Regulators say Lack of Management Succession Planning is ‘Key Risk’

January 2015

Regulators say Lack of Management Succession Planning is ‘Key Risk’

One of the key responsibilities for bank boards is hiring and retaining senior management. Yet management succession planning is a “growing issue for many banks” and a “key risk,” the Office of the Comptroller of the Currency noted in its most recent semi-annual risk perspective.

Boards must incorporate succession planning into strategic planning, the OCC advises. The OCC says examiners will focus in 2015 on the “adequacy of strategic, capital, and succession planning processes in light of assumed risks and planned initiatives, assessing whether banks’ plans are realistic and appropriate risk management processes are established and followed.”

Indeed, many banks under enforcement orders have been told by regulators to not only increase board participation in the bank’s activities, but to also put together a written management succession plan or identity future senior executives, according to a review of 2014 FDIC and OCC enforcement orders.  The FDIC noted last year in Supervisory Insights that the lack of succession planning was a major element leading to Matters Requiring Board Attention during community bank exams.

In a workshop for community bank directors, the OCC recommends that bank boards have adequate management succession plans for CEOs, CFOs and even senior lending officers.  Banks without succession plans could be ripe for takeovers.