Why Succession Planning Matters in Community Banking
In today’s rapidly evolving banking landscape, community banks must do more than respond to regulation and market changes; they must plan for sustainable leadership. At the heart of long-term institutional resilience lies a vital but often under-prioritized function: succession planning. While larger banks have extensive bench strength and national search capabilities, community banks are frequently defined by smaller leadership teams and tight-knit cultures, making them particularly vulnerable to executive transitions.
A well-designed succession plan does more than name a backup leader. It develops a living, strategic pipeline of talent prepared to guide the institution through the next decade and beyond.
Succession planning in community banks addresses four strategic needs:
- Leadership Continuity – Ensures a seamless transition during retirements, departures, or unforeseen events.
- Strategic Alignment – Keeps leadership in sync with the bank’s evolving goals, culture, and mission.
- Regulatory Expectations – Meets increasing scrutiny from regulators who expect a board-approved succession policy and a reviewed succession plan for key roles.
- Maintaining Community Engagement – Ensures preservation of community knowledge and trust.
- CEO Insight: A key competitive advantage over larger money-center and regional banks is their local knowledge and vested interests in the communities they serve.
The consequences of neglecting this process are clear: loss of momentum, culture dilution, risk to operational stability, and potential loss of independence. Forward-looking community banks embed succession planning into their core strategic practices.
Interim and Planned Succession Path
Succession planning distinguishes between:
- Interim Succession – Temporary coverage in case of unexpected departures
- Planned Succession – Long-term preparation for future role transitions
Wayne’s Insight: The CEO should define a targeted organizational structure with a clear, yet flexible, 3-5 year timeframe that aligns with strategic priorities, including the development of internal talent. This dynamic approach becomes critical when a significant change in strategy occurs, necessitating new skills and expertise.
Fostering an Enterprise Mindset in Talent Reviews
An effective succession process requires the executive team to view talent as an enterprise resource, not merely “their resource.” This mindset creates richer, more strategic discussions, such as a CFO suggesting a special project for a marketing leader to accelerate their readiness.
The HR leader and CEO should emphasize that talent reviews are candid, enterprise-wide discussions of strengths, gaps, and development needs for those identified as successors for Key Management Positions (KMPs). Leaders in current KMP roles should actively contribute to the development of successors outside their function by providing feedback, mentorship, project exposure, and participation in strategic meetings.
Wayne’s Insight: This collective ownership ensures succession planning is not siloed and that development opportunities cross functional lines.
Identifying Key Management Positions (KMPs)
KPMs that should be included in a succession plan are assessed through multiple criteria, including:
- Specialized knowledge and experience
- Market scarcity
- Proximity to retirement (within 5 years)
- Operational and strategic importance (e.g., department heads)
- Single-incumbent or hard-to-fill roles
- Regulatory importance (compliance and CISO functions)
When people think about Key Management Positions (KMPs), the big titles often come to mind – CEO, CFO, COO, CTO, CHRO, and General Counsel. But KMPs don’t stop there. Depending on the organization, they can also include senior leaders like the Head of Retail Banking, Chief Commercial Banking Officer (CCBO), or Chief Compliance Officer. Together, these leaders form the inner circle guiding the company’s direction, culture, and long-term success.
Wayne’s Insights: Criteria for identifying KMPs should align with the organization’s strategy, balancing current priorities with future imperatives. In practice, this often means including roles beyond traditional executives—such as the Chief Information Security Officer, given the scarcity and criticality of cybersecurity talent, and the Bank Auditor, whose direct accountability to the Audit Committee makes the position essential to effective governance.
Candidate Readiness: A Tiered Framework and Path to a KMP
Candidates for KMP roles are classified into four readiness categories:
- Ready Now – Fully qualified and demonstrated capability to step in immediately
- 1–3 Years Out – Near-ready, with specific development needs identified
- 3–5 Years Out – Emerging talent, requiring significant experience growth
- 5+ Years Out – High-potential, early-career talent
Each KMP must have an interim replacement (who may not be a potential successor) and planned candidates placed in readiness categories. Any KMP without an internal planned successor (Ready Now or a 1-3 year candidate) should be noted.
Wayne’s Insights: It is unlikely that all KMPs will have an internal candidate ready within the planned timeframe. This is not a failure of the process, but an expectation given the pace of industry change and the organization’s own circumstances—such as unexpected departures, pace of candidate development, and evolving strategic direction. Importantly, a KMP filled with an external candidate can bring new ideas and perspectives, especially given the importance of the digital banking channel, the emergence of new payment technologies, and seemingly cryptocurrency (e.g., stablecoin) and AI.
External Search Triggers and Benchmarking
An external search should be considered when:
- No “Ready Now” internal candidate exists
- 1–3-year candidates require more development than the role’s timeline allows
Wayne’s Insights: External Benchmarking: Even when aiming to promote from within, it is best practice to benchmark against external talent to understand market capabilities. This comparison can help refine internal development plans and ensure competitive leadership quality. Again, you may instead find an excellent fit from the outside that bolsters your organization’s capability.
