Bank Director: The Chemistry of Success

Bank Director: The Chemistry of Success

  • Posted: 04/22/2015
  • Castle Creek

By Jack Milligan, editor of Bank Director

If service as a bank director is supposed to be a cushy sinecure, then someone forgot to tell the seven board members at CVB Financial Corp., a $7.4 billion asset bank headquartered in Ontario, California. The CVB board and its various committees all meet on the same day once a month, and a typical agenda would look something like this: Committee meetings in the morning, followed by a meeting of the full board in the afternoon, followed by an executive session of the independent directors to wrap things up. President and Chief Executive Officer Chris Myers says that CVB directors on average put in a 10-hour day when they get together.

Not only that, but the Friday prior to this marathon series of meetings, Myers and his senior management team schedule a three-hour briefing for the board on the CVB’s operating performance and every other important development that has happened at the bank since the board last met. That adds significantly to what is already a considerable time commitment for the bank’s directors, but the meetings are well attended—and, Myers adds, highly beneficial.

“Everybody is on the same page,” he says. “When you walk out of that pre-board meeting, you know exactly what’s going on and what the big issues in the bank are. If you really want to learn how CVB operates you go to the pre-board meeting.”

It just so happened that CVB was one of the top performing U.S. banks from 2011 to 2013 and it’s reasonable to ask whether there is a positive correlation between the company’s consistently strong financial results and the personal commitment of its board of directors, evidenced by how much time they are willing to invest. Do the boards at high performing banks like CVB do things differently than most other banks, and is that a significant factor in their success?

In the 30-plus years that I have covered the financial services industry, I have always found it difficult to measure the effectiveness of corporate boards. The very nature of how most boards operate makes it difficult to draw a clean and visible connection between what they do and how their companies perform. Most boards do their jobs pretty much the same way. They meet on a regular basis and go through a pre-determined agenda. The directors talk about things, make some decisions and go off to their other endeavors. Directors oversee rather than manage, and oversight is by nature a more passive and nuanced role.

Understanding a corporate board’s effectiveness is further complicated by the fact that most boards operate behind a veil of impenetrability that shields them from the prying eyes of journalists, financial analysts and investors. The full scope of a board’s deliberations is rarely made public and even meeting minutes, if made available for inspection, would offer little more than a dry recitation of what was discussed and decided. The veil has been raised somewhat by events of the last several decades, including a greater demand for independence on public company boards, a result of both the 12-year-old Sarbanes-Oxley Act and persistent shareholder activism over a period of many years. Regulatory agencies have also required greater accountability from bank boards since the financial crisis. Still, while corporate boards are now subject to a higher level of scrutiny than was once the case, it is difficult for most outsiders to evaluate exactly how a corporate board contributes to its company’s success because even today they tend to operate with the protective confidentiality of a privy council.

Corporate advisors who work with boards regularly can cite a variety of characteristics and practices that can have a positive impact on a bank’s financial performance. John Eggemeyer, founder and managing principal at Castle Creek Capital, a private equity firm in Rancho Santa Fe, California, sits on several boards at community banks where he is an investor. Asked how boards can help drive the financial performance of their institutions, Eggemeyer offers three points, beginning with a “shared vision” between management, the board and investors. “It needs to be well understood and personally embraced,” he says.

A second point is accountability for the management team when it comes to the attainment of performance goals. “There needs to be rewards for achieving them and consequences for not achieving them,” he continues.

And finally, the directors have to bring a high level of personal integrity to their board service. “Do my directors come prepared?” says Eggemeyer. “How do they deal with each other and management?”

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