Jeff Judy

Jeff's Thoughts - December 8 , 2010

Simple To Say, Hard To Do

There's a big difference between "simple" and "easy." Some things that are simple, meaning they are easy to understand and describe, are also very easy to do.

But other simple tasks or duties are quite challenging, when it comes to carrying them out. These are the situations where we know what to do, but we avoid doing it. These are the cases where "doing the right thing" gets lost in work arounds, procrastination, fear of confrontation, and unrealistic hopes that problems will go away by themselves.

Your Board of Directors has many responsibilities. One of the most important is simple, conceptually: holding the bank accountable for following the directions, abiding by the principles, and living up to the standards that they have adopted.

It just is not very easy to do.

Most Boards are comfortable in their role of charting the course for their institutions, at least in broad terms. But some of them are less comfortable with the logical next step, which is to look at the compass, once under way, to see if the bank is on course. And they find it even harder, if they notice the bank headed in the wrong direction, to take strong action to make the necessary course corrections early in the voyage.

Look at the wreckage of the last couple of years and you will surely find the debris of many banks that charted the wrong course. But you will also see plenty of wrecks in which the right plan, the right standards and values were stated up front, but the bank drifted farther and farther off course over time.

There are many reasons why we wander off course. Easy money, the temptation to jump in on the current hot market, the fear that you will be left behind when everyone else is making a killing, all lead to actions that are inconsistent with the master plan. They may seem like momentary deviations, but the cumulative effect of all these little side trips is that you can hardly see your original course from where you have ended up.

The real estate bubble is only the most recent example. We have chased other "get rich quick" schemes in our industry in the past. And as soon as the recovery makes a little more progress, we will start listening for the next Siren song to lead us onto the rocks.

At the moment, most Boards are probably keeping a pretty close eye on their banks. They may be more engaged than in the past, and everyone in the bank knows they are keeping tabs on how things are going. Times are tough, caution is the watchword, accountability is paramount.

That makes now the time to think about how to prevent drift, when conditions improve. Part of the solution is, in fact, making the task of holding bank management accountable a little easier. That means making sure that the necessary reports are available, and are produced reliably, on schedule, no excuses. It means formalizing reviews of bank performance, scheduling regular explicit discussions about whether the bank is on course.

It also means keeping things simple. When you start to add complexity to this role, when you start to mention exceptions, or short term opportunities, or you start to hear a lot about "flexibility" or "keeping up with the competition," make no mistake: accountability is under attack.

Boards do not relax their oversight of their banks by making a decision to step back. The gradually relinquish that oversight, letting bank management chip away at their strategies and standards and values. It is the "death of a thousand cuts" that leaves the Board on the sidelines.

Telling your bank that you are not going to jump into the next great opportunity with both feet takes commitment, courage, and endurance. Most Boards have those qualities i, during the recession.

The banks whose Boards take the time, right now, to make sure they retain those qualities are the banks that will not only emerge whole from this recession, but the ones who will turn in the best performances during the next dip in the economy.