best-in-breed banks utilize that might help you better hone your succession process.
It Is Not About Planning, But Development –The 70/20/10 Plan
For starters, instead of “Succession Planning” banks should consider naming the process “Succession Development.” “Planning” often has a legacy connotation of just producing a list of candidates or checklist of where to go find candidates. In reality, the most important thing in succession development is the hiring, training, cross-training and mentoring of candidates that are on track to assume a future key position.
A quality succession plan starts with a quality development program. Include the development in part of key employee’s reviews, making sure that they also share the burden of educating themselves on key areas such as leadership, governance, financial management, etc. and your whole team will improve.
A program that works well for many banks is the 70/20/10 development program. Here, 70% of an employee’s training comes from on the job experience - often with a formalized rotation plan. In addition to experience, a bank might expect 20% of the development to come in the form of a formalized mentoring program and 10% in outside education. In this manner, the candidate is sure to not only get immersed in the practical realities of the duties and culture but also develops outside contacts and new ideas to bring back to the bank.
Get The Process Right, Then Measure and Manage
Next, best practice tip we learned is to get your succession development process right and then worry about results. Make sure you have a clear development plan that provides the quality candidates you want to include the diversity that is needed.
Like everything else in banking, if you can’t measure it, you can’t improve it. More to the point, if you don’t reward it, you might not get the results as fast as you want. If leadership development is not enough of a priority for the bank to have set goals and tracked objectives, it will be a struggle to make the succession planning process work.
The key, however, is to make sure you are incenting the right behavior within the process. For example, if your plan calls for developing a diverse senior management team, then you would create metrics to make sure you bring in a diverse set of mid-level managers that can fill those top spots should they become available.
A set of metrics may look like making sure your management and human capital team conduct a certain number of recruiting events, has identified some potential candidates at other banks, has a certain number of mid-managers in a training program and has a certain minimum number of minority candidates that must be interviewed for each position.
Whatever the metrics are, think through the process first and then figure out what benchmarks are needed to support the process. Instead of just focusing for succession planning at the top positions, think further down the organizational chart to establish your metrics of success.
It is ironic that most banks say human capital is their most valuable asset yet they leave that task largely to the human resources department. Like risk management, the succession planning process needs to be clear, supported by a plan and metrics and is everyone’s responsibility.
Incorporate The Skills You Will Need In The Future
As you set the metrics for mid-level positions, be sure to start recruiting for the skills you need in the future. Banks should be looking for more managers with programming, data, digital banking, innovation, customer experience, and change management skills.
Keep It Real
We have all seen quality candidates perpetually passed over for one reason or another. The Board or CEO owes an almost-qualified candidate a realistic assessment of prospects even at the risk of losing that candidate. Maybe that candidate will be happy staying without the potential of the top spot or maybe they leave. Either way, if you are going to value human capital truly, then everyone deserves the opportunity to find their highest and best use. While succession development programs are not promises, poor communication can lead to frustration and morale problems for all sides.
Get a Farm Team
Like major sports utilizes farm teams for player development, so should banks. Having internal or external “advisory boards,” open positions on committees for young up-in-comers or strategic alliances with local MBA programs or the like are all ideas to grab and test both internal and external future candidates.
One bank we know has a rotating “ombudsman” position at the board level to give qualified middle managers visibility and training. Another has a “shadow board” full of executives that get to make key decisions that the board gets to make. This not only gives the executives valuable training but gives the executive an appreciation for the types of decisions that need to get made and gives the board more information to make the binding decisions.
A bank’s culture is one of the most important competitive barriers to entry that it has. The best way to reduce the impact of lost leadership is through a strong succession development program that identifies and fosters the next generation of leaders through mentoring, training and education. The five proven suggestions above can help shift your bank’s focus from planning to development — and, in the process, help ensure that your bank’s legacy is formalized into a process that is deep in its DNA. This will make sure you win the next round of management bingo.
Submitted by Chris Nichols on November 07, 2018