Board Insights | Winter 2022

WINTER 2022

FINANCIAL SERVICES

Board evaluations help build investor, regulator confidence

Build Back Better Act continues to evolve

Elevate ESG initiatives and reporting

The great resignation

to collecting Board members’ anonymous responses and ratings on their experiences and expectations. The data is used to enhance effectiveness by adapting Board leadership to address short-term issues, ensure business continuity and support succession planning.

Below are some questions for your Board to consider when establishing an evaluation program or refreshing a program already in place: • Does the evaluation process elevate Board performance and anticipate stakeholder questions and expectations?

Board evaluations help build investor, regulator confidence

(ESG) strategies and employee and customer health and safety matters, to name a few predominant issues.

By Heidi Cieslik

Agile financial services providers are meeting these demands by deploying rigorous evaluations on a regular basis. Such ongoing evaluations can help satisfy evolving stakeholder demands, and help directors proactively identify, mitigate and address risks, financial and otherwise. They also drive Board engagement, promote effective Board interactions and foster Board member satisfaction, dynamics that can have positive impacts on operations and performance.

Financial services companies are increasingly disclosing more information regarding their Board structure, membership, oversight responsibilities and third-party relationships due to their critical role in providing reliable governance.

This “transparency trend” reaches beyond financial affairs.

Globally, companies are being pushed to report on a broad range of activities related to overseeing and evaluating cybersecurity policies, data integrity and breaches, Environmental, Social and Governance

Board and committee assessments coupled with individual director peer reviews, often facilitated by a third-party, are commonly being adopted as a comprehensive approach

• Does the evaluation process identify areas of strength and areas for improvement, including specific actions that can be taken to enhance Board performance and overall effectiveness?

• Does the evaluation process result in full participation from Board members and elicit meaningful information, comments, constructive criticism and healthy debate?

• What is the appropriate format and frequency for evaluations – at all Board meetings, following committee meetings or another schedule?

Rehmann’s extensive experience with financial services organizations delivers wide-ranging services designed to drive Board effectiveness.

We can help you develop an evaluation program to fit your organization’s unique needs. heidi.cieslik@rehmann.com | 248.458.7914

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FINANCIAL SERVICES BOARD INSIGHTS

Build Back Better Act continues to evolve

By Lisa Newland

The latest iteration of the BBBA was passed by the House in November 2021 and moved to the Senate. Since then, many provisions have been altered or removed so the bill little resembles previous versions. Looking ahead, Democrats are likely to push forward to accomplish their agenda prior to the 2022 midterm elections. This could result in legislation that is less friendly to financial services companies.

What’s possibly in store in 2022? Here’s a preview of developments that may impact your institution.

Business boost — lenders could potentially benefit from the proposed $2 trillion BBBA because it includes proposals to increase housing supply and spur trillions in new government spending to make more infrastructure resistant to climate change.

IRS reporting — a grassroots campaign coupled with consumer dissent resulted in one of the biggest victories of 2021 to fight a controversial measure that would have required financial institutions to

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report $600 or more in annual deposit account transactions. Pending proposals could require financial institutions to share private financial data on millions of their customers, focused on wealthy taxpayers and unreported business income.

Cryptocurrency — regulations and restrictions related to stablecoins, cryptocurrency pegged to a fiat currency to maintain a set value, are on the table.

Senate Banking Committee Chair Sherrod Brown, D-Ohio, asked industry leaders to provide information about their products and underlying businesses. Multiple hearings on crypto may be held throughout 2022.

M&A — the Biden administration issued a 2021 executive order intended to promote competition that pushed the Justice Department, the Fed, FDIC and OCC to update guidelines regarding bank mergers.

Since then, bills have been introduced to require regulators to evaluate how a potential merger could impact community access to affordable credit and risks to financial stability. Although it’s unlikely these bills will become law, they could provide insight into future regulatory guidance. Additionally, in 2022 the Senate will be responsible for confirming a series of bank regulator nominations,

including the OCC, the Fed’s vice chair for supervision and the chair of the FDIC, which could influence the adoption of any proposed and approved changes.

Cannabis banking — legislation designed to make it easier for banks and credit unions to serve marijuana businesses in the 40 states and territories where the substance is legal may be revisited.

Last year, Democrats failed to pass full marijuana legalization that would have provided “restorative justice” to people incarcerated for cannabis-related crimes.

While Rep. Ed Perlmutter (CO-07), a strong advocate for cannabis banking legislation, will not seek reelection in 2022, marijuana banking reform and the SAFE Banking Act is a viable compromise.

Cannabis industry sales are conservatively estimated to exceed $30 billion in 2022.

The Bottom Line…

Stay tuned.

Pending legislative proposals discussed in this article are subject to change at any time. Clients are encouraged to work with their Rehmann advisor for the latest information. lisa.newland@rehmann.com | 239.319.5482

FINANCIAL SERVICES BOARD INSIGHTS

Elevate ESG initiatives and reporting

By Liz Ziesmer

The Environmental, Social and Governance (ESG) movement is gaining ground as more and more organizations worldwide embed related strategies into their corporate culture. The intention is to deliver a net positive contribution to the balance sheet.

Financial services company boards face ongoing pressure from shareholders, employees and other stakeholders to set policies that move the organization forward on its ESG journey and provide transparent reporting on a wide range of corporate activities.

