Tomorrow's banking: Four perspectives;

              TOMORROW'S BANKING:
FOUR PERSPECTIVES
The New Director
by JOSEPH F. DiMARIO, National Service Director for Banking, Pittsburgh
In tomorrow's business environment,
every industry, including banking,
will be subject to increased scrutiny.
This development has been prompt-ed
by a variety of circumstances, from
illegal corporate acts to the bank-ruptcy
of major businesses, including
some banks which were once con-sidered
stalwarts of the business com-munity.
How are banks responding to these
developments? What role will be
played by the bank director? What
are some of the specific issues that the
director will face as he evaluates his
position vis-a-vis the bank and the
community? Finally, what is the
broader picture, given that neither
corporate statutes nor the courts have
clearly defined what directors should
or should not do?
The picture is unclear. As a result, a
bank director today must largely
define his own role. He must not
"meddle" with day-to-day manage-ment,
yet he must know what is going
on and make his influence felt. What
he must keep in mind is that his
responsibility lies with the share-holders
and the public at large, rather
than directly with management.
Therefore, he must be alert to possi-ble
inappropriate action by cor-porate
officers. In many respects, he
walks a fine line between his degree
of involvement and the broader
responsibility of establishing cor-porate
policies and monitoring ad-herence
to those policies. This, in
turn, has made his responsibility
more arduous and hazardous.
What degree of involvement
should a bank director assume? In
recent years, various suggestions that
affect his role have been made to
banking corporations:
Appoint a full-time, compensat-ed
board whose members spend a
significant portion of their time on
bank matters—similar to the method
used in Europe.
Assign a corporate officer to the
board of directors whose sole
responsibility will be to assist in
answering questions, performing
studies and analyses, and so on. The
officer would function much like an
internal audit department which re-ports
to the board, but his responsi-bilities
would encompass all aspects
of the operation and cross-func-tional
lines extensively.
Create audit committees to im-prove
communications with the out-side
auditors and highlight the need
for diligence in financial matters.
• Organize an outside group of ex-perts
to counsel the board from an
independent, objective viewpoint.
It is evident that these proposals
lead to a situation in which the bank
director knows more, becomes more
involved, and asserts his authority
more often and with more meaning.
Indeed, the courts have now held that
a heightened awareness is required
by directors on the matter of com-pany
operations and the detection
and correction of wrongdoing.
Where does that put today's poten-tial
bank director? How will his
actions change in the future if to-day's
environment continues?
The Bank's R e s p o n s i b i l i ty
First, it is imperative that the bank's
management recognizes the board's
increased activity and provides assis-tance
to its members. The sometimes
historic reasons for being a board
member—i.e. influence in the busi-ness
community, significant business
relationships, community recog-nition—
are not the only criteria.
Management must respect the fact
that the bank director has a first
obligation to the shareholders and
public at large, and must apprise the
board of all operating matters of
significance.
Many banks today are developing
ongoing programs for their directors.
The subject matter has included:
—A history and perspective of the
individual bank.
—What banks can and cannot do
according to law.
—What directors can and cannot do.
—Areas of directors' liability.
—Measures taken by the bank to lim-it
day-to-day problems.
T h e Board's R e s p o n s i b i l i ty
New bank directors must have the
interest and available time to cope
with their new assignment. They will
obviously ask more questions of man-agement
prior to accepting a board
position. They will weigh the bank's
economic environment and the in-tegrity
of its management. In effect,
the potential board member will be
interviewing the bank as well as the
bank interviewing him.
When approached, a potential
bank director should evaluate:
—The background, interests, and in-volvement
in bank operations of
other directors.
—The bank's history in conforming
with laws and regulations, and its
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