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Thursday, December 1, 2022

Board succession planning after a merger – Unbiased Banker


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

By Bridget McCrea


Combining two banks into one is a posh endeavor. Between the due diligence, monetary negotiations, know-how integrations and the unification of two established operations—be it through acquisition or merger—the method may 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 each side of the desk work out the main points, post-merger board succession planning ought to be a key subject of debate. It’s a side of the deal that shouldn’t be left till the final minute, though it usually 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 give attention to the best way to put the boards collectively, who will keep or go away and who would be the new chairman of the board,” he continues. “You’ll be able to’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 necessary, as a result of banks with robust boards are typically effectively positioned of their marketplaces, perceive their buyer bases and make good selections. These with weak boards are likely to wrestle with decision-making as a result of disagreements both amongst board members or with government officers.

Greyson Tuck, Gerrish Smith Tuck Consultants and Attorneys

“Neighborhood 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 selections, maintains management and produces enterprise for the financial institution. These are all necessary obligations for a financial institution because it goes by way of the merger or acquisition course of.”

Preserving the worth of the transaction

When one neighborhood financial institution acquires or merges with one other financial institution, there are numerous steps to take and issues to debate. A number of the most necessary 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.”

Publish-merger board succession doesn’t at all times imply choosing a handful of present administrators and making a single mixed board both. For instance, Tuck lately labored on a deal the place the holding corporations for 2 totally different rural neighborhood banks have been interested by merging the 2 entities into one. The talks came about between the 2 holding corporations and initially centered on the longer term route 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 doable.

Then, the banks determined to arrange two boards: one centered on know-how, operations and day-to-day contact with the neighborhood, 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 could 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 effectively for them because of these very early discussions that came about earlier than deal pricing and future plans have been even mentioned,” he says, advising an identical, proactive method to board succession planning for any neighborhood financial institution that’s merging with one other establishment.

“Proper from the beginning, there was a transparent give attention to the experience and expertise of the prevailing administrators at every group. Then, numerous thought went into which people could be the perfect match for every board.”

What to do when household is concerned

On the floor, an M&A deal involving a family-owned neighborhood financial institution appears identical to another deal. These similarities often finish when the layers are peeled again on the family-owned entity, whose company tradition isn’t at all times 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 relations 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 relations and 20% to 30% are exterior administrators,” Tuck explains.

If these relations don’t need to surrender management to a board that’s diluted by non-family members, the challenges might mount. One solution to resolve the difficulty 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 stage there could also be six administrators, 4 of whom are relations and two of whom are exterior administrators. Then, on the financial institution stage, there shall be 10 administrators, six of whom are relations and 4 of whom are exterior administrators. Tuck says this can be a quite common post-merger board succession state of affairs for family-owned banks.

“That offers 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 acceptable variety of exterior administrators to be concerned.”

Working by way of differing priorities

As soon as a neighborhood 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. “When you fail to do that, it’s principally like dropping the ball on the entire work that goes into the merger planning and strategizing course of,” Moch cautions. “Your board will set all the route for the merged group.”

[A chairman] may also help information and direct the discussions to make sure that, even when there’s disagreement, as soon as a route 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, targets 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 route even when there’s competing curiosity. That means, you will 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 selections. Having a robust chairman in place may also help banks obtain that consensus.

“She or he may also help information and direct the discussions to make sure that, even when there’s disagreement, as soon as a route 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 neighborhood financial institution has been in enterprise, there could also be board members who’ve been in place for many years. They every deliver their very own strengths and expertise to the board, and their longtime information of the banking trade makes them helpful belongings for the group.

Because the banking surroundings, know-how and buyer preferences all proceed to vary, boards also can profit from some recent faces who might deliver totally different views, expertise and concepts to the desk.

A merger is a major time to deliver new and established members right into a mixed board that honors expertise and helps the brand new entity plan for future success. A method to do that is by including folks with various 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 doable within the M&A course of, he advises.

Subsequent, take into account sending these people to ICBA LEAD FWD Summits, ICBA LIVE and different trade management occasions for additional training and coaching and to reap the benefits of networking alternatives. “There’s numerous worth in sending up-and-coming generations to varied ICBA occasions,” says Juergensen, who feels that the trade as a complete must do a greater job of serving to these people set profession paths and work towards management roles in neighborhood 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 technology 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 customer’s and vendor’s place after which attempt to synthesize these to get the absolute best outcome.
—Greyson Tuck, Gerrish Smith Tuck Consultants and Attorneys

Hanging the precise stability

To banks which can 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 stage of give and take. Sellers need to be ok with the method itself and their banks’ futures, and consumers need to know that they’ve acquired a helpful asset that can succeed over time. The board performs a vital position in making that occur and ought to be a top-of-mind consideration as a financial institution works its means 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 customer’s and vendor’s place after which attempt to synthesize these to get the absolute best outcome,” Tuck says. “That doesn’t imply everybody will get every part that they need, however it does imply that it’s important to strike the precise stability between the competing pursuits.”


5 suggestions for profitable post-merger succession planning

  1. Begin early by speaking in regards to the board planning on the very first M&A gathering. Contemplate 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 neighborhood).
  3. If one or each banks are family-owned, make sure you issue within the associated cultural and management points that can floor as you set the brand new board collectively.
  4. In some situations two boards could also be your best 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 know-how, digital transformation and different trendy necessities.

Tackling a broader succession planning situation

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

“Succession planning as a complete is likely one of the largest challenges that the neighborhood banking trade has right this moment,” says Juergensen, who’s principal, monetary establishments at CliftonLarsonAllen LLP in Minneapolis. “In numerous circumstances, there simply isn’t a subsequent technology that’s keen to take over the reins from the longtime, multigeneration, family-owned financial institution.”

This actuality make establishments take into account promoting. This, in flip, creates the necessity for higher post-merger board succession planning. “Candidly, I feel numerous the explanations that banks enter into these merger agreements is as a result of lack of total succession planning,” Juergensen provides.

An ICBA certification committee member, Juergensen says he’s lately seen a much bigger focus being positioned on educating the following technology of financial institution leaders. He sees this as a step in the precise route however says there’s nonetheless extra work to be performed.

“It’s about ensuring that neighborhood 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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