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Board Cohesiveness During Merger Consideration Process

Bank merger activity is reducing the number of U.S. banks at a rate of about 5% per year. It’s unclear how long this pace of industry consolidation will continue. Investment bankers, who have an interest in the level of activity continuing, are often quick to counsel bank boards of directors that the merger market may never be better than it is right now. Each year, the boards of hundreds of banks decide to heed the advice of those suggesting it’s time to sell.

Image by Gerd Altmann from Pixabay

A decision to sell a bank is one of the two most important decisions a board addresses (the other being selection of the CEO in a succession process). The strength of a board lies in the manner in which it approaches such a decision. Some boards will have gone through a lengthy process of reaching consensus before exploring potential merger opportunities. Others will find themselves considering unexpected merger offers without first having reached consensus. Vigorous debate can be healthy and productive in the process of a board reaching the best decision for the bank and its shareholders. Regardless of the circumstances in which a potential sale or merger of a bank is being considered, it is critical that all board members have access to the same level of information and be able to provide input throughout the process.

When board members believe they have been kept out of the loop on information flow, or they haven’t been adequately involved in considering a course of action, the strength of a board is undercut. Decision making is often adversely impacted as a result. This is particularly true in connection with consideration of the sale of a bank. Throughout the process of a board investigating options and considering strategic alternatives, the board members should have confidence that they are privy to all communications of importance with both professional advisers and potential merger partners.

We have seen far too many instances in which a director, on his or her own initiative and without authorization from the board as a whole, embarks on private outreach to potential merger partners. These directors usually feel justified in such action as a result of frustration with the pace at which the full board is moving or a sense that the CEO is resistant to the idea of selling the bank. Whatever the driving force, such independent action by a director can result in a breakdown in trust among the board and rarely results in a successful merger transaction.

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Engaging Your Board with a New Bank Logo


From time to time we hear from bank senior management that their board doesn’t seem engaged, or that they can’t get a sustained conversation out of their board.  Instead, board meetings consist of routine review of management reports, with motions, seconds, and unanimous adoptions of management recommendations without any meaningful discussion.  Years of bank board meetings can go by without a single dissenting vote recorded in the bank’s board minutes.  Regulators may being to question, perhaps correctly, that the board has merely become a rubber stamp for management, and that the board is merely “going through the motions” at each board meeting.

Over time, we have found one topic for which no board member can remain silent, and everyone (and I mean everyone) has an opinion.

What color should the bank’s new logo be?

Branch lobby carpet colors can also be quite effective, as can capitalization (grammar, not balance sheet, i.e. Fintech vs. FinTech),  a change in mascot or marketing gimmick, or minor tweaks to branch hours.

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M&A: How to Review Deals at the Board Level

Many bank boards are considering a sale of their institution for a variety of reasons—heightened regulatory burdens, board and management fatigue, or an opportunity to partner with a growing bank are just a few. But while the financial crisis has taught important lessons about bank management, for many bank directors, the sale of their financial institution is uncharted territory. As you typically only have one opportunity to get it right, directors considering a sale should focus first on establishing a sound process around the board table.

Although it is rational for directors to worry more about specific aspects of the proposed deal than procedural matters, we have found that establishing an appropriate process for considering a possible transaction is often a prerequisite for success on the business issues. Moreover, in today’s world of heightened scrutiny of board actions, Directors cannot neglect procedure and expect to fulfill their duties of loyalty and due care.  In most states, fulfilling those duties gives directors the benefit of the business judgment rule, which insulates directors from liability provided the decision is related to a rational purpose.

In the context of a sale, most directors can meet their duty of loyalty by acting in good faith to achieve the best result for the company and its shareholders and by disclosing any conflicts of interest to the board prior to the beginning of the deliberations. But with respect to the duty of care, establishing a thorough process leading to a sale is key. A recent court case decided in Georgia provides a helpful roadmap.

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