The Right Stuff

What does it take to run a billion-dollar institution? Are the leadership requirements for the head of a $1 billion organization different from the skills it takes to run a $100 million bank? Scale, ownership structure, organizational complexity and a workforce spread across multiple locations are all factors that a manager in a smaller bank might want to consider as he or she strives for a leadership post at a larger institution..So, what does it take to run the biggest community banks in the Midwest?."Versatility," is Harry Argue's one-word distillation. The president and CEO of the Graduate School of Banking at the University of Wisconsin in Madison described a blend of business performance and local-market grounding by which CEOs "are attentive to the needs of the marketplace and can deal with their customers on a one-to-one basis, wherever possible." The best big-bank CEOs do not "become remote from their customers," he said..But best intentions and the common touch may be no match for meandering branch structures and the mass of individuals involved. A chief executive in a billion-dollar bank can not be everywhere and may sit quite far away from many, if not most, of the bank's staff and customers. In these circumstances successful CEOs tend to combine exceptional business skill, including accounting-based financial firepower, with a talent for building effective executive teams and an ability to project their strategic priorities to the whole organization. .These leaders balance hard skills and soft skills, said Timothy Koch, president of the Graduate School of Banking, at the University of Colorado in Boulder. "The people skills—how well they work with people, how well they work with the board, can they identify people's skill sets, put the right people in the right job," are what "really differentiates the individual who is ultimately going to be selected as the CEO," Koch said..Soft skills, hard decisionsSoft skills are more important than ever, said Charles Funk, president and CEO of the Iowa City-based MidWestOne Financial Group. In addition to leading an organization with $1.5 billion in assets, Funk teaches a course called "A CEO's Perspective on Bank Management" at the Colorado graduate school. A quarter of the coursework addresses the question "are you running a people company?" The primacy of people is emphasized in other areas of the instruction as well..The "people piece" involves working well with executive committees and bank staff, the board, community contacts and media — to say nothing of audiences such as shareholders and customers. But it really hinges on judgment, the ability to pick the right people for the right jobs..After showing his class a video interview of former General Electric CEO Jack Welch, Funk said he leads a discussion on the "importance of addressing non-performers." Funk refers to Welch's concept of false kindness, an unwillingness or inability to deal candidly and decisively with mediocre performers. "They need a fair chance to improve," Funk said, "but if they can't improve and they're in a key position, they need to be replaced or the company will never achieve its full potential.".Fact-facing and a focus on fit are among the most crucial personnel priorities a CEO can set. "I think the tough decisions usually come down to people. We let our emotions get in the way, and let's face it, Midwesterners are nice people," Funk said. "As a general rule we don't like a lot of conflict, and the easiest thing to do is look the other way," he said..Ronald Kranz, chairman and CEO of the Fremont, Neb.-based First State Bank and Trust, also noted that even ambitious executives may not be prepared for the kinds of decisions a CEO faces. "It takes the right kind of person to want to do it, to deal with the personnel issues and make tough decisions," Kranz said. Given the complexities of the job "some people are just content to get to a certain level and stay there." .Decisiveness in setting standards and determination in conveying those standards through the executive committee or senior management are crucial leadership attributes. The president has to set the pace said Paul Bees, an executive recruiter and partner at the St. Paul, Minn.-based Midwest Financial Search, Inc. "Successful bank presidents recognize that their job is to be the leader, and their job is to hire people who can take over and manage specific areas of the bank, and be accountable for those functions. But it is up to the president to make sure that they work," Bees said. ."Some people aren't cut out to make these decisions, and I think we need to be real honest about it, that if you're not cut out to make these decisions, you're probably not cut out to be a good CEO," Funk said..Communication countsCommunicating goals and expectations can be difficult in larger organizations, even for executives who are known as good communicators. ."One of the most important jobs of the CEO, especially as the company gets big, is that you communicate the vision and the values of the organization," said Funk, who emphasized how challenging this can be for any business with more than a few locations. "If you take people in a much, much wider geographic swath, it just makes it a lot harder.".Big-bank CEOs almost always have to rely heavily on their senior management teams for help, but communication is not something the CEO can delegate and forget about; he or she has to lead and follow up on communication. Funk said this was a topic at one of his own recent management meetings. "I reminded them that if the information we share in that executive committee stops at this level then the executive committee is really not very effective, that this information needs to be communicated throughout the organization and throughout the respective divisions," he said..Leading CEOs also have to drive their organizations to communicate effectively with the marketplace, said Argue. "Banks are going to have to do a much better job promoting their capabilities to the marketplace," he said, pointing to an intensifying level of competition, not just from other banks but also from credit unions, commercial lenders and diversifying brokerage firms.."The business has gotten a lot more competitive over the last 10 to 15 years, and it's a harder business to run," said Bees, who noted that CEOs are expected to be more assertive as marketers today than they were in the past. "Somebody who's going to be successful recognizes that this isn't the kind of business where you can expect customers just to walk in the door.".Lenders or leaders first?Commercial lending has been a conventional path to the CEO's