Pub. 7 2019 Issue 3

14 The Community Banker www.mibonline.org THE FDIC POCKET GUIDE FOR DIRECTORS General Guidelines A financial institution's board of directors oversees the conduct of the institution's busi- ness. The board of directors should: • select and retain competent man- agement; • establish, with management, the insti- tution's long - and short-term busi- ness objectives, and adopt operating policies to achieve these objectives in a legal and sound manner; • monitor operations to ensure that they are controlled adequately and are in compliance with laws and policies; • oversee the institution's business performance; and • ensure that the institution helps to meet its community's credit needs. These responsibilities are governed by a complex framework of federal and state law and regulation. These guidelines do not mod- ify the legal framework in any way and are not intended to cover every conceivable situation that may confront an insured institution. Rather, they are intended only to offer gen- eral assistance to directors in meeting their responsibilities. Underlying these guidelines is the assumption that directors are making an honest effort to deal fairly with their institu- tions, to comply with all applicable laws and regulations, and to follow sound practices. Maintain Independence The first step both the board and individ- ual directors should take is to establish and maintain the board's independence. Effective corporate governance requires a high level of cooperation between an institution's board and its management. Nevertheless, a director's duty to oversee the conduct of the institution's business necessitates that each director exercise independent judgment in evaluating management's actions and com- petence. Critical evaluation of issues before the board is essential. Directors who routine- ly approve management decisions without exercising their own informed judgment are not adequately serving their institutions, their stockholders, or their communities. Keep Informed Directors must keep themselves informed of the activities and condition of their institu- tion and of the environment in which it oper- ates. They should attend board and assigned committee meetings regularly, and should be careful to review closely all meeting materi- als, auditor's findings and recommendations, and supervisory communications. Directors also should stay abreast of general industry trends and any statutory and regulatory developments pertinent to their institution. Directors should work with management to develop a program to keep members informed. Periodic briefings by management, counsel, auditors or other consultants are helpful, and more formal director education seminars should be considered. The pace of change in financial institu- tions today makes it particularly important that directors commit adequate time to be informed participants in the affairs of their institution. Ensure Qualified Management The board of directors is responsible for ensuring that day-to-day operations of the institution are in the hands of qualified man- agement. If the board becomes dissatisfied with the performance of the chief executive officer or senior management, it should address the matter directly. If hiring a new chief executive officer is necessary, the board should act quickly to find a qualified replace- ment. Ability, integrity, and experience are the most important qualifications for a chief executive officer. Supervise Management Supervision is the broadest of the board's duties and the most difficult to describe, as its scope varies according to the circumstanc- es of each case. Consequently, the following suggestions should be viewed as general. Establish Policies. The board of directors should ensure that all significant activities are covered by clearly communicated written policies that can be readily understood by all employees. All policies should be monitored to ensure that they conform with changes in laws and regulations, economic conditions, and the institution's circumstances. Specific policies should cover at a minimum: • loans, including internal loan review procedures • investments • asset-liability/funds management • profit planning and budget • capital planning • internal controls • compliance activities • audit program • conflicts of interest • code of ethics These policies should be formulated to fur- ther the institution's business plan in a manner consistent with safe and sound practices. They