Succession planning is an often overlooked part of your bank’s overall strategic planning process. A qualified board of directors and management team is essential to a bank’s success. It is important to draft a plan to help ensure the bank’s culture and productivity remain intact when change inevitably occurs.

The first step in succession planning is to identify the bank’s goals and strategies for the future as part of the overall strategic plan. The plan should address both short-term and long-term goals and managerial needs. For the short-term, the succession plan should prepare for events such as if a key employee suddenly dies. It is just as important to have a long-term, strategic plan to manage known changes, such as if a key employee announces plans to retire in a few years. Are the right people in place at the right stages of their careers to assure a seamless transfer of authority and responsibility?

The board should consider which key individuals will be responsible for drafting and implementing the succession plan. The planning should look at the bank’s hierarchy and determine what positions are critical to its success. Once identified, the team should consider the skills and characteristics required for each position, and if the right people are in them.

In regards to directors, the board should consider its ideal size and address what experience, qualifications and characteristics are necessary for it to run effectively. The size of a board can be controlled by mandatory retirement policies, termination procedures and other mechanisms. For management positions, an effective chain of command should be established including necessary entry level through executive positions. The planning team can look inside or outside of the institution for individuals to fill the identified positions, and it should determine the level of training appropriate for each position.

It is important to remember that the end goal in succession planning is to enhance shareholder value in the bank. As discussed last week, shareholder value is increased by retaining human capital, which goes beyond compensation. Retention also includes developing employees’ skillsets and providing non-monetary benefits that encourage key individuals to operate the bank efficiently and profitably. Finally, keep in mind that a succession plan is a working plan—it should be dynamic as goals adapt over time.