office, but that may be changing. "The bigger the bank, the more sophisticated presidents have to be in terms of credit," assets and liabilities, said Mary Lydon a partner at Midwest Financial Search. A background in correspondent banking has also been helpful, at least in the past. But Koch said more investment managers and executives with no direct lending experience are moving into bank leadership. "They've rarely been deal-makers. Their skill-set difference is more in global management of the organization," Koch said. These candidates are able to say "I know enterprise risk, I know credit risk, I know the liquidity risk piece, I know the interest rate risk piece, I know how to blend them all together and I'm very good with people.".Charles Funk is coincidentally a case in point. "I haven't made a loan in my life," he said. "I've been in banking since 1979, and the first 17 years of my career I managed investment portfolios." Funk's father, who owned a small bank in Missouri, gave his son a good dose of the conventional wisdom as he started his career. "He was just sick when I didn't take the lending track," Funk said. "He just said: you'll never be the CEO of a bank.".But when Brenton Bank, a Des Moines-based company acquired by Wells Fargo in 2000, tapped Funk for leadership in 1996, they "didn't really care whether I had loaned money or not; what they cared about was leadership skills," he said.."I think with the lenders that are coming up, where they may fall short from time to time is they haven't got the broad experience of managing people. And there's no magic wand to being a good manager of people; it takes hard work, it takes being smart — just takes time. It takes experience to learn from your mistakes," Funk said..Kranz started out as a bank examiner and trust officer before deciding to pursue a presidency. "I had done a little bit of lending, and I went on and did some lending school stuff, to kind of complete that part. But it's really not my forte; my forte is watching what goes on, on the bank's books every day," Kranz said. Commercial lending continues to offer a background in credit and customer service that may be very useful for future bank CEOs, but "probably 75 percent of the universe would say it's more about leadership and people skills and the understanding of how banks make money," Funk said .Today's business "risks are far greater than just credit," Koch said. Chief executives at leading Midwest community banks are expected to be "the global risk manager, the enterprise risk manager," he said. v.Who runs the region's billion-dollar banks?.Bob YoungFounder & Chairman Alpine Bank — $1.9 billion Glenwood Springs, Colo..Young founded Alpine Bank in 1973 and today has 33 banks. He also founded the Colorado Independent Bankers, chaired Colorado's State Board of Banking from 1988 to 2007, and served two years as board chairman and president of the Colorado Banker's Association. Young received his B.B.A. from Wichita State University and attended the University of Wisconsin-Madison Graduate School of Banking..Suku RadiaPresident and Chief Executive OfficerBankers Trust — $1.9 billionDes Moines, Iowa.Radia joined Bankers Trust in March 2008 after eight years as CFO at Meredith Corporation. Radia has a bachelor's of science degree, with distinction, from Iowa State University in 1974 and became a certified public accountant in 1975, when he joined KPMG. He worked with KPMG for 25 years and rose to managing partner in 1993..Daniel G. KleinPresident, Chief Executive Officer & Chairman of the BoardKleinBank — $1.2 billionBig Lake, Minn..Klein has served as president and chief executive officer of KleinBank since 1979. Before KleinBank, he was president of Victoria State Bank from 1974-1979. Klein has a bachelor's of arts degree in business administration and economics from Gustavus Adolphus College in St. Peter, Minn. He also attended the Minnesota School of Banking and various Minnesota Bankers Association and American Institute of Banking classes..Richard H. SolbergPresident & Chief Executive OfficerState Bank & Trust — $1.7 billionFargo, N.D..Solberg has served as president and CEO of State Bank & Trust since 1982. From 1968 to 1982, he worked for First National Bank, Grand Forks, N.D., and Citizens State Bank in his hometown of Finley, N.D. Solberg was named president and CEO of Citizens State Bank in 1979. Solberg is a graduate of Concordia College in Moorhead, Minn..Bob LucasPresident & Chief Executive OfficerStockman Bank of Montana — $1.2 billionMiles City, Mont..Lucas started with Miles City Bank, the precursor to Stockman Bank, in 1959. He worked his way up from assistant cashier and became president in 1972. In 1980 he also became the chairman. Lucas attended Macalester College in St. Paul, Minn., where he majored in economics and political science..Charles N. FunkPresident and Chief Executive OfficerMidWestOne Financial Group — $1.5 billionIowa City, Iowa.Funk joined Iowa State Bank and Trust Company, now MidWestOne Financial Group, as president and CEO in 2000. Formerly, he was president, central region manager and chief investment officer for Brenton Bank of Des Moines. Funk is a graduate of William Jewell College in Liberty, Mo. He has taught banking and investment classes at the Graduate School of Banking at Colorado, the Iowa School of Banking and Stonier Graduate School of Banking at Georgetown University..Richard A. HansenChairman & Chief Executive OfficerJohnson Bank — $4.1 billionRacine, Wis..Hansen is president and CEO of Johnson Financial Group, Inc., a registered financial services company with bank, trust, investment management and insurance operations in three states and Switzerland. He is also chairman and CEO of Johnson Bank.He served as president and CEO of Firstar Bank Madison from 1990 to 1995 and senior vice president of Firstar Corporation of Minnesota and president of Firstar Metro Bank from 1989 until December 1990. Prior to his position in Minnesota, he served as an executive in various other capacities at banks within the Firstar Corporation.Hansen is a native of Madison, Wis., and a graduate of the University of Wisconsin-Milwaukee..Richard WestraPresident and Chief Executive OfficerDacotah Banks, Inc. — $1.3 billionAberdeen, S.D..Westra accepted the position of president of Dacotah Bank in Aberdeen in 1980 and continued in that capacity until 2006, when he became president and CEO of Dacotah Banks, Inc.Westra graduated from Central High School and Northern State University, which are both in Aberdeen. He began his career at the FDIC in the Twin Cities examining banks in Minnesota and South Dakota before joining Dacotah Bank in 1973.