Board Evaluation of ManagementThe Federal Reserve Bank of Kansas City has created a guide for bank boards of directors that has much of relevance to the work of those serving on nonbank boards.
As a prime example of the useful guidance in Basics for Bank Directors, I offer the set of questions on pp. 59-60 of the current edition (the fifth) which boards can use to evaluate management:
Is the bank operated in a safe and sound matter?
Is the bank operated in compliance with laws and regulations?
Does the bank compare favorably with other banks in major performance areas such as capitalization, asset quality, earnings, liquidity, and sensitivity to market risk?
Does management respond quickly to address shortcomings identified in audits and supervisory examinations?
Does management keep the board informed and provide sufficient and timely information on the bank to enable the board to judge the bank's operational and financial status?
Are decisions made by management consistent with goals, plans, and policies set out for the bank?
Is management responsive to requests, directives, and questions from the board, including complying with board-approved policies?
Does management have the knowledge and expertise to supervise the affairs of the bank effectively, instill confidence, and demonstrate an ability to lead the bank?
Is management informed about the affairs of the bank and knowledgeable about events in the community that may affect the bank?
Are management's presentations and recommendations to the board done on a timely basis, of high quality, and accurate?
Has management put in place a corporate structure that establishes lines of authority and accountability; provides for delegation of authority and monitoring of delegated responsibilities; and permits open communication and free flow of information within the bank?
Has management seen to the staffing needs of the bank: established job descriptions, hired qualified staff, offered competitive compensation, provided training, and planned for management succession?
Has management established information systems to provide timely information on the status of the bank in order to identify evolving problems quickly?
Has management put in place sufficient procedures to direct the bank's operation and instituted sufficient internal controls to protect the bank's resources?
Does management plan for the bank and develop reasonable strategies for carrying out these plans?
Does management, in conjunction with the board, develop budgets for the bank and keep the board informed of the bank's progress in meeting budget goals?
Basics for Bank Directors was written by Forest E. Myers, who served as policy economist at the Kansas City Fed for over 30 years prior to his retirement in 2008.