Succession planning, succession planning. Many organizations recognize that succession planning has been one of their top strategic needs for many years. This is true of the banking industry as a whole but especially for the community banking sector.
As the sheer number of banks has contracted over the last 20 years from 12,000 to 4,400, fewer community banks are present in the marketplace. Some of these are family-owned institutions while others are privately controlled by a group of local investors.
The honest and alarming fact is that senior leadership within the community banking sector is aging. This dovetails with the demographic reality that baby boomers are retiring at more than 10,000 people per day. During the pandemic, boomers retired at an even more rapid rate because growing investment portfolios allowed, in part, for a comfortable retirement environment.
Despite years and years of forewarning within the industry to pay attention to succession planning, some of this advice has fallen on deaf ears. We are seeing a high number of financial institutions that find themselves with 60+-year-old management teams and virtually no bench strength to succeed them.
Sure, we can all be critical of leadership for not recognizing this earlier and acting accordingly. But another honest fact is that the pool of available talent is even smaller in the Gen X population. Further, Gen Xers may have been unwillingly and unknowingly suppressed from career growth by boomers who have hung on a little longer than anticipated.
Combine these realities with a generation that grew up during the Great Recession of 2008 to 2010 whereby the reputation and attractiveness of a career in the banking industry evaporated, and the problem just gets worse.
What’s the Best Way Forward?
Banks have a few options available to them. First, ask the management team to work together for another five years to allow sufficient time to identify and develop the next leadership team. Second, identify today the internal candidates to coach up and develop their skills for the next step. Third, consider merging with other institutions that may have management teams with longer longevity.
Obviously, the self-serving option is to hire a search firm to fill looming vacancies. Not only is this expensive, but the bigger question exists as to whether or not an inventory is present from which to choose. Accordingly, we advise banks to look at out-of-the-box solutions in the community bank marketplace. Samples of out-of-the-box talent include leaders of chambers of commerce, the local hospital, public/city administration and other financial services companies, such as financial planning and wealth management.
Granted, there will be training and development that will need to occur to teach these “recruits” about credit quality and regulations, but they may be one of the few sources of talent available for community banks, especially in rural settings.
In summary, many readers of this piece are already behind the eight ball if they haven’t started addressing this glaring challenge. My advice – you should be devoting 50% or more of your time to succession planning before you are forced to make hasty decisions that may negatively impact your shareholders and, even more importantly, your customers.
Additional Resources
- EFL Associates Executive Search & Talent Acquisition Blog (and latest entry Succession Planning Basics
- Guide to Successful Talent Management Amid COVID-19 & Beyond (downloadable guide)
- Why Talent Mapping Is Essential to Strategic Business Growth (downloadable article)
About the Author
Jay Meschke, President, EFL Associates & CBIZ Talent & Compensation Solutions, is a contributing American Management Association blogger and has been a guest speaker/panelist for distinguished associations or groups such as the National Association of Corporate Directors, the Society of Corporate Secretaries, Game on Business Talk Radio, and the Society for Human Resource Management. You can reach Jay directly at [email protected] (816.945.5401).