communicate, and meet in person directly with appropriate agency personnel to let them know that (1) they “hear” and understand their concerns, (2) they are immediately looking into those concerns, (3) they would appreciate further input and detail by the agencies with regard to the issues and how the agencies view their potential resolution, including success stories regarding similar situations with other institutions and (4) they will proceed with all due speed to address and resolve the issues. Boards and management perceived as being “hostile” to the agency or which continue in a “denial” phase and are not likely to seriously address agency concerns do so at significant peril. It is rare that the agencies are really far “off” in their assessment of the situation (recall that they see many institutions) and that perception can lead to the sense that additional and more aggressive enforcement tools are required to get the job done. Immediate followup is critical, and keeping the lines of communication open with the agencies to discuss progress and actions taken can again mean the difference between a formal action and an informal action, and even perhaps a revisiting of a proposed CAMELS component or overall rating. Keeping in mind that the “M” in CAMELS can be a very subjective component and can reflect a number of subjective qualities, it is important to keep that number as low as possible and the perception of acknowledgement of problems as they occur and are identified is a key part of that credibility.
Internal Communication Boards and executive management should immediately establish an overall tone of non-confrontation and cooperation with agency personnel throughout the organization. If there are viable and credible disagreements with the agency (which can and does occur) those should be vetted, and handled only at very senior levels and involve board members so that the agency does not form a belief that the board is either uninformed, uninvolved or just not interested. Discussions should be mutually respectful and non-confrontational. A confrontational and dismissive tone is never productive, however, and
again can serve to enhance the sense of the agencies that a more severe action is necessary. Understanding and managing the relationship with the agencies is critical, and can make a very significant difference in how the concerns are handled. That tone should be set at the top and enforced internally throughout the organization. Whether real or not, and whether deserved or not, a regulatory sense of lack of recognition of problems, cooperation by management or the board, or worse yet “hiding the ball”, can be fatal.
Problems Especially with the benefit of 20-20 hindsight, many problems are obvious in the rear view mirror or, sadly, after the wreck has already occurred. The key is to pay attention to what agencies are saying, what auditors are saying, what employees are saying, and what the market is saying about the credibility of your stock. “An ounce of prevention is worth a pound of cure”, and early, prompt, and preemptive action in response to identified issues and potential problems can make all the difference in the actual impact of those issues and problems on the institution and its board and management. Retaining advisors who have been through these kinds of issues and who have strong regulatory credibility and governance experience to provide objective assistance can significantly shortcut the process and provide needed support and insights while helping to minimize risk and management distraction. Stay in touch with the regulators, and once a problem is identified redouble your efforts to demonstrate sincere concern. Communicate your recognition of the problem as well as active and preemptive steps already in process to resolve the problem as quickly and effectively as possible, with ongoing controls in place to ascertain that it is not likely to reoccur once the immediate issues are resolved. Those actions can make a significant difference in the outcome of the issue at hand, as well as the overall relations with agency personnel at a critical time in the economy and in bank regulation. Bricker & Eckler, LLP 100 S. Third St. Columbus, Ohio 43215 614.227.2352 jsmith@bricker.com fall 2010 Ohio Record
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