Why Succession Planning is Important in Community Banking
Succession planning has never been more important. Why? Approximately 8,000 people hit retirement age every day, and this includes community bank owners of the Baby Boomer generation. Unfortunately, many have not followed through with succession planning, which means the community banking industry could very well see a leadership crisis in the near future.
A good succession strategy begins with smart planning. This should happen far in advance of a bank leader stepping down. In fact, it’s really never too early to begin this planning.
Many merger and acquisition deals outside of the banking industry involve a leader in the company preparing to step down, which can significantly alter many aspects of the company – which is why planning is so crucial. In community banking, a leadership change is akin to a merger/acquisition and planning for a retirement should begin no later than three years before the planned exit. This way, you can avoid many of the pitfalls that occur when leadership changes hands.
The first step in the planning process is to make a list of possible qualified people who will take over leadership. Perhaps the business will go to an heir? Perhaps you have two or three strong candidates outside of the family but within the company in mind? It’s always good to have options.
Your next step should be to start placing more responsibilities upon the shoulders of your prospects. They need to begin feeling comfortable making decisions, establishing authority and developing their sense of empowerment. This will require you to begin giving up some of your responsibilities, which can be hard, but completely necessary if you want to see your bank prosper.
Recruit the best. It’s not always the case that a family member is willing or able to step up and fill your shoes or that you’ll have someone with the unique qualities to be a leader currently working for you, in which case you need to recruit from the outside. Because this selection and grooming process can take years, you will likely need to establish an incentive program to entice your intended successor to stay around for the transition instead of seeking leadership positions elsewhere.
Sometimes, selling makes sense. Rather than leave a legacy, you might want to sell to someone outside of your connections or to another bank. If this is the case, you’ll still need to get your staff prepared for the transfer. Making a successful sale hinges on the quality of the institution you’re leaving behind – buyers want only to invest in a stable company, one that has good leadership in place.
At the CBA of Kansas, our mission is to serve all community banks in Kansas and be a strong voice as well as a resource for advocacy. We assist members in networking, training and education, which help them to become more enhanced entities. We can also assist in making the transition of leadership easier, successful and effective. CBA of Kansas has proven to be a valuable resource to community banks in Kansas, and we want to assist your community bank today.