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HomeBankBoard succession planning after a merger – Impartial Banker

Board succession planning after a merger – Impartial Banker


From mixing differing values to picking a brand new chairman, there are various challenges that may come up after a merger or acquisition. We spoke with authorized and monetary specialists about what questions group financial institution leaders ought to ask themselves pre-merger, what points they might face and the way they will construct a good stronger monetary establishment.

By Bridget McCrea


Combining two banks into one is a posh endeavor. Between the due diligence, monetary negotiations, expertise integrations and the unification of two established operations—be it by way of acquisition or merger—the method will be dangerous and difficult. There could also be substantial rewards on the different finish, however that doesn’t essentially make the journey any simpler.

As either side of the desk work out the small print, post-merger board succession planning must be a key matter of debate. It’s a side of the deal that shouldn’t be left till the final minute, though it typically is. “What’s going to occur to your board as soon as your banks merge can’t be an afterthought,” says Anton J. Moch, a financial institution M&A and governance legal professional at Winthrop & Weinstine, P.A., in Minneapolis.

“These conversations ought to happen on the very starting of any transaction, with a concentrate on tips on how to put the boards collectively, who will keep or depart and who would be the new chairman of the board,” he continues. “You possibly can’t wait till you’re signing a purchase order settlement—or worse, till you’re closing on a deal—to determine the way you’re going to work with two disparate boards.”

That is vital, as a result of banks with robust boards are usually properly positioned of their marketplaces, perceive their buyer bases and make good choices. These with weak boards are likely to battle with decision-making as a result of disagreements both amongst board members or with govt officers.

Greyson Tuck, Gerrish Smith Tuck Consultants and Attorneys

“Group banks are closely influenced by their boards of administrators,” says Greyson Tuck, president of Gerrish Smith Tuck Consultants and Attorneys in Memphis, Tenn. “The board makes choices, maintains management and produces enterprise for the financial institution. These are all vital duties for a financial institution because it goes by way of the merger or acquisition course of.”

Preserving the worth of the transaction

When one group financial institution acquires or merges with one other financial institution, there are various steps to take and issues to debate. Among the most vital inquiries to ask are: Who’re our key gamers? What are their relationships to the financial institution? How can we greatest protect the worth of these relationships?

“In the end, that’s the place the worth lies within the acquisition course of,” says Tuck. “It’s in regards to the extent to which you’ll protect the relationships. This, in flip, preserves the worth of the transaction.”

Submit-merger board succession doesn’t all the time imply choosing a handful of present administrators and making a single mixed board both. For instance, Tuck not too long ago labored on a deal the place the holding firms for 2 completely different rural group banks have been eager about merging the 2 entities into one. The talks happened between the 2 holding firms and initially centered on the longer term course of the mixed financial institution, together with the succession plans for the present officers and administrators. Discussions centered round tradition and match because the banks labored to maintain as many lively board members onboard as potential.

Then, the banks determined to arrange two boards: one centered on expertise, operations and day-to-day contact with the group, and the opposite centered on enterprise planning and technique. Whereas there was some overlap throughout the 2 boards, the financial institution labored to establish people who can be greatest suited to every particular group. Tuck says this “introduced a brand new focus for these two organizations as they put the boards collectively.

“In the end, it ended up understanding fairly properly for them due to these very early discussions that happened earlier than deal pricing and future plans have been even mentioned,” he says, advising an analogous, proactive strategy to board succession planning for any group financial institution that’s merging with one other establishment.

“Proper from the beginning, there was a transparent concentrate on the experience and expertise of the present administrators at every group. Then, quite a lot of thought went into which people can be the very best match for every board.”

What to do when household is concerned

On the floor, an M&A deal involving a family-owned group financial institution seems to be similar to some other deal. These similarities often finish when the layers are peeled again on the family-owned entity, whose company tradition isn’t all the time mirrored within the books, so to talk. For this and different causes, post-merger board succession planning for this kind of financial institution requires a particular contact. Success will rely on whether or not the brand new guard can respect the synergies between the banks’ cultures, the founding household (or households) and the communities that they serve.

One other complication is the truth that members of the family possible serve on the financial institution’s board or as the bulk board. “With most family-owned banks, 60% to 70% of the board members are members of the family and 20% to 30% are outdoors administrators,” Tuck explains.

If these members of the family don’t wish to hand over management to a board that’s diluted by non-family members, the challenges might mount. One approach to resolve the problem is by making a holding firm board that has a special composition than that of the financial institution board.

For instance, on the holding firm degree there could also be six administrators, 4 of whom are members of the family and two of whom are outdoors administrators. Then, on the financial institution degree, there shall be 10 administrators, six of whom are members of the family and 4 of whom are outdoors administrators. Tuck says this can be a quite common post-merger board succession situation for family-owned banks.

“That provides a household consolation, as a result of finally the financial institution board members are elected and are available into their place as administrators by the consent of the holding firm,” Tuck factors out. “Significantly for a family-owned financial institution, this strikes the stability of giving the household the management they need whereas permitting an applicable variety of outdoors administrators to be concerned.”

Working by way of differing priorities

As soon as a group financial institution has reached the purpose the place it’s determined {that a} merger with one other establishment is what’s greatest for the group, it ought to flip its consideration to the post-merger board plans. “Should you fail to do that, it’s mainly like dropping the ball on the entire work that goes into the merger planning and strategizing course of,” Moch cautions. “Your board will set your complete course for the merged group.”

[A chairman] can assist information and direct the discussions to make sure that, even when there’s disagreement, as soon as a course is picked, everybody will get on board with it. A robust chairman could make an enormous distinction in driving that ahead momentum for the board itself.
—Anton J. Moch, Winthrop & Weinstine, P.A.

