Management stability is a critical factor in your bank’s long-term profitability. A well-crafted succession plan can help ensure that any key personnel changes, whether expected or unexpected, are handled in a way that minimizes operational disruptions and ensures a seamless transition.
Yet many community banks fail to proactively address succession planning or forget to update their plans when circumstances change. Here’s a look at some strategies to help ensure your bank’s continuity — regardless of personnel loss or any other developments.
Consider these factors
A bank’s succession plan must be tailored to your bank’s size, complexity, location, culture, risk profile, product and service mix, management “bench strength,” and other characteristics. With that in mind, here are some strategies to consider:
Look within. There are many advantages to identifying internal candidates to succeed the CEO and other key management personnel. They’re already immersed in your bank’s culture and familiar with its operations, goals and strategies. Another big advantage of promoting from within is that your board of directors is likely familiar with internal candidates’ work and personalities.
Create a leadership development program. A formal program for developing potential successors improves your chances of identifying internal successors. By providing training, mentoring and coaching, you help candidates develop the skills they need to succeed in a management role — and you have an opportunity to evaluate their performance over time. In addition, investing in your employees’ professional development may help with retention.
Consider external candidates. Although promoting from within has significant advantages, in some cases, considering external candidates may be necessary or desirable. For example, if a CEO or other executive departs unexpectedly, you might not have a suitable internal candidate. Or perhaps the board feels that your bank would benefit from an outsider’s fresh perspective or experience at other types of institutions.
Look beyond the CEO. Many banks’ succession plans are limited to the top role. But it can be equally important to plan for the departure of other key positions — such as the CFO, chief risk officer or chief technology officer — as well as division or department heads who are critical to the bank’s operations and success. As you review your bank’s organizational chart, examine each position, consider the potential impact of a sudden vacancy and plan accordingly.
Think both short- and long-term. It’s important to have a short-term plan in case someone leaves unexpectedly. This may involve designating interim successors who can fill in until a permanent replacement is found (which, in some cases, may be the interim successor). To minimize disruptions, a bank can use cross-training to ensure the availability of backup staff who can temporarily assume management responsibilities.
Make implementation part of your plan. Outlining your succession goals and strategies isn’t enough. Your plan should also include a “playbook” that sets forth the implementation process. For example, if you plan to hire from outside the bank, the playbook should specify where you’ll look for candidates, where you’ll post job listings and how you’ll identify the right people for the job. It might include checklists or other tools for evaluating candidates.
Communicate your plan. Transparency is key. Discuss your plans with all involved and manage candidates’ expectations to avoid losing people when one person is selected as successor. Make sure participants view the process as a career development opportunity, not a competition, and that you have a clear career path for those who aren’t chosen.
A succession plan isn’t something you can put on a shelf and forget about until it’s time to implement it. To ensure that your plan continues to make sense for your institution, review it periodically and update it if necessary to reflect changes in your bank’s strategies, size, product and service offerings, regulatory environment, or other circumstances.
Planning pays
To minimize operational disruptions, establish a comprehensive, formal succession plan before any personnel losses occur. Your plan should be multifaceted and encompass everything from job descriptions to essential qualifications to evaluation methods. Having a robust plan waiting in the wings helps ensure leadership continuity, preserve institutional knowledge and maintain stakeholder confidence.