Jeff Marsico: Building a Strong Bank Board with Diversity & Expertise

October 3, 2024

At the NEXT Forum in Atlantic City, we caught up with Jeff Marsico, President of The Kafafian Group, for Banking+’s latest “3 Questions with…” series. We discussed the importance of board diversity, the role of experienced bankers on boards, and advice for junior bankers curious about the future of mergers and acquisitions (M&A) in the banking industry.

The Kafafian Group is a consulting firm that provides performance measurement, strategic planning, profitability outsourcing, and advisory services to financial institutions, helping banks improve efficiency and profitability.

The Importance of Diverse Bank Boards?

Question 1: Why is Board Diversity in Age and Professional Background Important?

Marsico emphasized the need for banks to focus on diversity not just in demographic factors but in age and professional backgrounds. Many boards, he noted, tend to be filled with seasoned members who have been together for years, sometimes even decades. While this continuity brings stability, it also risks “groupthink,” where decision-making becomes less dynamic and diverse perspectives are underrepresented.

“Diversifying by age and professional background, rather than just having board members who are friends of the next board member, fosters more robust dialogue,” Marsico explained. This ensures that management teams are challenged in productive ways, he said, leading to better preparation for board meetings. Furthermore, he stressed the importance of board composition reflecting the demographics of their communities, which ensures the bank stays aligned with its customer base.

Should Banks Seek Board Members with Banking Expertise?

Question 2: Should Banks Seek Board Members With Industry Experience?

While bringing in board members with banking expertise can be beneficial, Marsico warned that some management teams are hesitant to do so. The concern is that experienced bankers on the board might blur the lines between management and governance, stepping into operational territory rather than staying at the strategic level. However, Marsico believes this issue can be managed effectively through clear expectations set during the interview process.

“Having someone with banking experience is critical, especially for navigating technical issues like Asset-Liability Management (ALM), credit trends, and the impact of macroeconomic factors on the bank’s balance sheet,” Marsico advised. These topics can be difficult to grasp without a banking background, so having a knowledgeable board member can bring invaluable insights and ensure the board is well-equipped to guide the bank.

What Should Junior Bankers Know About M&A and the Impact of Elections?

Question 3: What Should Junior Bankers Know about M&A and Elections?

Marsico addressed the curiosity of junior bankers regarding mergers and acquisitions, especially in the lead-up to political elections. While he cautioned against making M&A decisions based solely on political outcomes, he acknowledged the influence of external factors like interest rates and market conditions.

“The biggest damper on bank M&A has been the mark-to-market issue, driven by the interest rate environment and bank valuations,” Marsico explained. This challenge is compounded by a lack of what he calls the “Barracuda class”—banks in the one- to ten-billion-dollar range that are typically active in acquisitions. With fewer of these intermediate buyers, credit union deals are becoming more common.

Marsico, however, remains optimistic. As bank valuations recover and interest rates stabilize, he predicts M&A activity will pick up again, regardless of the political climate. “Of course, the OCC and FDIC are asserting different categories for approving deals based on the political situation, but I wouldn’t make an M&A decision based on that.”