Patterns of Change

Succession planning is about more than a change in leadership. It can be a sterling opportunity to look anew at your community bank’s strategic direction.

By Elizabeth Judd

As a longtime hospital administrator and PR specialist, and the first female mayor of Alamosa, Colo., Kathy Rogers never imagined she would run a community bank. But on May 1, 2017, she became president and CEO of $100 million-asset Rio Grande Savings & Loan Association.

Rogers had been a Rio Grande board member for eight years but knew that running a bank demands a different skill set. So when the board approved her joining the bank as vice president of the management team more than a year before then-CEO Donn Vigil’s retirement, she leapt at the chance to do some preparation before she took the helm.

The leisurely transition gave Rogers a chance to participate in some key decisions that would affect her tenure and to begin forging relationships with employees of the three-branch Monte Vista, Colo., community bank. When it came time to assume the role of president, Rogers says Vigil’s gracious welcome further eased the transition. “He moved me into his office a full month before he left, and he moved into a little office a few doors down,” she says. “He wanted people to start coming to me while he was still here to help.”

But succession planning isn’t just about one person’s transition to a new role. For community banks, a succession of leadership is also an invaluable opportunity to engage in a strategy reset, while treading carefully to ensure the new leader and employees get off to a strong start.

Don Johnson, partner in the financial institutions group at Eide Bailly, a regional accounting and consulting firm, observes that succession planning “has to be an intentional process. It doesn’t just happen.”

Generally speaking, a community bank would want 18 to 24 months to enact a smooth CEO transition, says Neil Falken, principal, financial institutions, for professional services firm CliftonLarsonAllen. He explains that exactly how long a well-executed transition takes depends on many factors, including whether the new CEO is an internal or external hire.

“[The former CEO] moved me into his office a full month before he left, and he moved into a little office a few doors down. He wanted people to start coming to me while he was still here to help.”
—Kathy Rogers, rio grande savings & loan association

Falken argues that the best transitions take place without undue haste: “In an ideal world, the last six months of the transition would be [the old CEO] just having his or her feet up on the desk and making sure that the transition has been done well.”

A lengthy run-up not only makes the transition more successful; it may also give the incoming CEO time to participate in key decisions. Rio Grande’s Rogers points out that she had a say in several new hires during her year-long transition.

Often, the length of the handoff period depends on the individuals involved. “Some new CEOs don’t want too much overlap,” says Johnson, noting that a very experienced individual might prefer to go it alone. “You have to consider the current culture and what the new CEO is like,” he explains.

Of course, the discussion of transition length presupposes that a community bank has the luxury of time. Jeffrey Gerrish, chairman of the board at Gerrish Smith Tuck, a law and consulting firm based in Memphis, Tenn., advises community bankers to have both short- and long-term succession plans in place. That’s because the best-laid plans can be derailed when a CEO is incapacitated, or if a chief executive wins the Powerball and decides to pursue a different life plan.

Broaching the subject
Although the spotlight on succession planning is a positive trend, some community banks are struggling with a competing trend: aging CEOs silent on the topic of retirement.

Gerrish notes that when he started in the community banking business 35 years ago, almost all CEOs were older than him. “And today,” he says, “I kid that they’re still older than I am, because they don’t quit. The reality is that a lot of these guys are staying on into their 70s. But there’s a question of how long is too long. And that’s a decision the board needs to make.”

Although discussing retirement can be a touchy issue for a board to raise, doing so is crucial, says Gerrish. “My recommendation is that boards either nail down CEOs as to when they will retire, or get them to commit that at least 18 months before they’re ready to retire, they give the board notice.”

When a new CEO arrives on the scene, some community banks are intent on retaining the culture, while others see it as a rare opportunity to rethink entrenched practices.

Gerrish advises community bankers to be open to change: “Your new CEO is going to have a different perspective, so take advantage of this.”

Gary Smith, CPA, partner and director of the financial institutions group at Eide Bailly, agrees: “You have to dig into the culture piece. Are you going to keep the culture the same? Or are you going to have a cultural shift within the organization? When the new CEO comes in, you, in some respects, have a clean slate.”

Eide Bailly’s Johnson has found that surveying employees anonymously is a great way to assess aspects of the culture that are working—and those that could use improvement.

However, cultural change should never be undertaken on a whim. Falken advises community banks to proceed cautiously: “Things change; people have a new perspective. That doesn’t mean you need a new culture. Sometimes the worst thing you can do is come in and change the culture, unless the culture is broken.”

Forward-thinking community banks will already have a strategic plan in place when a new CEO arrives on the scene. And while the board should hire a successor based on his or her ability to execute a bank’s strategy, that strategy will inevitably shift a little with a new person at the helm.

“You don’t want to have the new CEO come in and say: ‘Here’s our strategic plan. You execute on it, whether you think it’s right or not,’” cautions Gerrish.

Falken notes that the strategic plan is so important that it’s probably one of the first documents a new CEO is handed during the interview process. He says the document should contain a SWOT (strengths, weaknesses, opportunities and threats) analysis and should be restricted to four or five strategies so the organization can truly focus on achieving these goals. He suggests that this document might run anywhere from five to 30 pages.

He adds that the new strategic plan should be crafted by some combination of the board, the new CEO and the bank’s executive management team. “Anyone with a ‘C’ in front of his or her title should certainly be part of this process,” he says.

