The evolving roles of senior executives
This article is based on a presentation given during the 2017 Executive Management Road Tour, sponsored by RSM US LLP and PCBB, which addressed the latest critical issues facing community banks. The following offers highlights from that presentation with Steve Brown, president and CEO of PCBB.
Members of senior management at financial institutions around the country are playing some new roles since the end of the Great Recession. Sometimes it seems as if some have had to play law enforcement officer in addition to chief financial officer; or a technology specialist in addition to chief executive officer.
The roles up until now
Until recently, upper management roles had a few traditional responsibilities:
- The board: Board members, of course, are primarily responsible for selecting and retaining a competent chief executive officer and senior management team, including C-level roles for information, risk, credit and the like, depending on the bank and its needs. Board members frequently interact with the CEO to ensure the institution is running smoothly.
- Chief executive officer: Appointed by the board, the CEO leads the day-to-day activities of the bank and executing the strategic plan with the management team and the board. The CEO is also responsible for managing the bank’s overall risk and performance.
- Chief financial officer: Also overseen by the board, the CFO manages day-to-day financial activities of the bank, and leads the accounting and finance function. The CFO is primarily charged with ensuring the financial health of the organization and that controls are in place.
- Chief credit officer: In addition to managing lending activities and leading the lending and credit function, the CCO focuses on prudent loan growth and managing inherent credit risk.
- Chief information officer: Information flow is critical, and the CIO is playing a more strategic role now than in the past. The role is charged with delivering technology solutions to both the bank and its customers.
But for a variety of reasons, these roles are evolving and taking on new, broader responsibilities for which some executives may not be prepared.
The barriers slowing improvement
To perform these roles well, the fundamental skills needed—leadership, communication, competence and integrity—should be in place and evident. But other skills that have become necessary for these roles may be missing; skills for which individual management team members may not have been trained.
Bankers understand cash flow, but they generally do not have technology training. CEOs and CCOs usually have lending backgrounds, yet they need an understanding of technology innovations that can support the institution.
Keeping up with the latest information on any topic can be difficult under any circumstance. How can banks reinforce the skills of the senior management team—and pass on those skills to the rest of the management team as well?
There may be some structural issues that are standing in the way.
Operational structure: Many banks take a departmental approach to management as opposed to companywide structure. For various reasons, the banking industry is hardwired in old policies and methods, structured in silos or hampered by roles that are too narrow in their focus.
Technology companies, on the other hand, have had success working on a more distributed basis, with small, diverse teams making decisions across units. It may be difficult to view bank management this way because the industry is so highly regulated. The task is to break down these old ways of thinking which can result in much faster contact with clients and change within the organization.
Focus: There is a focus on rules rather than performance; again, this is understandable in such a regulated industry. But employees may not be empowered or encouraged to come up with ideas that would improve performance.
Systems infrastructure: New technology demands are putting pressure on banks, from voice recognition to video marketing. But customers are beginning to expect it, so banks much react accordingly. Artificial intelligence, data management and analytics management are becoming the norm, not the exception.
Information: Banks have information, but that data may be splintered and distributed throughout the institutions’ systems, making it difficult to gather in an aggregated format. Customer preferences are shifting. Their purchase decisions revolve around buying into an idea and an experience. About half prefer to open a new deposit account or apply for a loan in person, compared to more than two-thirds just three years ago. People are going to branches when they must, but are limiting their visits to just a few times a year; nearly half use only digital channels.
5 themes for development
As banks develop their strategic plans, here are a number of areas to consider as the foundation for improvement:
- Embrace upheaval as you move to transform your bank: Review senior management team jobs in detail and actively move to restructure each one as you discontinue low-value activities entirely or reassign them to other staff. Identify ways you can more effectively leverage the skills sets you have.
- Create a customer-focused environment that connects to your products: Determine what customers want, and focus each senior management team on delivering products and services to address those preferences.
- Empower others and build teams: Most community banks are resource constrained. With so few members on senior management team, they need some help reaching their strategic goals. If those goals are to become a reality, management must identify areas where an empowered staff to take on some of the responsibilities.
- Stay educated on industry changes: It can be difficult to look forward and think strategically. Do the research in order to continually stay on top of change. See what others are doing and learn how to respond more quickly to customer changes. Be sure to include professional development in the year-end evaluations.
- Continue to refine the business model: Things are changing quickly, and this requires a new mindset. Push your teams forward and demand the same from other senior management team members. Bring in outside assistance to provide an objective perspective on behavior.
It helps to start small: Identify an issue that is appropriate for the institution, then form a small team to get those improvements started. Then, implement, improve and repeat.