Posts Tagged ‘leadership’

Needle in a Haystack

The Community Bank CEO of the future may be hard to find

Today’s “American Banker” had an editorial called “Chief Factor in Small-Bank Survival? It’s the Chief.”  No question about it!  Leadership matters and while the banking industry has always been about people, the quality of the leadership has never been as critical.

The model for success in the future for community banks is changing radically.  Margins will be thinner on the traditional business of gathering funds and lending them out.  Costs for doing business are rising, if for no other reason than increasing regulation.  Customers are shifting banking habits requiring banks to invest more in technology-based solutions.  The challenges to success will be sizable.  So, what does the ideal candidate profile for the future community bank CEO look like?

I am sure we don’t yet have all of the answers to this major question, but many of the features can be seen in other industries that have gone through massive change.  Retail distribution went through similar change over a couple of decades leading to the development of big-box and chain retailers taking the place of the local hardware store and clothier.  Some leaders saw the change coming and innovated.  Some changed the channel of distribution.  Some narrowed the definition of their niche.  In every case, survival depended on strategic vision, detailed knowledge of their communities and customers and the leadership abilities to take their people through the wrenching change without destroying their loyalty.

The ideal community bank CEO of the future will need to have a wide array of skills and abilities.  They will need a mix of technical skills and interpersonal abilities that may be difficult to find.  Technical skills to recognize and analyze risk and understand the opportunities and the limitations of technology will be key.  In addition, the leadership traits of visionary strategists and change agents will be essential.  The CEO of the future will also need to be able to drive a sales culture and hold people accountable for results.  They will need to be a community leader and a master politician to help the local community understand why he or she demands performance and is willing to turn over staff members that may be their neighbors.

We build “Ideal Candidate Profiles” for Boards who ask us to find executives, and while every organization has its unique needs, there are certain traits that are usually needed based on the executive position.  We are exploring the changes needed for the future and the community bank CEO profile is one that will change dramatically.  Click the button below and register for a free presentation to your Board about the CEO of the future, or call 919-644-6962 and ask for Tim.

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Why do community banks fail?  We are being called by a growing number of community banks that have serious credit problems, usually related to commercial real estate loans.  These banks desperately need capital, as losses from loan write-offs have eroded the capital base.  Why have so many community banks found themselves in this situation?

I could argue that the nation’s policies and regulations pushed community banks into their current situation.  If the problem today is too much concentration in real estate loans, I’m sorry, but this was the only lending niche left for community banks after interstate banking allowed large-scale mega-banks to form and compete on price for Commercial and Industrial loans and the consumer loan business was handed to the credit unions with their non-taxable status and the auto companies with their ability to finance their cars at giveaway rates.  Where else could community banks turn but local businesses and their real estate needs.

Matthews, Young SextantNow, having argued that they couldn’t help it, I would also argue that the real problem was a lack of leadership.  Lack of leadership started in Washington, where Congress allowed unfair competition.  Regulators tried to bring attention to the concentration of real estate loans being built-in community banks, but they were obviously not very convincing in so doing.  Boards of Directors allowed concentration risk to build because they assumed that real estate value would always appreciate.  Finally, too many CEOs and other senior officers of community banks took the easy way out and grew their banks down the path of least resistance.  People ALWAYS make the difference; on the way up and on the way down.

Armchair quarterbacking is easy, and I can’t claim that I saw the enormity of the impact of the real estate bubble or the liquidity crisis, but these things worried me and I tried to warn clients that diversity of assets, funded by a strong local deposit franchise was a worthy goal.  Alas, wholesale funds were too cheap and real estate was booming, so that approach seemed pretty boring.  Perhaps next time, we will all risk being stronger leaders.

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