Recently, a board chair described to us his approach toward managing his board of directors and how he strives to improve overall corporate governance for the organization by focusing on “the three E’s.” By this, he meant that they ask directors to focus on board engagement, education, and evaluation.
In terms of engagement, it was indicated that directors (and director candidates) must show a willingness and capacity to be fully engaged as a board member. That means being prepared for meetings, having the time to review all the materials, and to fully participate in the board meetings and ask questions.
As the chairman described it, there is an expectation that every director will ask questions at every board meeting. If directors are not asking questions, then, in the chairman’s view, either the board members are not prepared, or he as chairman is not doing enough to create interest and introduce new topics to elicit the questions. We agree that engagement is a key function of community bank board service
Secondly, education is at the forefront of this board’s corporate governance. They create a specific expectation that directors, at a minimum, should have at least 10 hours of specific education a year. Occasionally, the board will invite a speaker to the board meeting which will provide some of the required time for education. In the case of the planning session we facilitated, it was recognized that each director would receive two hours of credit given that we spent some time focusing on the state of the industry and the board’s duties in certain circumstances, etc.
The organization helps the board achieve their education hours by providing information related to national and state conferences, helping directors become aware of online webinars that are available to be attended at the director’s discretion, and even paying for the directors’ subscriptions to certain trade publications that are an educational tool.
One director asked if his subscription to the Wall Street Journal would qualify, to which the group rousingly agreed, “No, it did not, because those guys don’t know anything about community banks!”
So, feel free to make your own expectations as permissive or as restrictive as you would like, but the key is to ensure directors are fully educated.
The final E component is evaluation. How does the organization determine which directors will be subject to reelection? Naturally, the answer for most community banks is we simply reappoint ourselves every year. But, with a growing and more dynamic board, there should be some aspect of periodic evaluation.
This particular board has three-year terms for directors and prior to being re-nominated, each director would complete a personal evaluation form with respect to the ability of the board member to meet the bank-maintained list of director expectations (like the education requirement above along with attendance and community participation expectations).
Simply stated, directors are evaluated against the ability to meet those expectations. This points out the need for a formal nominating committee and for the board chair to sit down with each director when they are subject to reelection and conduct the brief evaluation. While this kind of structure might not work for every organization, it is a good simple format to think about the three E’s of directorship and consider implementing some aspect of that for your own organization.
If we can help, let us know.