Internal politics ... in your bank?

It seems our country is constantly embroiled in politics of some sort. I thought it would be a good time to do a blog on banking politics—particularly while Congress is in its Christmas recess.

I’m not talking about Republicans and Democrats, but the politics of people.

Leadership helps tamp down politics

Recently I’ve blogged about family-owned banks. Because family-owned banks involve a different type of politics altogether, I will leave that for another time. This blog is about internal bank politics and strife, and the impact both have on strategic transactions and general day-to-day life, particularly as it relates to the CEO.

In most banks I visit, I do not detect many difficult “political” issues. That is generally because most community banks, while they appear to be consensus-building, are fairly autocratic, structurally. Typically, there is the CEO, and most of the time, senior management and employees fall in line behind the leader.

That assumes, of course, that the CEO is showing some leadership. While there is always the possibility of internal politics and vying for position, most of the time everyone gets along and is on board.

Over my career, however, I have had a number of interesting issues that I would term “political.” 

The CEO who butted heads with his board

One case that I recall with great fondness concerns a good friend. My friend had served in a number of senior government positions related to financial services. He decided to become CEO of a small community bank.

Now, this fellow could be quite autocratic. He knew everything, and it was his way or the highway. So I wasn’t surprised when he immediately fell into strife with the Board and the Board Chairman, who was an independent, outside director.

I am not sure that dissension could really be defined as “politics” at that point. But when this individual stepped down as CEO, the Board refused his request to continue as a board member.

Then things really hit the fan.

The former CEO began lobbying among the shareholders and continuously sniping at what was going on at the bank.

He continues to do so to this day, which means the Board constantly has to manage shareholder perception by offsetting the former CEO’s influence.

Politics at its finest! 

Who wins the corner office?

I have also seen some internal political situations arise when individuals are jockeying for the succession position to the CEO.

In most community banks, there is only one pathway to the top and only one person who is going to fit through the eye of that needle.

Most of the senior level officers—the “C Suite” as they say, Chief Financial Officer, Chief Operating Officer, Chief Lending Officer, Chief Credit Officer—are often vying for that same position, particularly in the smaller community banks.

That certainly makes for some interesting issues that can devolve into sniping or outright battles.

The bank where I saw this challenge handled best sat down all four members of the “C Suite” and indicated that all would be considered for the CEO replacement.

• On the front end, this let each person know who the competition was and avoided a lot of anxious energy.

• As follow-up, the current CEO, who was planning on retiring, would meet with each of the candidates quarterly and give him or her an assessment of where he or she was on the list of 1 to 4.

• The CEO would also meet with the contenders as a group and provide the same assessment.

By the end of this three and a half year process, everybody pretty much knew who had bubbled up to the top as a leader. All the CEO’s efforts really reduced the potential political strife.

How M&A stirs up politics

Internal bank politics also impacts other significant issues, such as acquisitions. That’s particularly so when someone does not want an acquisition to be completed for some reason, such as potential loss of their job.

When such developments come, the party lines appear pretty quickly.

And machinations happen.

For example, note that much of an acquisition consists of onsite due diligence. In the course of that, it is easy to put a bug in the buyer’s ear about problems that may not be there, whether they be about asset quality, internal, or otherwise.

That is where politics rears its ugly head.

Where there are people, there is politics

The point of thinking about all this is just to recognize that community bank management and employees are human.

Humans have a tendency to look out for themselves, for the most part, and community banks are not immune from the “human condition.” 

Once sides are established, it can become increasingly difficult to reach across the aisle for compromise.

Do all you can to manage these issues before they become “issues.”