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Talent Shortage Ahead

SuperUser Account posted on February 12, 2011

US Banker  |  February 2011

By Marissa Fajt

Many bank chief executives are nearing retirement and one of the big challenges for the industry over the next few years will be finding their successors.

"It is a widespread problem," says Rod Taylor, of the executive recruiting firm Taylor & Co in Atlanta. "There are simply not enough trained, experienced executives that can be the CEO of a bank when these CEOs start to retire."

Taylor traces the problem to the banking crisis of the early '90s, when many cut their training programs to save money. This resulted in a generation of bankers who gained expertise in one specific area, without getting broader exposure.

Sheer numbers are a factor too. Baby Boomers dwarf the next generation in size. And the banking industry did not capture its fair share of the roughly 41 million people who make up Generation X anyway, since this group entered the workforce during the last crisis and saw more opportunity in other sectors.

Some recruiters say they would have no trouble finding strong candidates for CEO jobs—if regional and community banks are willing to consider outside talent. They point to regulatory agencies and larger banks as potential hunting ground.

"Banks could easily find somebody at a larger bank with a lesser title," says Rick Rummage, the managing partner of the executive search firm The Rummage Group in Reston, Va. "It would be a big step up for that individual and they would get stock in the company, which is what they all want."

Rummage says the massive wave of consolidation expected to hit the industry should diminish the impact of any talent shortage too. Some industry watchers predict the number of banks could be halved in coming years—which will mean more executives looking for work along with fewer bank CEO jobs to go around.

The consolidation also is likely to be spurred at least in part by the challenge of finding new leadership. "As CEOs retire and there is no viable candidate to take their place, the boards are going to say, 'We can't find a successor so let's sell the bank,'" says Richard S. Cupp, a consultant and former bank CEO. "That is going to reduce the number of banks and reduce the number of CEOs needed."

Of the 499 banking companies traded on the Nasdaq and New York Stock Exchange with a CEO position listed, roughly 36 percent have CEOs that are age 60 or older, according to data provided by Hovde Financial.

Most chief financial officers and chief operating officers are younger, though; 73 percent of CFOs and 62 percent of COOs are age 55 or under.

Still, the problem many banks have these days is that even top-level managers moved up the ranks by focusing on one area and never gained experience in the many others.

"Nobody put money into training in the last 20 years because there wasn't any need to," says Rusty Cloutier, the CEO of MidSouth Bancorp Inc. in Lafayette, La. "If you needed a position filled, you waited until the next big buyout and hired people from that."

Cloutier, 63, is in the midst of working on a succession plan for MidSouth. He says because of the training gap in the industry he expects to have to give someone a thorough grounding before turning over the reins several years from now.

One bank that has continued to cross-train employees all along is Merchants and Farmers in Kosciusko, Miss. Middle managers throughout the bank are often assigned to "driving committees" that work on various initiatives. For example, commercial lenders might help develop retail products.

This approach helps the staff get familiar with other departments, says Hugh Potts Jr., the chairman and CEO of the bank and its parent company, the $1.6 billion-asset First M&F Corp.

It also paid off after the president of M&F Corp. left in late 2009. The title went to Jeffrey Lacey, who worked his way up at Merchants and Farmers and has been president of the bank unit since 2008.

"We considered people outside of the company, but the preference tilted to talent in the company," says Potts.

More banks need to start using such training tactics, says Karen Hartnett at KJH Consulting in Houston. She says the "merry-go-round" of talent that the industry has been using to fill positions is about to come to an end as Baby Boomers retire. She expects cross-training to make a comeback, as banks try to round out the skills of their upper middle managers.

"Banks need to start working on succession today for five or 10 years from now," she says. "You need credit skills training for retail guys and management skills training for commercial guys. You need to have those most talented people switch jobs and learn the other side."

But beware: Banks with shortages could target those with well-trained employees when hiring. "I stay nervous about that all the time," Potts says.