Does your financial institution have a succession plan?

Let’s face it, we all want good exams.

Seasoned bankers know that examiners have their hot buttons each year. In our travels, we sometimes see the same finding from bank to bank depending on the year. Whether it’s the Bank Secrecy Act, GLBA, or asset-liability management, bankers do their best to anticipate what’s coming down the road.

This year is no different, and one of the hot buttons is something we all think about but hesitate to formalize: succession planning. This is a common finding in state exams:

“Management has not developed a formal succession plan to address the key management positions in the event of a sudden vacancy. It is acknowledged that the Strategic Plan does highlight succession planning as one of the goals; however, management has not yet begun to formalize a plan. The succession plan should address each position and the necessary steps and requirements to fill those position duties on a short and long-term basis.”

Now, I know what you’re thinking. Why is there a need to formalize a succession plan? We all know who is next in line, right?

Too often we only think of succession planning in terms of who will take over for the CEO. But as we all know, many key positions could leave the bank vulnerable if someone were to move along. IT professionals are a classic example because they often have marketable skills that are sought outside of banking. What do you do if your top IT person resigns? Do you react, or are you prepared? What happens if the entire IT staff goes? It’s happened.

So instead of putting it off, let’s look at succession planning as an opportunity to build a stronger financial institution. A formalized succession plan will help ascertain performance and technical skills, as well as leadership potential. What is leadership potential? It’s a mixture of technical skills and cognitive abilities, coupled with emotional intelligence, or the “it factor” as some like to call it. Some have “it” and others don’t.

Traditionally, bankers who move up the food chain and emerge to executive leadership roles have the technical skills and ability to meet performance objectives. Just look around your organization. Many of the executive leaders were previously great producers, right? Many probably came from the commercial line of business and know credit better than anyone around. They manage risk, credit quality, and net interest margins better than anyone. Do those technical skills equate to the leadership competence needed to navigate, lead, and execute the bank’s strategy in today’s complex environment? Not necessarily. Imagine, however, if those technical skills and performance abilities were coupled with leadership competence and a high degree of emotional intelligence.

If you really want to execute the strategic plan that you’ve heavily invested in already, you’ll need a formalized, well-constructed succession plan to help you identify those qualities in your next generation of leadership. Moreover, a detailed plan will help you objectively recognize successors and their readiness to take on the identified role. It will help you objectively look inside as well as outside the organization. And it will address competency gaps through development plans so that your leaders are ready when you need them to be.

An effective, formalized succession planning process will conquer this very issue by creating a solid development plan for your identified high-potential successors. Moreover, a formalized process can help you identify the dead weight.

When engaging in succession planning, you should involve managers in all parts of the organization so they can continually identify gaps in talent and focus on developing the talent into high performers. This will ensure that people with the best skills are moving into the right jobs at the necessary times.

It’s often difficult for managers to see themselves the way their subordinates see them. Are managers sending the message to the high-performing subordinates that they are regarded in the organization? A formalized succession plan helps managers communicate that message.

Good succession planning is not a one-time shot; it’s an ongoing process that should be revisited from time to time. The best time to start is before the examiners make your bank’s next finding.


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