Insights: Article

Corporate Governance and Succession Planning - Replacing Board Members

By Darrell Lingle, Jeff Campbell

August 01, 2016

The swift pace of change in financial institutions today has made it important for directors of community banks to spend much of their time focusing on revisions to banking laws, regulations, and supervisory expectations. Because of these priorities, bank directors and shareholders who elect those directors often overlook or ignore the need to have a board succession plan.

The time to discuss and develop a succession plan specific to the transitioning of a community banks board of directors isn’t when facing regulatory scrutiny or when the bank may be financially underperforming.
The best time to research, identify, and develop a meaningful board succession plan should take place as part of the ongoing strategic objectives of the bank. Good board succession planning rarely just happens. That process allows for discussion about leadership development without any apprehension on the part of those involved. It is a product of the board’s collective commitment to thoughtful planning and a willingness to hold themselves accountable.

Recruiting and Retaining Community Bank Directors
In the past, being selected to serve as a bank director was generally regarded as an honor, often signifying an individual’s reputation as being successful in their business or professional careers. It also denoted their prominence in the community, and signified the bank shareholders’ vote of confidence in their skills.
Although still looked upon as an honor, today many individuals are weighing the benefits against the potential burden or personal liability they may be exposed to. Addressing those concerns means having candid discussions with the candidate about the bank and how she or he can contribute to the bank’s future. It also includes discussing the benefits of serving as a director and giving reasonable assurances about the board’s expectations of and commitment to each member.

Some areas to consider discussing with a potential candidate are:

Bank Profile

  • Publicly available information of the bank
  • Nonpublic information, subject to constraints of federal and state law
  • Institutional value to the shareholders, employees and the community

Director Profile

  • How the candidate’s background and talents align with the bank’s needs
  • How that knowledge and talent will add value to the board

Benefits of Service

  • Give back to the community
  • Continue to build upon existing skills and knowledge
  • Stay abreast of local and national issues


  • Transparency in all aspects of the bank’s operations
  • Timely and sufficient information
  • Appropriate training and educational opportunities
  • Respect for their time
  • Appropriate compensation and benefits, including liability insurance

What to Look for in a Director
There is no single profile of the perfect director. All good directors share certain characteristics. According to the OCC’s “Director’s Book,” the principal qualities of an effective director are strength of character, an inquiring and independent mind, practical wisdom and sound judgement.
With those characteristics in mind, identifying individuals who provide business skills that otherwise don’t exist on the board will also help the bank achieve its goals. Over the past several years, many community banks have also been looking for directors who may also better represent a more diverse customer base. That diversification has been primarily thought of along racial, occupational or geographical lines. More recently, that search has started to include another area of diversification age. Although there is no replacement for tenured, experienced and knowledgeable directors, banks may want to consider adding Generation X and Millennial-aged individuals to its board to better reflect and complement its changing customer base.

Embrace Change
To remain strong and independent, community banks board of directors need to be comprised with skills that reflect the challenges of new revenue sources, new markets and market segments, new technologies and new media to connect with the consumer. Maintaining the status quo does not serve the main purpose of aboard as a steward for the shareholder.

Latest Insights

November 16, 2018
If your business sells or operates in more than one state, it’s important to understand the concept of nexus. Depending on how you’re earning revenue, having nexus could impose a variety of taxes, which vary state to state. Learn more in our…
November 15, 2018
Until recently, many businesses weren’t overly concerned about sales tax. They knew they needed to collect and remit in the state in which they resided, but beyond that, their compliance burden was limited.
November 12, 2018
This insight explores what dealerships can expect from the proposed section 199A regulations under tax reform.
November 8, 2018
Are you a business taxpayer with annual gross receipts of $25 Million or less? If so, you may be eligible to take advantage of new Small Taxpayer Safe Harbors that could generate significant tax savings and simplify your tax returns in future years!
November 8, 2018
Considered the most significant tax code overhaul in over three decades, the Tax Cuts and Jobs Act passed in 2017 includes provisions affecting both individuals and businesses.
November 7, 2018
Recorded Webinar
State and local sales tax compliance is always evolving, making it important to stay up-to-date on changes affecting your tax liability and responsibilities. This session will cover what you need to know regarding the recently enacted state and…
November 7, 2018
“Why is my portfolio underperforming the market?” This question may be on your mind.
November 5, 2018
Identify your implementation methodology. There are four practical expedients available. We'll explore each option.
November 5, 2018
Deeper dive into ASU 2016 liquidity.