Board of Directors — Profile and Core Characteristics

Sections in this Topic

Overview

A qualified team of directors is essential for success. Typically, boards of directors comprise 5-13 individuals. The board of directors is responsible for setting the strategic direction of the institution and ensuring that senior management, employees, and the board itself comply with established policies, as well as federal and state laws and regulations.

Profile

The initial board should have one or two more members than the required minimum so the application will not be delayed in the event an organizer withdraws for any reason. The majority of board members should be independent of the bank and bank management, and at least two should have previous banking experience.

Many successful banking institutions have a chairperson who possesses strong leadership skills and effectively engages the board members with a nondominant leadership style. These banking institutions also tend to select a group of directors with banking-related experience in operations, finance, accounting, compliance, and technology. While banking regulators strongly encourage these background profiles, directors without banking-related experience in marketing, sales, operations, and economics are also very helpful. Many banking institutions will also include directors with some experience related to community, social service, and philanthropic activities to complement the other skill sets.

Every bank must have an audit committee of its board members. If the bank has total assets of $500 million or more but less than $1 billion, the audit committee must consist of outside directors, the majority of whom must be independent of bank management. Each bank with total assets of $1 billion or more must have an independent audit committee, with outside directors who are all independent of bank management.

Core Characteristics

There are many factors to consider when seeking experienced and qualified directors. Key factors include:

A history of community bank involvement
Demonstrated leadership skills
Strong and diverse banking experience
Prior business experience
Impeccable character
Involvement in the local community
Sound understanding of the local community and the proposed market
Adequate financial resources to provide a financial commitment to the bank

It is not necessary for each director to possess all of these characteristics. The diversity of experience, style, and business contacts contributes to the overall success of the board and, ultimately, the bank. It is also important for the board to have a good balance and for all directors to have a fair representation of the key factors.

Because of their experience, background, and business contacts, directors should be able to refer quality business to the bank. Many banking institutions rely on these referrals as a source of business growth. Directors should be able to exercise independence and have the desire to place the bank's interest ahead of any personal interests. They should also have the ability and willingness to avoid conflicts with bank interests.

Formal education for directors is important. College, continuing professional education, and advanced degrees are valuable in the highly regulated banking industry. For more information, review the Call to Order section of the Insights for Bank Directors course. The Federal Reserve's Commercial Bank Examination Manual also describes the duties and responsibilities of directors.

Directors should be willing to dedicate adequate time and enthusiasm to attend and effectively participate in board meetings and to participate on board committees. In order to keep up with changes in the banking industry, directors should also be willing to participate in director training programs.

All board members should express a commitment to the bank. The board, as a group, should set reasonable, attainable, and measurable bank performance goals. Directors should be strongly encouraged to balance operating performance and financial measures with the overall mission of the bank. Sometimes this may mean that operating performance may need to be intensified in order to achieve the bank's mission or that the mission may need to change in order to achieve an adequate operating performance.

The Ten Commandments for Directors provides a concise list of the expectations of a bank director. Basics for Bank Directors provides a more complete discussion on the role of bank directors. To order this publication, please visit the Federal Reserve System Publications Catalog.