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15 questions your board must ask about sales

Post Wells Fargo, directors can no longer afford to leave sales practices issues wholly to management

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  • Written by  David Baris, American Association of Bank Directors
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  • Comments:   DISQUS_COMMENTS
15 questions your board must ask about sales

We’ve asked several Banking Exchange bloggers and other contributors to examine the Wells Fargo affair from the vantage of their areas of specialty. In this installment of “UNconventional Wisdom,” attorney David Baris, who works extensively on board issues, has a word for boards that want to safeguard their banks from a Wells-type experience.—Steve Cocheo, executive editor and digital content manager

Before the brouhaha over Well Fargo's sales practices unfolded, most bank boards would have thought those practices were the prerogative of management, with little if any input from the board. In recent years, incentive pay has been a hot regulatory, congressional, and industry topic for senior officers and loan officers, but not those at the staff or branch level.

No more.

You can expect examiners to be scrutinizing sales practices for some time. It doesn't matter that sales practices are not addressed in examination manuals.

So, an engaged board will ask management key questions to find out more than it may now know, before their bank’s next examination.

Key questions to ask

Here are some questions to begin with:

1. Does the bank set sales goals for officers and employees?

2. If so, what are those goals? And are they realistic in light of traffic and the market?

3. What are the rewards for achieving goals and what are consequences for not achieving goals? Are they reasonable or will they reward risky behavior?

4. What steps have the front-line units taken to assure that officers and employees are treating customers fairly and not misrepresenting products and services to them?

5. What policies and procedures have been adopted to establish and enforce standards?

6. What monitoring tools and reporting systems have been adopted and implemented?

7. Is there a reasonable process in place to assure that consumer complaints are received and properly evaluated? What are the results of the consumer complaint reviews?

8. What resources are assigned to the second line of defense—risk management? What reports have the bank's Chief Risk Officer been making to the board or risk committee? Are they adequate?

9. What internal audits are employed—and how frequently are they conducted—to assure that accounts will not be established and transfers made without the clear authority of the customer?

10. Does the bank have sufficient resources assigned to Risk Management and Internal Audit? Materiality of the sales program to the overall business of the bank is relevant in resource allocation.

11. Have there been any deficiencies in the program identified and, if so, were they corrected and how were they corrected?

12. How successful has the sales program been? Has it been so successful as to raise questions whether customers have not been treated fairly?

13. What risks involving the sales program concern management, the CRO, and the internal auditor that the board has not asked about for which additional efforts need to be taken?

14. Is there a better sales program for the bank than the one currently in place?

15. Has the bank resolved all past bank regulatory concerns?

Similar questions should be posed prior to the adoption of a sales program or expanded program.

How would your bank handle a misstep?

Finally, the board and management need to be prepared for an incident response.

Prompt and effective corrective action needs to be taken. Not fixing the problem once it is known can be worse than the original problem.

Through a series of questions of management, the board can support management’s efforts to take effective corrective action.

About the author

Attorney David Baris is president of the American Association of Bank Directors.

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