Core Characteristics of a Management Team

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Overview
Chief Executive Officer
Management Team
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Overview

One of the most important decisions for any financial institution is selecting the executive management team, since there is a direct relationship between the overall conditions of a bank, the quality of its management team, and the future performance of the bank.

Chief Executive Officer

It is the responsibility of the board of directors to employ a competent chief executive officer (CEO). The CEO should have some executive/senior management banking experience. While prior experience as a CEO can be extremely beneficial, it is not a requirement.

The CEO for a minority bank that expects to operate as a community banking institution should preferably have community banking experience. CEOs without community banking experience will need to rely heavily on a chief lending officer, chief operating officer (COO), or another key official with community banking experience.

The CEO for a minority bank operating in a depressed market should preferably have banking experience with troubled assets, government funding assistance program (i.e., CDIF fund), and capital raising strategies, or have a reliable team with such expertise.

CEOs must also understand and appreciate all the CAMELS factors that bank management must focus on, not just asset quality. The CAMELS factors are used by bank regulators to rate a bank’s performance. For more information on how capital, asset quality, management, earnings, liquidity, and sensitivity to market risk are evaluated, view the CAMELS section.

Chief Financial Officer (CFO) and Chief Risk Officer (CRO)

After a minority bank grows, it will become important for multiple responsibilities to separate from a single person and to be appropriately assigned to allow for full attention. For example, the CFO’s role will grow and the officer will need to be able to focus on a variety of contingency planning strategies, while the CRO will need to focus more attention on the risks across the entire organization. These roles become more complicated and more critical as the bank seeks to grow, compete with other banks and nonbank service companies, and achieve a mission of serving customers in need, while increasing profit.

Management Team

There are several core characteristics of a sound management team, including:

Well-rounded level of expertise and experience
Diverse banking experience
Complementary team member experience, covering almost all areas of banking

Moreover, the responsibilities assigned to the management team should be commensurate with the risk profile of the institution and the experience of the team members. The management team should be prepared to operate efficiently until the bank is of sufficient size and is profitable enough to add more depth to the management team. While some members of management may have multiple responsibilities, particularly during the early years, it is critical for lenders to possess significant experience in the type of lending specified in the bank’s charter.

Succession Planning

An effective management team should also have a good succession/replacement strategy in place, particularly for management with diverse backgrounds or a specific cultural emphasis. This is particularly important for institutions that rely on key management staff with ethnic or cultural characteristics that may be critical in maintaining close relationships with existing bank customers and the surrounding community. Management may need to consider the additional time and salary expense required to replace such key employees.