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ADVICE ON DEVELOPING A TRULY EFFECTIVEBOARD OF DIRECTORS IN A COMMERCIAL BANK

BUILDING THE BOARD

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THE AUTHORITY OF THEBOARD OF DIRECTORS

The shareholders delegate responsibility for directing the bank to the Board of Directors.

The Board of Directors report to the shareholders and confirm to them the validity and accuracy of the accounts of the bank.

The Board of Management (and its chairman the CEO) manage the bank under the instructions and guidance of the Board of Directors.

The members of the Board of Directors are personally responsible for the safety, security and control of the bank. If anything goes wrong it is their fault!

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STRUCTURE OF THEBOARD OF DIRECTORS

5 to 7 members is the usual number. The members are non-executive, they have no authority to make any

transfers or payments. The Chief Executive Officer, and for example the Chief Financial Officer,

may attend meetings but are not members and have no vote. The Chairman is nominated by the members of the Board and like all

members is appointed by the shareholders. The majority, if not all the members, are independent of any faction or

shareholder.

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SET THE DATES FOR BOARDMEETINGS A YEAR IN ADVANCE

Everybody is busy, a year’s timetable enables members to work their own timetable around the set dates and they are thus less likely to miss meetings.

The dates, usually set at the November meeting, are immovable. They are set in stone. Once you start allowing change, then everybody will find a reason to change.

The usual number of meetings a year is 10, monthly but excluding holiday periods.

The second Thursday of the month is the preferred day (management figures for the previous month should be ready and it avoids most national holidays).

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SETTING THE AGENDA:THE USUAL FRAMEWORK

1. Minutes of the previous meeting (to be agreed and signed at the meeting by the Chairman having been previously circulated in draft and initialled).

2. Business carried forward from the last meeting (decisions that were deferred from the previous meeting).

3. Standard items that either considered at every meeting e.g. profit and loss and balance sheet or appear according to an agreed annual timetable e.g. review of problem loans, strategic plan, appointment of members of the Board of Management, risk appetite of the Board of Directors.

4. New matters placed on the agenda.5. Any other business (be careful of this, important matters can be brought

up suddenly without sufficient time for review and consideration).

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SETTING THE AGENDA:NEW ITEMS ON THE AGENDA

A matter primarily for the Chairman following discussion with the Company Secretary.

Individual members may raise matters of concern with the Chairman. All proposals have to be recommended by the executive of the bank and

presented on one sheet of paper (with attachments if necessary). Everything has to be easy to read, and thus understood.

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THE SECRET OF A GOOD MEETINGIS IN THE PREPARATION

There should be no surprises. The Chairman, the Company Secretary and the CEO need to ensure that

on every issue there is a broad consensus prior to the meeting. “Lobbying” is thus permitted.

Issues should not come up that are in dispute. A dispute at Board level is highly disruptive and bad for the morale of the

whole institution. The objective is to have informed sensible discussion around the

Boardroom table on major issues that require a decision. It is the informed discussion that is the important part, and indeed can

change views “at the table”.

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“All I want is agreement with my view after reasonable discussion”

Winston S Churchill

To what extent should meetings of the Board of Directors be

‘stage managed’?

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PREPARING THE MEMBERSOF THE BOARD

All members should be professional, there is no room for banking amateurs. The decisions are too important (or the decisions that are not taken or decisions that Boards should have taken but didn’t not even think about).

Banks go bankrupt because the Board had no idea of what the bank was actually doing.

There is a case for mandatory training, as in some US states, of members of the Boards of banks. They have to be familiar with capitalisation and liquidity ratios, Basel II and risk management, bank strategy etc and not just rely on the de minimus requirements of the regulatory authority.

Every paper to be considered by the Board should be delivered to members at least 48 hours before the meeting to allow time for thought and consideration.

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TIMING OF THE MEETING Start at 11am when everybody is fresh and enthusiastic. Finish at 12.30 (with a possible extension to 12.45). Any longer and people

become tired, distracted or bored. Longer meetings become counter-productive and tie up too much time of expensive people.

Provide a good lunch during which an informal discussion of the issues can continue. During lunch the Company Secretary drafts the minutes and the decisions.

After lunch the Chairman initials the draft minutes and signs the instructions to the executive (following the decisions made at the meeting).

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THE RULES IN THE MEETING No reading of papers, no making of speeches, no shouting nor abrasive

comments. Don’t bother presenting what has already been presented in a Board paper.

Open, calm, informed and transparent discussion is the objective. If you don’t have anything to contribute and add value to the discussion,

keep quiet. A Board meeting is not a talking shop. If the Board can’t reach a decision on a proposal after 10 or 15 minutes of

discussion then there is something wrong with it. Either decline or defer until the next meeting when it may come forward in a different format.

No new issues to be raised at the Board table.

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THE BOARD OF DIRECTORS IS A TEAM The Board of Directors is a team of like minded individuals working in

harmony for the common good of the institution and all stakeholders. Members of the Board do not represent any particular interest nor should

they favour any particular shareholder, even though they may be nominated by that shareholder.

They are collectively responsible for all decisions. You can’t duck out of a decision if you vote “no” and everybody else votes “yes”.

The Chairman is responsible for ensuring that there is a consensus on every issue and thus “no” votes should not be necessary, the occasional “abstention” may be acceptable.

If you vote “no” too often, maybe it is time to resign?

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THE ROLE OF THE CHAIRMAN To control the agenda ensuring that it is relevant, without gaps and that all

issues are brought forward. To conduct the meeting in an orderly fashion ensuring that decisions are

made in a timely and informed way. This may require gaining the sense of the meeting and drafting and if

necessary redrafting resolutions that are acceptable to all members. The consensus view will prevail.

To sum up the decision after every discussion to ensure that all members understand what has been agreed.

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CENTRAL ROLE OF THECOMPANY SECRETARY

Servant of the Board of Directors not the executive of the bank. Primary role is to ensure that at all times the bank operates within the law,

regulation and any conditions imposed by lenders. A compliance role. Liaises closely with the Chairman. Drafts the minutes of the meeting, recording the decisions not the detail

of the discussion. Minutes should be a maximum of 3 pages, otherwise they won’t get read properly by members.

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REACHING DECISIONS The Board is an informed and experienced group of like minded

individuals who trust each other. The discussion around the table is an open and transparent exchange of

views rather than an exchange of information. All directors are equal, the Chairman is the “first amongst equals”. Nobody

should be concerned about speaking out. In the event of a disagreement, the consensus view has to be found.

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How do you deal with dissent when no consensus emerges?

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WHAT CAN GO WRONG? The Board fail to understand the nature and size of the risks the bank is

taking. The board are lulled into a false sense of security by the profitability of the

bank. Decisions are effectively taken by a dominating Chief Executive Officer or

Chairman The information provided to the Board is incomplete or maybe they don’t

know what to look for in the mass of figures presented to them. Members are afraid to speak out and voice their concerns and fears.

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CONTACT DETAILS AND FURTHER INFORMATION

Jeremy Denton-Clark, Director

You can find out more about GBRW Consulting by visiting our website on http://www.gbrw.com

Visit my LinkedIn profile at http://uk.linkedin.com/in/jeremydentonclark and feel free to connect

Email us at mail@gbrw.com