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What Examiners are Looking for: Board Oversight

3 min read
Nov 17, 2020

Examiners aren’t just looking to see what’s right with board management. They also want to uncover anything that’s gone wrong.

Read our latest blog: Board and Management Action Plan for Enhancing Resiliency Through Sound Governance

Here are some of the top examiner concerns:

1. Dominant Official. A dominant official or policymaker is defined as an individual, or group of persons with close business dealings or otherwise acting together, that exerts an influential level of control or policymaking authority. The problem arises when the board doesn’t provide adequate oversight or an effective challenge to management and simply puts its trust in the dominant officer.

2. Absentee Director. Sometimes a director is so busy he or she is unable to commit to providing effective oversight. This problem can be solved by establishing an honorary director position where advice is provided but participation, responsibility, and liability are limited.

3. No Strategic Direction. When an FI lacks strategic direction, decision-making is all over the map and accountability is missing.

4. Weak Enterprise Risk Management Plan. A weak risk management plan can be the result of poor policies, procedures, systems, training, monitoring, capital planning, or succession planning. Repeat violations are a clear sign of slack ERM.

The antidote to these issues is a proactive board that’s both informed and inquisitive. Serving as a board director is not a vanity position just to burnish an image. It’s a commitment with legal and fiduciary responsibilities.

Related: What Are Examiners Looking for in 2023?

The board isn’t there to rubber-stamp executive decisions. It’s there to probe for information from management, consultants, and experts to make well-informed decisions. Directors shouldn’t immediately accept information presented at face value. They need to dig deeper and ask pointed questions to uncover potential concerns and address red flags.

Board members should have strong business acumen and experience and need to put it to good use. That includes direct involvement in strategic planning, risk management, and capital planning. Directors need to dedicate time to understanding the background of an institution and planning its future while staying educated on current trends and regulations.

Board minutes are critical to documenting board activity and demonstrating the board is fulfilling its managerial responsibilities. These minutes should reflect discussions, including pros, cons, dissenting opinions, and key questions. Board minutes are not a transcript. They reflect the highlights and the most relevant information.

The Board: What Does Strong Management Look Like?

The board of directors is responsible for how all an institution’s business is conducted, including its strategic planning. Examiners are looking for a formal planning process based on realistic assumptions about present and future market conditions and other competitive factors. The board should be monitoring actual performance vs. projections and consider alternative plans when conditions change.           

While the board doesn’t need to know every single applicable law and regulation, directors should establish a culture of compliance. It begins with a commitment to honestly and diligently supervising the FI. Employees should not dominate the board. Instead, it should be comprised largely of independent directors. Audit and compensation committees should also be comprised of independent directors. It’s imperative to avoid conflicts of interest. Committees should be active and have access to outside experts and established training programs. Internal controls and an audit program are essential.

Related: Regulatory Compliance is Hot! Have You Been Listening?

Board meetings should be dedicated to strategy, performance, and risk oversight matters. Board members are best prepared to do that when board packages are delivered and reviewed in advance.

Most importantly, they should be prepared to challenge management and react to red flags.

Want more insights into what examiners are looking for when it comes to the board and management? Join us for our webinar The 'M' in CAMELS: The Role of Risk Management on Thursday, November 19 at 2 p.m. (Central).


Related: What Is A Compliance Management System And Why Your FI Needs One

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