The Continued Importance of Succession Planning in Community Banking

Sponsored content by Wipfli, a WBA Silver Associate Member

By Robert H. Zondag 

Successful banking teams, as well as regulators, recognize proactive succession planning as a key governance tool. The right planning can promote a bank’s resilience, especially during challenging times, and positively impact shareholder value. 

What are specific ways that succession planning positively impacts a community bank? 

• Risk mitigation: Effective succession planning minimizes disruptions caused by leadership changes. By reducing uncertainty for all stakeholders, succession planning promotes continuity, a key disruptor to achieving an institution’s long-term strategies 

• Talent development: Succession planning demonstrates a commitment to employee development, attracting and retaining top talent in key functional areas. 

• Business continuity: A well-prepared succession plan helps ensure smooth operations even when key leaders transition. Institutions are facing the need to document institutional knowledge or various procedures that have been the dominion of long-tenured employees. 

What are some challenges institutions face in succession planning? 

Community banks often face unique challenges, such as: 

• Pipeline of qualified candidates: Without a pool of qualified candidates, it can be difficult to identify, recruit and nurture potential leaders. Rural or geographic concerns often create challenges in identifying candidates. 

• Providing competitive salaries: Tight margins and budget strains impact the ability to offer competitive compensation to retain talent. 

• Cultural fit: Balancing succession with maintaining the bank’s cultural characteristics is becoming more common. 

• Widening range of skill sets: The complexity of managing a banking operation has increased the range and depth of skills needed for leadership. This large range of skills can also force an institution to consider outsourcing as an alternative to recruitment. 

It starts with a timeline and the need to document. So, what are the steps for effective succession planning? 

1. Assess and map talent needs: Understand short- and long-term talent requirements for the institution. Each institution is unique, so the talent map will vary based on need. 

1. Identify potential leaders: Look within the organization and consider external candidates. Often, a third party can provide an unbiased assessment of individuals. 

1. Develop leadership skills: Using your talent map, understand what training and mentorship needs to be provided. 

1. Develop a succession pipeline: Determine what steps can be taken to ensure a pool of qualified successors. 

1. Regularly review and update: Review your documented plan consistently. What needs to be adapted to changing circumstances? 

1. Involve the board: From both an operational and regulatory perspective, the engagement of the board in succession discussions is critical. (Note: Board succession is a separate matter from internal succession planning.) 

1. Communicate the plan: Transparency is crucial for buy-in and alignment for all stakeholders. 

Community banks must prioritize succession planning to navigate leadership transitions effectively and maintain stability. By doing so, they safeguard their future success and the stakeholders they serve. 

How Wipfli can help 

If your community bank is dealing with succession planning challenges, our financial professionals are ready to help. We can assist in drafting a road map to a more secure outlook for your organization. Talk to one of our advisors today to get started on a plan for the future.