Over the past several years I have attended dozens of meetings of boards of directors of banks in troubled condition. The vast majority of these boards were well functioning and had dedicated and hard working directors. Geographic location has been the predominant factor in determining winners and losers among banks in this challenging economy. However, there have been several situations in which it appeared to me that the composition of a board, and the interpersonal dynamics among its members, had magnified the impact of the economic downturn. A bank board is like any other working group in that the direction and decisions of a board can be heavily influenced by members who dominate the conversation, or by members who actively discourage discussion or dissent.
This is the second in a series of articles on best practices for bank boards. (Part 1 can be found here.) During the past several decades, my partners and I have worked with hundreds of bank boards, for institutions ranging in size from under $100 million in assets to well over $10 billion in assets. 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. In the first article in the series, I focused on two fundamental best practices—selecting good board members and adopting a meaningful agenda for the board meetings. In this article I will discuss three additional best practices—providing the board with meaningful information, encouraging board member participation and making the committees work.
Best Practice No. 3 – Provide the Board with Information, Not Data
Change the monthly financial report to something meaningful. Most boards need to know only about 20 to 30 key data points and ratios and how those numbers compare to budget, peer banks and prior year results to have a good handle on the condition of the bank. By contrast, the typical financial report at a bank board meeting is encompassed in a 25 to 30 page document that blurs into a very detailed, and often meaningless, recitation of data that is difficult to follow.
Providing meaningful information in an understandable format is essential for the board members to identify and manage risk. Less is often more in effective board presentations.