Who Will Fill the Chair? Boards and Top Management Can't Put off Answering That Question

[ILLUSTRATION OMITTED] Many community banks may be facing a reverse form of musical chairs in the next few years, if they haven't already. Each time the music stops, another chair appears, while there are fewer qualified people to put in the empty seats. Experts interviewed cite several reasons for this trend: * Financial crisis aftermath. Many community banks faced problems during the cleanup that were best solved by experienced bankers who knew the banks, says executive recruiter Alan Kaplan, CEO of Kaplan & Associates, Inc. So, Kaplan continues, CEOs and other senior officers sometimes outstayed their original plans. This creates more demand for strong replacements at a time when many corner offices have already turned quite gray. And, going beyond merely gray, where current leaders resist turnover, ultimately they have no choice. Many corner office occupants will hit health issues in the next five to ten years. They may believe that life will go on or that they will go on forever, says consultant John Szold of Planning for Succession, Inc. But that's not reality. * Fewer strong generalists. trend towards increasing specialization among community bank employees has reduced the number of people who could make good leaders and who also have a broad understanding of community banking. We have much less cross-training of people in community banks these days, says Kaplan. * Smaller pool to draw on, as growing and training lenders decreases. In addition, many institutions no longer train lenders, who have historically been the bankers most likely to succeed to the corner office, according to Richard Parsons, formerly a senior BofA officer and now a consultant and author at 10X Risk Management LLC. Parsons acknowledges that operations and IT specialists and marketers have gained entry to the C suite in recent years. I won't contend that everybody has to have the same pedigree, says Parsons. But in his experience those top execs who came up other than through lending remain exceptions. Parsons believes that because lending is still the bread and butter of community banking, the best new leaders will be those who have had the experience of booking loans. [ILLUSTRATION OMITTED] * Older lieutenants, unsuitable COOs. Two factors that experts point to concern the obvious heirs, who may not be suitable at all. In many banks, in part because of the crisis, the #2 banker isn't much younger than the current CEO. Another such factor is that many COOs, though typically the bank's second-in-command, aren't necessarily suitable. A COO doesn't always make the best CEO, says Susan O'Donnell, partner at Meridian Compensation Partners, LLC. COO by definition focuses internally, she explains, while CEOs must focus externally. * Need for fresh inventory. To varying degrees, banks need somebody that isn't a clone of the previous CEO. Traditional command and control leadership doesn't synch with Millennial workers, for instance. And sometimes, says Kaplan, boards simply want fresh blood, someone from outside the organization to bring a completely different perspective. experts may disagree on one aspect or another of these factors, but they do agree that succession is an issue that must be confronted. The single best way to start dealing with succession is to start having a conversation about it at the board level that's early and often, says Kaplan. Succession contains many sub-issues, like those Russian stacking dolls, but none of them--strategic direction, gender diversity, racial diversity, leadership style--gets handled until people begin talking and thinking about succession overall. Your bank ought to have a written succession plan and it should be updated every six months, says Szold. It should be built into the bank's strategic planning, says O'Donnell. …