With the stage set for post-merger succession planning, banks might need to work by way of differing priorities amongst new and current board members. To successfully tackle these and different conflicts, Moch tells banks to lean on the group’s mission, objectives and place in the neighborhood that it serves. They need to ask questions like:

  • What do we would like this financial institution to be?
  • How can we accomplish this?
  • What are our strengths and weaknesses?
  • How can our board assist us leverage these strengths and overcome the challenges?

Anton J. Moch, Winthrop & Weinstine, P.A.

“Have a transparent course even when there’s competing curiosity. That approach, you might have one thing to return to,” Moch says. If the board itself can’t attain a consensus, he advises bringing in an out of doors mediator to work by way of the problems and assist set baseline enterprise methods. Invite board members to voice their opinions all through the method, he provides, however finally additionally know {that a} majority of the board must approve choices. Having a powerful chairman in place can assist banks obtain that consensus.

“She or he can assist information and direct the discussions to make sure that, even when there’s disagreement, as soon as a course is picked, everybody will get on board with it,” says Moch. “A robust chairman could make an enormous distinction in driving that ahead momentum for the board itself.”

Honoring expertise and planning for the longer term

Relying on how lengthy a group financial institution has been in enterprise, there could also be board members who’ve been in place for many years. They every carry their very own strengths and expertise to the board, and their longtime data of the banking trade makes them worthwhile property for the group.

Because the banking surroundings, expertise and buyer preferences all proceed to vary, boards also can profit from some contemporary faces who might carry completely different views, expertise and concepts to the desk.

A merger is a primary time to carry new and established members right into a mixed board that honors expertise and helps the brand new entity plan for future success. A technique to do that is by including folks with numerous expertise and profession paths to the brand new board, says Joshua M. Juergensen, principal, monetary establishments at CliftonLarsonAllen LLP in Minneapolis. Begin figuring out these potential board member candidates—inside and exterior—as early as potential within the M&A course of, he advises.

Subsequent, think about sending these people to ICBA LEAD FWD Summits, ICBA LIVE and different trade management occasions for additional training and coaching and to make the most of networking alternatives. “There’s quite a lot of worth in sending up-and-coming generations to varied ICBA occasions,” says Juergensen, who feels that the trade as an entire must do a greater job of serving to these people set profession paths and work towards management roles in group banking.

“We have to assist them see the worth of being within the banking trade, as a result of with out that, we’re not going to have the ability to retain the following era of banking leaders who’re at present in class,” Juergensen says. “They should see the worth of being within the trade and serving as leaders, administrators, board members and chairmen of the board.”

Communication is essential as you’re employed by way of the M&A course of and attempt to perceive the client’s and vendor’s place after which attempt to synthesize these to get the very best consequence.
—Greyson Tuck, Gerrish Smith Tuck Consultants and Attorneys

Hanging the correct stability

To banks which might be working by way of the post-merger board succession course of or planning an M&A transaction quickly, Tuck says essentially the most profitable offers often contain some degree of give and take. Sellers need to be ok with the method itself and their banks’ futures, and patrons wish to know that they’ve acquired a worthwhile asset that may succeed over time. The board performs an important position in making that occur and must be a top-of-mind consideration as a financial institution works its approach by way of the method.

“Communication is essential as you’re employed by way of the M&A course of and attempt to perceive the client’s and vendor’s place after which attempt to synthesize these to get the very best consequence,” Tuck says. “That doesn’t imply everybody will get every thing that they need, nevertheless it does imply that you must strike the correct stability between the competing pursuits.”


5 ideas for profitable post-merger succession planning

  1. Begin early by speaking in regards to the board planning on the very first M&A gathering. Take into account each inside and exterior candidates, figuring out {that a} good mixture of the 2 will assist the brand new financial institution honor legacy expertise whereas embracing the longer term.
  2. Take early steps to establish people each out and in of the group with a watch on diversification (for instance, accountants, attorneys and different professionals from the group).
  3. If one or each banks are family-owned, you’ll want to issue within the associated cultural and management points that may floor as you set the brand new board collectively.
  4. In some eventualities two boards could also be the only option: one which handles the big-picture strategizing for the brand new financial institution and one which focuses on the day-to-day operations.
  5. Work to stability the lengthy tenure of established board members whereas infusing the brand new board with people who might have extra expertise with expertise, digital transformation and different fashionable necessities.

Tackling a broader succession planning challenge

As Joshua M. Juergensen surveys the group banking trade, he sees a broader lack of succession planning that goes past simply post-merger board planning.

“Succession planning as an entire is likely one of the largest challenges that the group banking trade has immediately,” says Juergensen, who’s principal, monetary establishments at CliftonLarsonAllen LLP in Minneapolis. “In quite a lot of instances, there simply isn’t a subsequent era that’s prepared to take over the reins from the longtime, multigeneration, family-owned financial institution.”

This actuality make establishments think about promoting. This, in flip, creates the necessity for higher post-merger board succession planning. “Candidly, I believe quite a lot of the explanations that banks enter into these merger agreements is because of the lack of total succession planning,” Juergensen provides.

An ICBA certification committee member, Juergensen says he’s not too long ago seen an even bigger focus being positioned on educating the following era of financial institution leaders. He sees this as a step in the correct course however says there’s nonetheless extra work to be performed.

“It’s about ensuring that group banks are investing within the [associates] who could also be future leaders of their organizations,” he says, “and taking the steps essential to drive a profitable succession planning course of.”


Bridget McCrea is a author in Florida.



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