The job behind the gavel

Bang, bang, bang. The most common situation in community banks is for the chairman to merely gavel the meeting to order, gavel the meeting closed, and “preside” over votes. The latter is a fancy way of saying that the chairman repeats the number of votes counted by the designated vote counter.

What makes for a strong, effective community bank chairman?

I have written in this space previously about the role of the chairman, different types of chairmen, and even how to pick the next chairman. This time I want to focus on the chairman’s responsibility to lead the board and appropriately communicate with management.

Two types of leadership

In very general terms, the chairman and the CEO, assuming they are separate individuals, are collectively responsible for the leadership of the bank and bank holding company.

Even if the two positions are occupied by the same individual, the responsibilities for each role are unique:

• The CEO’s primary responsibility is running the bank. This includes overseeing day-to-day operations and ensuring the bank has in it the appropriate individuals to run those operations.

• The chairman’s primary responsibility is to lead and ensure the effectiveness of the board of directors. Again, this is speaking in broad terms.

Specific duties of chairman

Beneath this umbrella of responsibility are more specific responsibilities that, if fulfilled, should ensure a strong and effective chairman.

These include the following:

1. Managing the affairs of the board, including ensuring the board is organized properly, functions effectively, and meets its obligations and responsibilities to the shareholders.

2. Facilitating the function of the board independently of management and maintaining and enhancing board governance, which includes the utilization of appropriate committees.

3. Regularly communicating and interacting with the CEO on multiple issues, including the CEO’s performance, the overall performance of the community bank, and any pertinent governance issues.

4. Serving as a sounding board for the CEO.

5. Formally evaluating the CEO’s performance on at least an annual basis.

6. Developing an agenda for board of directors meetings, which will require coordinating with the CEO on any matters that need to be discussed at the Board level.

7. Ensuring the developed board agenda properly orders items of discussion to allow time to discuss complex or potentially contentious issues.

8. Ensuring the other directors receive accurate, timely, and clear information in advance of board meetings in order to enable the directors to make sound, informed decisions.

9. Encouraging active engagement by all members of the board—which may include forcing directors to participate by calling on them for their thoughts on an issue.

10. Chairing board and shareholder meetings and ensuring that all protocols and requirements in the bylaws and articles of Incorporation are followed.

11. Serving as a liaison between the board and shareholders.

12. Taking the lead to ensure formalized education/initiation programs are provided to new directors.

13. Evaluating the performance of each member of the board on at least an annual basis.

14. Coordinating with the board as a whole and the CEO with respect to establishing strategy for the banking company moving forward.

15. Being the face and advocate of the bank in the community.

There also may be additional duties assigned to the chairman by state law, by the bank or company’s governing documents, or otherwise by the board of directors.

In my view, none of the responsibilities set forth above rise to the level of “rocket science.” They are, however, a bit more formal than the responsibilities followed by most community banks.

Beyond the traditional role

Although I have been with some very strong chairmen lately, the role of chairman for most community banks is, as a practical matter, a ceremonial position.

It does not need to stay that way.

The critical issue for a community bank chairman is that the role not be passive.

If a community bank board comes to me with questions about the role of its chairman, one of the first questions I ask is “Is your current chairman engaged?”

The chairman, more than every other member of the board, needs to be a proactive participant in board activities and community activities. He or she should not simply be the passive, honorary poster child of the bank.

All chairmen should hold their current position because they have exhibited leadership in the past, and there should be an expectation that that leadership continues going forward.

As I write that, I am very aware that some CEOs very much prefer a passive chairman.

Nonetheless, while a passive, “rubberstamp” chairman may serve to pad the ego of certain individuals, it is in the best interest of the bank and its shareholders for the chairman to be an active leader who serves to enhance shareholder value and grow the franchise in the community.

While it may be “easier” to have a passive chairman, the strong, effective chairman rejects passivity and actively engages the responsibilities noted above.