Why Succession Planning Matters in Community Banking
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Leadership Continuity – Ensures a seamless transition during retirements, departures, or unforeseen events.
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Strategic Alignment – Keeps executive management and the board in sync with the bank’s evolving goals, culture, and mission.
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Regulatory Expectations – Meets increasing scrutiny from regulators who expect a board-approved succession policy and reviewed succession plan for key roles.
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Cost Management— On the premise that it can cost up to 7X more to replace talent than it does to retain them.
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Maintaining Community Engagement – Ensures preservation of community knowledge and trust.
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, budget constraints, and limited geographic reach, making them particularly vulnerable to executive transitions.
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A well-designed succession plan does more than name a backup leader. It develops a strategic pipeline of talent prepared to guide the institution through the next decade and beyond.
This white paper shares best practices, although not all may be feasible for smaller community banks, at least initially. Succession planning can be effective by taking practical steps suited to your size, complexity, and resources and still build strong leadership pipelines. Together with the framework discussed in this white paper, Appendix A lists ten strategies that smaller institutions can implement now to improve leadership continuity.
CEO Insight: As your organization expands, sustaining a cohesive culture becomes increasingly complex. Robust succession planning is essential to uphold a thriving organizational culture over time, as it aligns hiring, talent development, advancement, and retention strategies with established values and practices.
Succession planning in community banks addresses five 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
CEO 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. A dynamic approach is vital during major strategic shifts that need new skills and expertise. Showing current and future organizational charts with highlighted updates helps management and the board understand planned openings, timing, and talent requirements.
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 through feedback, mentorship, exposure to projects, and inclusion in strategic meetings. Incentive plans should be designed to motivate this behavior.
CEO Insight: This collective ownership ensures succession planning is not siloed and that development opportunities cross functional lines and can motivate the best talent to stay with the organization.
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)
KMPs typically include the CEO, CFO, COO, CLOCTO/CIO, CHRO, and General Counsel, and depending on the organization, they can also include senior leaders like the Head of Retail Banking, Chief Compliance Officer, or Chief Information Security Officer (CISO).
CEO Insights: Criteria for identifying KMPs should align with your organization’s strategy, balancing current priorities with forward-looking imperatives. In practice, this often means including roles beyond traditional executives, such as the CISO, given the scarcity and criticality of cybersecurity talent, and regulators have been known to require designating the CISO as a KMP. Additionally, 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, as they are identified. Any KMP without an internal planned successor (Ready Now or a 1-3 year candidate) should be noted as likely filled with an external candidate.
CEO Insights: It is unlikely 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 your organization’s own circumstances—such as availability of internal talent, unexpected departures, pace of candidate development and evolving strategic direction. This is why it is so important to have an interim replacement who can bridge the gap until an external candidate is in place.
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
Even when aiming to promote from within, it is considered best practice to benchmark internal talent against talent existing in the market. This process provides valuable insight into the capabilities present in the broader market and highlights areas where internal development plans may need refinement.
CEO Insights: Your organization may discover candidates from outside the company who represent an excellent fit for a KMP, thereby enhancing the overall capability and diversity of thought within the leadership team—external candidates can bring new ideas and perspectives, especially given the importance of the digital banking channel, the emergence of new payment technologies and seemingly crypto currency (e.g., stablecoin) and AI. Executive recruiters can serve as a reliable resource for conducting thorough external benchmarking analyses, offering informed perspectives on market trends and talent availability.
Candidate Readiness: Preparing Your Future Leaders
The Tools:
- Leadership Assessments (see Appendix B) – An individual evaluation of an employee’s leadership capabilities, potential, and readiness. It typically combines qualitative and quantitative tools such as self-assessments, supervisor evaluations, 360° feedback, and behavioral interviews. Assessments should be completed by HR or an independent consultant and are recommended for 1–3-year readiness candidates. Ready Now candidates should have a leadership assessment in place at the time they are so designated.
- 9 Box Talent Matrix (see Appendix C) – Completed by senior management for their respective areas, it provides a simple, visual framework for identifying where employees fall in terms of current Performance (how well they deliver results) and future Potential (their capacity to take on broader or more complex responsibilities). It helps boards and CEOs see “where the bench is strong or thin” across functions, often using the Leadership Assessment results as inputs for the Potential axis.
- Development Plan – Documents areas of focus identified in the assessment with specific actions to be taken by the candidate. Quarterly updates are conducted with manager, candidate and HR (and consultant) to ensure plans remain current and actionable.
- Talent Profiles (see Appendix D) – 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 an individual’s leadership capability and potential that informs the 9 Box exercise, 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, 9 Box 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.
CEO Insights: Effective succession planning starts with clear criteria that defines “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, with consideration of 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, HR coordinates a comprehensive review of the Management Succession Plan with the CEO and Executive Team, who play active roles in identifying talent, preparing candidates, discussing pressures on retention, and/or the ability to attract talent within functional disciplines, 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, compensation evaluation and budgeting process.
CEO 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 (but not later than 3 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
CEO 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?” Again, the Compensation and Governance Committees, acting jointly, or the Executive Committee, can lead this effort on behalf of the Board, ensuring alignment and final board 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 your 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.
WAYNE F. PATENAUDE, CFA
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.