Sustainable business strategies consider the environment, social norms, such as equality, diversity and human rights, and community and consumer issues, balanced with the organization’s ability to remain economically viable. The goal is for the business to use what it needs for a sustainable operation while working to ensure external systems survive and thrive, theoretically, in perpetuity.

ESG evolved from business sustainability to compel companies to go even further to reduce their environmental “footprint,” engage in moral activities and promote social responsibility in ways that contribute to operational and financial success. Strong ESG strategies standardize and disclose ESG metrics, use peer benchmarks to set specific goals,

compare verifiable data against set criteria to evaluate performance, identify riskrelated issues and take action to mitigate those risks. Investors prefer the term ESG over sustainability; therefore, how your institution defines and evaluates your ESG strategy is paramount to pre-empt questions and address issues that may arise from stakeholders and to manage marketplace reputational risk.

Monitor proposed oversight.

Regulatory agencies are carefully considering ESG, too, based on the premise that climate-related financial risks (CRFR) could impact an institution’s safety and soundness, as well as the overall financial system. Examples of CRFR include the potential for harm to people and property due to hurricanes, wildfires, floods and heatwaves, in addition to long-term climate changes such as higher average temperatures, changes in precipitation patterns and rising sea levels.

In January, the OCC released proposed principles that would help identify, measure, monitor and address CRFRs at OCC-regulated institutions with more than $100 billion in total consolidated assets. Public comments are accepted through February 14, 2022 with guidance expected in 2023.

On the other hand, Federal Reserve Gov. Lael Brainard, the White House nominee for Fed vice chair, downplayed climate change regulatory overview during recent

testimony before the Senate Banking Committee. She said she does not favor burdening community banks with such compliance requirements, noting that it would be more appropriate for large banks with the potential for more environmental impacts.

How can leadership measure and report ESG strategies?

Typically, ESG evaluations are a mix of traditional financial analysis and nonfinancial data such as reductions in greenhouse gas emissions, increased recycling, heightened CRA ratings demonstrating equitable access to financial services and employee surveys that evaluate job and workplace satisfaction and gather opinions about the organization’s ESG strategies.

Begin to engage with management on what they have in place that represents your community-focused strategies that speak to these areas. Ensure your strategic plans incorporate similar goals that will help you achieve success with employees, customers and investors. Visit globalreporting.org for details.

Risk management practices are continually evolving. Rely on Rehmann’s expertise and insight to stay ahead of the curve and for guidance on the best path for your organization to anticipate and plan for changes. liz.ziesmer@rehmann.com | 616.975.2855

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FINANCIAL SERVICES BOARD INSIGHTS

The great resignation

By Susan West

Throughout 2021, the U.S. Labor Department reported a record number of people quit their job, many in response to the stress of working during the pandemic.

Millions are questioning what they receive in return for their efforts and are searching for a position they feel more fully meets all their needs.

The trend has become known as The Great Resignation, and for forward-looking financial institutions in competitive markets it’s an opportunity to attract and retain talent and build a strong team equipped to deliver the experiences customers expect.

Today’s job seekers — and current employees — want employment that not only provides competitive pay, but also gives them a sense of purpose in their work and offers personal and professional growth opportunities. They want to feel that what they do and what the company they work for does really matter. They want to feel valued.

They also want to feel safe and connected.

Yet, despite admirable efforts to provide safe post-pandemic working environments, many front-line employees are uncomfortable with face-to-face interaction and may seek a remote work opportunity. Others want to return to an office setting because they value camaraderie with colleagues. The bottom line: employers need to provide options for flexible work arrangements.

What strategies are being deployed to meet this challenge? According to American Banker’s recent “Best Banks to Work For” report, executives at banks

with assets between $3 billion and $10 billion are focused on maximizing efficiency by adjusting roles and responsibilities and investing in technology solutions to automate tasks. By comparison, executives at banks with assets under $3 billion report that fewer resources put extra pressure on employees. They are striving to maintain personal connections and onsite workplace experiences while simultaneously offering flex schedules and remote work opportunities.

Here are some ways you can tap into opportunities created by The Great Resignation to shape the future of your financial services company: • When evaluating M&A activity, consider how well a proposed transaction could fill a void for needed talent, such as IT expertise for cybersecurity and AI.

• Adopt a strategic approach to diversity among employees, your leadership team and your board.

• Introduce technologies that have made remote work efficient, upgrade legacy systems and allow your organization to look outside your geographic footprint for expertise.

• Utilize employee engagement surveys to keep a pulse on what matters to your employees and quickly pivot processes and policies where needed.

Is your institution experiencing its own Great Resignation? The Rehmann team can help you identify, develop and implement strategic recruiting and retention programs that fulfill your critical needs with in-house and third-party resources. susan.west@rehmann.com | 248.463.4611

Rehmann is a financial services and business advisory firm. We excel at helping clients because we take a collaborative, personalized approach and build a customized team of specialists to help them achieve their objectives. We focus on the business of business — allowing people to focus on what makes them extraordinary. The firm started as a CPA firm more than 75 years ago. Now, we are a multifaceted advisory firm that helps businesses and high-net-worth families maximize potential. Clients who work with us want us to be more than a vendor. They want collaboration, innovation, and continuous improvement.

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