Not Just a Rubber Stamp: The Vital Role Boards of Directors Play in Oversight and FI Success

An important issue in an FI’s long-term strategic planning is Board of Director governance. To be effective in its main role of oversight, the board must have qualified and actively engaged directors who understand their strategic and high-level role within the FI. Especially in times of economic uncertainty, the board should have a deep understanding of how the FI services its customer base and how they can best address new challenges successfully.

“The important question that must be asked is, does the board have the right people in place for the future of the bank – not just next year, but five years from now – who will lead the institution to achieve its long-term aspirations,” said Mikelle Brady, Partner at Profit Resources Inc.

Some of the primary responsibilities of Boards of Directors include:

  • Oversight
  • Acting as a credible challenge to management
  • Approving policies and policy changes
  • Evaluating executive management and approving compensation plans

Steps that can be taken to increase the strategic effectiveness of boards include:

  • Participate in periodic self-assessment as a board and include the effectiveness of committees and committee chairs.
  • Review frequency of meetings. Meeting more than once a month can indicate a need for adjustment in the governance structure. 
  • Recruit the right people and give them the tools they need to be effective directors. Participate in continuing education opportunities.
  • Listen, ask good questions and identify trends. “Directors are not bankers, but effective directors know when and how to ask appropriate questions about things they don’t understand so they can do a better job of oversight,” said Ty Glenham, Senior Consultant of Profit Resources, Inc.
  • Diversify. Regulators are looking for diversity on boards, which includes both diversity in representation of women and minorities, as well as in expertise and knowledge.  
  • Review internal and external audits. Boards are responsible for ensuring the FI is operating within its stated risk appetite.
  • Set the tone for corporate culture. Today’s investors not only want to know the FI’s strategic direction, risk management and performance strategy in the current climate but also the FI’s purpose, mission, corporate culture and potential impact on the local community and beyond.

“We spend time in strategic planning evaluating the effectiveness of the board because they are vital to the long-term success of the FI,” Brady said. “Their diverse voices and high-level perspective is invaluable.”

Profit Resources specializes in identifying profitability improvement areas for financial institutions through revenue growth, cost control, streamlining processes, and effective use of technology. Contact us to learn more about our personalized approach to propel growth and improve profitability.

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