Candidate Readiness: Preparing Your Future Leaders
The Tools:
- Leadership Assessments (see appendix A) – completed by an internal HR professional or an independent consultant. Recommended for 1–3-year readiness candidates. Ready Now candidates should have a leadership profile in place at the time they are so designated.
- Development Plan – documents areas of focus identified in the assessment with specific actions to be taken by the candidate. Quarterly updates with manager, candidate and HR or consultant to ensure plans remain current and actionable.
- Talent Profiles (see appendix B) – a one-page document outlining a candidate’s career history, skills, aspirations, strengths, and areas of development and updated at least annually.
The Leadership Assessment is a forward-looking evaluation of leadership capability and potential, while the Talent Profile is a comprehensive record of past performance, skills, and aspirations. The Development Plan is a roadmap and a bridge or connection between the assessment and the profile. Their alignment ensures that succession planning decisions are balanced, evidence-based, and actionable, blending who the leader is today with who they can become tomorrow.
Wayne’s Insights: Effective succession planning starts with clear criteria that define “what good looks like” in leadership competencies—tailored by role and level. From there, development plans should intentionally provide successors with the right experiences, even if that means taking calculated risks by assigning them to unfamiliar projects or responsibilities. Cross-functional cooperation is key to creating these growth opportunities, and HR should oversee the process—often with support from an external consultant—to ensure assessments and development remain both rigorous and forward-looking.
Governance and Oversight: A Board-Led Imperative
Each year, Human Resources coordinates a comprehensive review of the Management Succession Plan with the CEO and Executive Team, who play active roles in identifying talent, preparing candidates, and recommending changes in succession candidates and the policy and plan process. Recommended revisions are presented at a joint meeting of the Corporate Governance and Compensation Committees (or Executive Committee). These bodies meet jointly with the CEO to review candidate development plan progress, readiness tiers, and—importantly—an assessment of the plan’s strategic fit.
Final revisions are typically presented to the Board in the fall to align with the strategic planning and budgeting process.
Wayne’s Insights: The Corporate Governance and Compensation Committees (or Executive Committee) do the “heavy lifting” on behalf of the board, allowing for an appropriate focus on a comprehensive succession planning process.
CEO Succession: A Strategic and Board-Led Process
CEO succession should start ideally five years before a planned transition. The process includes:
- Defining the future CEO success profile
- Maintaining emergency and planned options
- Benchmarking internal talent against external candidates
- Conducting competitive searches when needed
- Ensuring structured onboarding and cultural integration
Wayne’s Insights: Every KMP should have an interim successor, but for the CEO role this planning is especially vital. While a board member can serve in the interim, it is preferable to designate an executive leader—whether or not they are a long-term candidate. To strengthen this process, the board should establish a CEO success profile, shaped by the question, “What is needed to drive the success of our business in the future?” Typically, the Compensation and Governance Committees, or the Executive Committee, lead this effort on behalf of the board, ensuring alignment and final approval.
Embedding Succession in Strategic Culture
One CEO captures the cultural imperative:
“Succession planning is as important as capital planning. We want to not only know who can fill our leadership roles, but how we’re developing them to lead us into the future.”
Commitment to the process shows up in:
- Cross-functional mentorship and shadowing
- Stretch assignments beyond current scope
- Inclusion in board and community engagements
When succession planning becomes part of the organization’s strategic rhythm, it fuels both resilience and growth.
Conclusion: A Blueprint for Resilience
Succession planning is more than a contingency—it’s a development engine. With enterprise-minded talent reviews, clear readiness frameworks, cross-functional cooperation, and regular plan updates, community banks can ensure leadership continuity and strategic momentum for years to come.
Alignment Note: How Appendix A and Appendix B Work Together
The Leadership Assessment and the Talent Profile are designed to work in tandem within the succession planning process.
- The Leadership Assessment evaluates an individual’s capabilities, leadership style, key developmental needs, and potential readiness for greater responsibilities.
- The Talent Profile provides a holistic record of career history, skills, and aspirations, offering a factual foundation for succession discussions.
Together, these tools ensure that succession planning decisions are balanced, evidence-based, and actionable. The Leadership Assessment highlights who the leader can become, and what experiences are needed to get there, while the Talent Profile grounds that insight into who the leader is today, and what their record is so far. This alignment allows for more accurate readiness classifications and targeted development planning.
WAYNE F. PATENAUDE
Boston, Massachusetts
Wayne is a financial services executive and board director with 30+ years of leadership in banking and strategic finance. As President and CEO of Cambridge Financial Group and Cambridge Savings Bank, a $7B institution, he drove three strategic plans delivering 21% annual earnings growth over more than a decade. He launched Ivy Bank, which secured $850M in deposits, led a community bank acquisition, and built an Asset-Based Lending division exceeding $200M. Wayne has served on nonprofit and civic boards including the Cambridge Chamber of Commerce and the American Red Cross, with a strong focus on governance, leadership, and community impact.