Leading the Board of Directors through Effective Strategic Planning

Invictus Consulting Group executive director Thomas P. Rideout, a former bank CEO and past volunteer president of the American Bankers Association, has guided many bank boards through effective strategic planning discussions.  He says the key is making sure that bank directors are committed to the process, and know how to oversee it from planning to execution.

Rideout says there are five key questions board members must ask and answer:

• What is our mission?
• Who is our customer?
• What does the customer value?
• What are our results?
• What is our plan?

Once the bank board identifies the answers to those questions and identifies its strengths, weaknesses, opportunities and threats, it must then set a timeline to implement the strategic plan. It must also complete a forward-looking strategic financial planning review, which in today’s environment should also include a capital stress test. It should review the results against peers in the bank’s geographic footprint and build a financial plan and budget to implement initiatives based on priority rankings, Rideout advises.

Strategic planning can be a waste of time if the bank fails to focus on substantive issues, such as independence, the bank’s business strategy, capital allocations, ownership, marketing, technology issues and the current business environment, Memphis attorney Jeffrey Gerrish, a former FDIC regional director, advises at industry conferences. Gerrish writes in handouts that planning sessions should be fun and they should end with a clear action plan and lines of accountability.

OCC Comptroller Thomas Curry said in a recent speech that the strategic planning process is about increasing the odds of success, knowing that there will be difficult trade-offs to make. “In the most straightforward narrative, your strategic planning process and execution should help find answers to the following questions: “Where are we now? Where do we want to be? How do we get there? How do we measure our progress? And, what adjustments are necessary to meet our goals?”

Invictus senior partner Adam Mustafa outlined timely questions boards should also be asking in the August issue of Bank Insights.

Regulators emphasize that an essential aspect of strategic planning includes a careful assessment and evaluation of the bank’s staff and leadership. “It is important to critically evaluate if the folks that got the bank to ‘here’ are the best ones to get you ‘there’,” Curry said in the Oct. 1 speech.

“Educating and engaging board members can be valuable in the strategic planning process. Conversely, jumping into a new product or business line without effective challenge from board members can result in future headaches,” writes Cathy Lemieux, executive vice president of supervision and regulation at the Federal Reserve Bank of Chicago, in Community Banking Connections.

A good strategic plan considers risks that come from “within, without or via new or modified products and services,” the FDIC instructs.

To make sure that a strategic plan can be executed the right way, a bank must have the right people in place in both management and on the board, the Fed warns. 

The board has a fiduciary responsibility to maximize shareholder value. “When you are doing strategic planning with the board, make sure they know who the shareholders are and what they want,” suggests John T. Reichert, an attorney with Godfrey & Kahn in Milwaukee. 

Strategic planning has become crucial in today’s era of low interest rates and industry consolidation, as the chart to the right shows. “Status quo is not a viable strategic plan. In this low rate environment, you need to continually find ways to reinvent yourself,” he said.