February 5, 2018

Don’t Forget About Succession

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Probably one of the last financial planning items on your list when laying out future strategies for your community bank is identifying and developing new leaders to eventually replace current ones in your organization. In the day-to-day urgency of maintaining profit margins and meeting regulatory requirements, it’s all too easy to overlook the need to prepare for expected — or unexpected — loss of key management and staff. But having a succession plan in place can ensure any transitions are stable and your institution’s financial trends remain positive.

Selecting Candidates

Although banks often consider external candidates to succeed the CEO, naming an internal successor may offer significant benefits. Internal candidates are embedded in the bank’s corporate culture, offering the advantage of continuity. When you bring in an outsider, there’s always a risk that he or she won’t blend into the culture. Plus, internal candidates are familiar with the bank’s operations and strategies and the current CEO’s agenda.Another advantage is that your directors — at least in theory — already know internal candidates and are familiar with their work. To ensure that’s the case, invite candidates to present to the board and arrange other interactions between board members and potential successors.

Training and Mentoring

To increase your chances of promoting from within, have an active program for developing potential successors. Training, mentoring and executive coaching can help you evaluate the potential of internal candidates and help them develop the skills they need to succeed in the CEO role.It’s also important to manage candidates’ expectations to avoid a mass exodus when one person is chosen as the replacement. Rather than treating the process as a competition, characterize it as a developmental opportunity for all participants and have a plan for those who aren’t selected.

Tracking External Candidates

Despite the advantages of hiring from within, in some cases it may be necessary or desirable to consider external candidates. Perhaps you don’t have a suitable internal candidate. What if your current CEO dies or becomes disabled unexpectedly, and there’s no time to groom an internal successor? Or maybe you feel that your bank would benefit from bringing in “new blood.”To prepare for such contingencies, it’s a good idea to track potential candidates at other banks or even in other industries, possibly with the help of a recruiting firm.

Taking Time

Planning should ideally begin two to five years before a potential succession event. This gives you time to define the qualifications you’re looking for, draft job descriptions, and evaluate internal and external candidates.It also gives you time to develop internal candidates. And you can formulate a retention plan for those who aren’t selected.

Updating and Adjusting

Of course, any plan depends on a particular set of circumstances, both in terms of personnel and business practices, which may shift and change over time. So it’s important to schedule regular updates to ensure your plan remains relevant in light of the bank’s current situation. Remember to create a strong blueprint and you’ll ensure your bank stays at the top of its game for years to come.

The information provided in this communication is of a general nature and should not be considered professional advice. You should not act upon the information provided without obtaining specific professional advice. The information above is subject to change.

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