Want to stay independent? Act like it, consultant says

If your bank wants to stay independent, you must plan and act like it’s going to be around in 100 years, consultant and lawyer Philip Smith told attendees at the annual convention of the Independent Community Bankers of America.

“Now the argument is beyond merely surviving,” said Smith, who is president of Memphis-based law firm Gerrish Smith Tuck and its consulting firm. “Can you maintain relevance? Can your organization maintain its ability to stay independent in a way that delivers value to customers, employees and the like?”

If banks aren’t delivering on shareholder value better than a potential acquirer, they need to ask themselves why and then adjust accordingly, Smith said. They can do that by tackling underlying issues that hamper profits or aren’t adequately contributing to the bottom line, including those exacerbated by the pandemic.

For those complaining about the difficulty of hiring, Smith suggested facing up to potentially unpleasant truths. “The organizations [consulting with us] in general, they’ll say, ‘Well, it just seems like people don’t want to come to work at a bank anymore,’” Smith said. “And I say, ‘Well, that’s not true. They just don’t wanna come to work at your bank anymore.’”

To both younger employees and customers, potential and current, banks need to pitch themselves as difference-makers. “This next generation’s gonna be looking for banks and companies that show some intentionality” around what they’re doing, Smith said. This includes climate change, diversity, equity & inclusion, and environmental and social governance issues, which will all affect bankers going forward. Banks must demonstrate knowledge and intentionality around these elements, Smith said, even if it doesn’t necessarily lead to a revamp of board membership or a binder full of new policies. Regulators or community members might ask questions, which bankers should be prepared to answer, but Smith believes community banks don’t need to self-impose a list of boxes to check.

“If we’re demonstrating some intentionality toward being aware of environmental issues, social issues, governance issues, that’s where our primary focus begins,” he said. “But it’s not, as we stand today, a reason to sell your bank.”

The pandemic has also shown how critical it is to adequately fund technology, from online account opening to remote work capabilities which previously might have been seen as the realm of the biggest banks. No longer: “Spend the money now to save yourselves the time and problems [later],” Smith said. 

Ultimately, staying independent requires a next generation of leadership as well, and banks need to identify a successor able to guide the institution in the future while evolving to meet new needs and demands.

“There’s ways to find change that are not scary,” Smith said. “As long as there are communities, there will be a need for community banks.”