It’s said it takes a village to raise a child. For a bank, it takes a board of directors.
The governing bodies for banking institutions, directors are placed in positions of trust by the bank’s shareholders, and both statute and common law place responsibility for the management of a bank firmly and squarely on their shoulders. They oversee bank policy, are responsible for evaluating leadership and work with senior management to create a culture.
“They set the tone at the top,” said Joe Turner, president and CEO of Springfield-based Great Southern Bancorp Inc. (NYSE: GSBC).
But being a quality director is more than just policy talk and monthly meetings. Local bank presidents say it’s all about the person.
“We have to ensure they are truly understanding and responsive to the needs of the community,” said Brad Crain, president of Arvest Bank Springfield. “They not only need to be business leaders, but civic and community leaders.”
But each bank is different, and each president has a different idea of what makes a board director’s personality the best fit.
“They must portray leadership, be good communicators, good listeners and have a knowledge of the community around them at every level,” said Randy Johnson, president and CEO of Springfield-based OakStar Bank.
Some say they must be community standouts.
“The board is there to provide advice and council. You need the right people, people who understand the bank,” Turner said. “You need people who have experience in the community. People with a good reputation and business acumen.”
Springfield businessman and philanthropist Doug Pitt fit that bill for Great Southern Bank, signing on in January as its newest director.
“Great Southern is a publicly traded bank in my hometown and I was very interested in being part of and learning about something that’s not part of my normal day,” Pitt said of the board ask, noting he’s been affiliated with Great Southern as a client and as a friend for more than 20 years. “I think I bring unique skills. I have the ability to speak technology and boardroom.”
Pitt also was named a member of the bank’s audit, compensation and nominating committees.
The askWhile there are sought-after qualifications for a director, the position isn’t something you apply for – it’s all about who you know.
As founding chairman of the OakStar Bank board, Jerald Andrews, president and executive director of the Missouri Sports Hall of Fame, knows a lot of people.
“Members are ultimately elected by the shareholders during the annual meeting, but the process really begins before that,” he said. “We take a look at the community, at who we know, who would complement our board and who could fill a need and represent an area we are looking for.”
Andrews said each board values different qualities and establishes its own requirements for directors. OakStar directors have no term limits, so long as shareholders reconfirm them annually. The same is true at Great Southern, but at Arvest, directors serve for five year terms.
Requiring a minimum of attendance at one board meeting a month and various committee meetings, Andrews said OakStar directors are compensated for their work, but it’s typically not their reason for joining.
“Be assured, we aren’t doing this for the money,” he said of director compensation. As a private institution, OakStar officials declined to disclose board compensation.
Andrews said most members are investors in the bank they serve and their objective always is to raise the profile of the bank.
“The stronger the bank, the better your investment does,” he said. “The stronger the bank, the money it can contribute to the community, to charities and support causes.”
According to Great Southern’s April 4, 2014, proxy statement filed with the U.S. Securities and Exchange Commission, the publicly traded bank’s standard compensation for nonemployee directors is $3,000 per month – or $36,000 per year – plus stock options. Members also are paid for committee meetings; for example, Pitt earns $350 per audit committee meeting attended.
Compensation is similar at other publicly traded Springfield banks. At Guaranty Federal Bancshares Inc. (Nasdaq: GFED), nonemployee members of the board receive cash compensation of $750 per monthly board meeting attended, and fees for committee memberships or attendance at committee meetings range from $125 to $200 per meeting, plus stock options, according to its most recent proxy statement. Total compensation ranged from $19,000 to $29,000 in 2013, the most recent year on file with the SEC.
“With their skills, the bank couldn’t afford to hire all of these folks on as consultants,” Turner said. “To be able to have access to them monthly is tremendous.”
A different approachThe Great Southern Bank Board of Directors covers its eight-state footprint, working with a local executive in each state. Turner said that’s typical for many banks.
However, Arvest Bank does things a little differently. President Crain said 16 local boards manage the bank’s four-state footprint.
“We are set up as 16 autonomous community banks, each with its own local board,” he said, noting the Springfield board covers Branson, Mountain Grove, Aurora and Lebanon. “It’s probably not the most efficient way of doing things, but it ensures we are serving the best interest of our communities.”
Crain said the multiplicity comes with a cost. Replicating tasks and senior leadership in each community means more output for Arvest, but Crain maintains it’s essential to help the management team develop a deep knowledge of their community.
“Our board has a strong focus on community service and relationship building,” he said. “We couldn’t do that if our board members were in another community.”
OakStar Bank’s Johnson said a board can be the lifeblood of a community bank.
“Not only do they provide me a key level of oversight, but they are my sounding board for what this community values,” he said. “They serve the interests of the community in a different way than say Bank of America or U.S. Bank would.
“These people know you. They are attending ball games in Springfield. Board members for someone like BancorpSouth are attending ball games in Tupelo, Miss.”
Andrews points to OakStar’s status as the leading home mortgage lender in Greene County, according to a deeds of trust report from Fidelity Title, as an example of the impact board leadership can have on a community.
“When we started this bank, we wanted to be the strongest, locally owned community bank we could be,” he said of the board’s original strategic planning. “A home is the largest purchase most people will make. We are part of that.”
For Crain, it always comes back to the person.
“The decisions they make impact this community,” he said. “Exceptional people make an exceptional community.”
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