Consider a consultant
Reviewing the strategic plan just as the old CEO is leaving can be a daunting task, because it’s not always clear who should be leading this effort. Many people find that revisiting strategic direction during a leadership change is easier with outside assistance. Gerrish suggests inviting a consultant with community banking knowledge to assist the board and the new CEO in discussing issues and charting a course.

Dan Ravenscroft will assume the president and CEO role at Elroy, Wis.-based Royal Bank on Jan. 1, 2018, taking over from its current four joint presidents (see sidebar, page 35). He says working with CPA and consultants firm Wipfli was helpful to the $400 million-asset community bank. The firm assessed the bank’s strengths and weaknesses and offered advice on potential steps for improvement. “We won’t be integrating all of their suggestions, but it was nice to highlight some areas that we did or didn’t know needed to be addressed,” Ravenscroft says.

“We won’t be integrating all of [the consultant’s] suggestions, but it was nice to highlight some areas that we did or didn’t know needed to be addressed.”
—Dan Ravenscroft, Royal Bank

At Royal Bank, having a new CEO who is a generation younger than the departing presidents is an opportunity to make bank technology a core part of company culture.

This change is one that the outgoing presidents heartily endorse. Copresident Richard Busch acknowledges that while he and his fellow presidents have created a technology committee and encouraged Ravenscroft and others to begin making necessary changes, online banking is not an area of expertise for him. “It’s nice to know that for Dan and some of the younger crew, this is where their interests lie,” he says. “We know this is where the bank has to go for the next generation.”

Falken agrees that technology is definitely on the radar of banks reviewing strategy when new leadership comes aboard. “A new CEO is a good time to make sure you’re operating as efficiently as you can,” he says. “And to drive efficiencies, technology has to be at the forefront.”

Rio Grande’s Rogers acknowledges that while her community bank serves an older population, attracting younger people is necessary for long-term success. Her bank will be one of the first in its region to implement mobile banking and mobile deposit capture.

Whether a community bank stays the course with a new CEO or takes a new strategic direction, it’s critical that the board and senior leadership have a solid succession plan to make it happen. Johnson notes that in an era of widespread bank consolidation, succession planning has assumed greater importance than ever.

“A lot of banks are getting sold, and a common reason is a lack of succession planning,” he says. “Today, strategic thinking around succession planning is being done because community banks know they have to do this well in order to survive.”

Five hallmarks of a truly strategic succession plan

1. It’s well-timed. An orderly succession plan rests on having a leader who communicates his or her retirement plans well in advance.

2. It’s communicated clearly and thoroughly. Royal Bank’s Dan Ravenscroft emphasizes that transparency is very important for a smooth transition. “You need to overcommunicate about the changes taking place,” he says. “We have over 100 employees in our organization, and you want to make sure that all of the individuals are on board with the changes you’re making.”

3. The board is on board. Because a community bank’s board members are responsible for setting strategic direction, they should be actively involved in succession planning.

4. The strategic plan is flexible. Jeffrey Gerrish of Gerrish Smith Tuck is convinced that whenever a new CEO arrives on the scene, the company should do a fresh strategic review to incorporate the new leader’s thoughts and vision.

5. The new CEO gets respect. Gerrish tasks the board with demonstrating confidence in the new leader: “The board has to convey that respect down to the management team by saying, ‘This guy or gal is our leader now and is going to take charge. If you have any issues, bring it to the new CEO, and don’t be running to the old CEO.’” —Elizabeth Judd

Four pairs of shoes to fill: Royal Bank’s epic shift

For nearly two decades, Royal Bank—a $400 million-asset community bank with 19 branches—has been run by four presidents, all of whom share responsibility for day-to-day operations.

When copresident Jack Heding told his fellow presidents—Greg Darga, Robert Hart and Richard Busch—that he would like to retire at the end of 2017, they agreed to retire, too. “We had decided that when one went, all four of us would go,” Darga says.

But how does a community bank find a successor when that successor will take on the jobs of four people?

The task is easier because the quartet of outgoing presidents began taking succession seriously in 1998, when they decided to run the bank jointly.

For Dan Ravenscroft, who becomes Royal Bank’s new president and CEO on Jan. 1, 2018, the promotion is no surprise. “We joke internally that the succession planning started 21 years ago, when they hired me,” he says. In that time, he was exposed to various roles, from branch manager to loan officer to vice president.

The four presidents began having general succession talks with Ravenscroft five years ago, although the plans only became concrete during the summer of 2016, Ravenscroft recalls. He is pleased that Royal Bank hired CPA and consultancy firm Wipfli to help work through the broad-spectrum items of changing the management structure from four presidents working together in a committee format to a single individual taking the helm.

Key to the smooth transition was beefing up management elsewhere in the organization. Heding, Darga, Hart and Busch maintain that having a transition plan that unfolded over several years allowed them to make sure that their senior management team was strong.

“You get good people, and you work to build a solid organization,” emphasizes Darga. “You don’t wait until you’re 60 or 70 years old to start succession planning. You start this when you start running the bank.”
—Elizabeth Judd

Four become one—Royal Bank’s outgoing presidents (l-r): Jack Heding, Greg Darga, Robert Hart, Richard Busch.

Elizabeth Judd is a writer in Maryland.