Don’t Roll the Dice and Let Chance Decide the Future of Your Bank

The banking industry’s future is difficult to predict. Fintech, compliance, technology, branch strategy… The list of potential challenges and opportunities seems endless. Who will lead your bank through this shifting landscape of tomorrow?

Succession planning must be more than a list of names. It requires detailed planning and follow-through. “Our belief is that the purpose of long-term succession planning is to create an ideal plan for the future that takes into account all the things that are important to the bank, such as culture, philosophy, and goals,” said Executive Benefits Network (EBN) Managing Partner and Founder R. David Fritz, Jr. “The ultimate goal is to have a smooth and strong transition.” Integrated talent management and leadership development plans are essential for senior management to position key successors for success in their future roles—and to ensure they stay with the bank long enough to fill those shoes.

Common Challenges

Wisconsin banks—and the industry in general—face several challenges when it comes to successful succession planning. Foremost is the lack of young, incoming bankers. “The key challenge that banks face today is finding qualified, driven individuals that fit with the job and with the culture of the bank,” said Kevin Piette, COO at State Bank of Cross Plains and chair-elect of the 2017-2018 WBA BOLT Section Board. “You’re looking for a long-term fit so you can grow that talent.” According to Chief Operating Officer and Market President at Coulee Bank, La Crosse Mike Gargaro, current BOLT Chair, part of the solution to this problem is to do a better job of telling the story of community banking. “We need to get the stories of what community banking is about and what the jobs are like to our potential hires,” he said. “We need to be seen in the communities we serve.” This is especially important in rural parts of the state, where the pool of potential employees is much smaller. “It’s a challenge for community banks, especially in rural areas, to attract talent, but by continually advocating we can show how great our industry is,” said Piette.

Another challenge is the population differential in today’s workforce. “There’s a leadership gap, where you have Baby Boomers leaving the workforce and Millennials entering it,” explained AmyK Hutchens, founder of AmyK International, Inc. “Millennials are the fastest-promoted generation post-Industrial Revolution.” Not only are Millennials filling large shoes because there simply are not enough Gen X bankers to do so, but senior management often are unsure of how to manage these different generations in a way that encourages growth and retention.

Finally, effective succession and development planning must take place in tandem with exit strategy planning. “If the current CEO is not simultaneously preparing for his or her exit, then all the great planning and development you’ve done will get pushed down the line,” said Fritz. “The board needs to keep the CEO honest with the timeline that is agreed-upon.”

Identifying Candidates

The first step in integrating a development plan into the succession plan is to determine which key roles are likely to experience turnover in the near future (typically 3-5 years). Next, senior management must identify the individuals within the bank who may be tapped for a leadership role in the future. Note: this is different from having a “backup plan” in case of an emergency departure, though that is a useful exercise. “Know what would happen if one of your key people left suddenly,” Fritz advised. “That’s your immediate short-term succession plan. We call it the ‘lifeboat drill,’ and it’s different than the long-term plan.” A successful long-term plan requires identifying and developing key individuals.

The most fundamental quality to look for in future leaders is drive. “If you ask someone if they’re interested in leadership and they say ‘yes,’ you have to support their growth and possible advancement,” said Hutchens. “Give everyone who raises their hand to lead an opportunity to do so.” According to Piette, that “can-do attitude” is more important than trainable skills. “Most of the functional attributes you can train for, but it’s the proactivity and ability to communicate effectively that is the foundation of leadership,” he said. In some cases, proactive employees are also seen as risk-takers, says Gargaro. “Watch for someone who’s willing to step outside their norm and look at problems differently to try to come up with results that work in favor of the bank and the bank’s customers,” he advised.

An effective development plan also differentiates between necessary personality traits and trainable skills. “Good leadership is both innate and learned,” said Piette. “You need to have an inquisitive and positive personality which provides the foundation for the desire to learn and develop your leadership.” Some individuals will have a natural ability to lead, but that doesn’t mean employees who don’t exhibit that trait should not be considered for development. “There is a little bit of truth to the ‘born leader’ idea,” said Gargaro. “On the other hand, attending leadership training can bring out abilities within yourself that hadn’t been exposed previously.”

Finally, the development plan should identify the bank’s appetite for hiring outsiders versus promoting from within. Statistically, home-grown talent leads to better results. “One thing we find is that companies that promote from within often outperform those that recruit outsiders,” said Fritz. “The more you can bring people in and develop them, the better the outcome is.” In addition, a strategy centered around growing from within is more feasible for smaller and/or rural institutions. “Smaller community banks don’t always have the same opportunities,” said Gargaro. “When you can promote from within, strive to do that. They’re already in your culture and understand what your bank is about.”

However, banks should not adhere to a “grow from within” strategy if the talent just isn’t there. Sometimes recruiting outside talent is the best path forward. “I’m a firm believer that you look for the right person for a particular job,” said Piette. “Hiring from the outside can be an important opportunity for community banks because you bring in the experience and talent necessary to run your bank in the 21st century. You’re growing the people you have internally while infusing the bank with new talent to make the entire organization better.”

Development Plan Essentials

Every bank succession plan should incorporate a leadership development strategy, and that strategy should meet three essential criteria: strategic alignment, formalization, and retention. Of the three, the most critical is alignment with the bank’s overall strategic plan. “A well-designed strategic plan identifies where you want to go and what talent and skills you’ll need to get there,” Hutchens explained. “The key is alignment.” That said, no strategy should be set in stone. Allow for adjustments as circumstances change. "Adjust the plan when you have staff turnover," Gargaro advised. "You may hire someone who turns out to be a real high-performer, or maybe someone wants a career path change."

The second essential criteria for an effective leadership development plan is that it be formalized—that is, written down. “If you don’t have an organized development program, it becomes something you make a mental note of in the middle of the night,” said Fritz. “If you have it in writing and need to give monthly or quarterly reports to the board about it, you’re more likely to be actually following those plans.” The exact steps in each plan should be customized to the individual employee and their stated goals. “Find out what areas they’re interested in and create a leadership development pipeline for them,” Hutchens recommended. The goal is to close the gap between the skills they have and the skills they will need in order to be successful in a future role.

Finally, each leadership development plan must include a retention strategy, and it must be customized for each high-potential employee. “Most banks have Baby Boomers, Gen Xers, and Millennials all in the same bank, and they all have different ideas of what’s important from a compensation and retention standpoint,” said Fritz. For example, many institutions have traditional hierarchical structures where employees climb up the rungs of a ladder as they advance—this structure doesn’t appeal to every generation. “If you want to keep Millennials, turn the ladder horizontal,” Hutchens advised. “Each rung is no longer a raise and a new title, but a new project that tangibly shows them you’re investing in them.” One retention strategy that works for nearly every employee: communication. “Open and honest communication with the individual you see potential in is critical,” said Gargaro. “They need to know they’re being considered for a future leadership position.”

The need for generationally customized retention tactics directly correlates with the top challenge banks face with recruitment. “Many Millennials coming up are looking for professions other than banking,” said Piette. “We need to continually share the reasons why banking can be a fun and great, rewarding career opportunity for individuals coming out of college. That’s the heart of our industry moving forward: attracting and retaining that talent.”

When creating your bank’s leadership development plan, focus on the desired end result. “At the end of the day, leadership development and investment is about enhancing and supporting the way your people think, problem-solve, and influence others,” said Hutchens. “Change the thinking, and you’ll change the behavior and change the results.”

Seitz is WBA operations manager – senior writer.

EBN is a WBA Bronze Associate Member.

By, Ally Bates