Mutual Boards – Keeping Pace with Change

Ensuring Mutual Boards have the skills – and plan – ready for unprecedent change

Takeaways

• In the world of Mutual Banking in Australia, dynamic and responsive governance is more crucial than ever
• Mutual Banks are facing material shifts from every direction; be that funding, industry structure, digital change or emerging risks
• Preparing for this step-change is critical and a plan must be enacted with the best skills around the Board table to respond and drive the organisation forward

Growing the Pie

Mutuals in Australia have been successful in addressing Member and community needs.  Although the historical market share of Mutual Banks as a collective has remained flat, there is an opportunity now to extend their role.  Mutual Banks are at a crossroads at the intersection of growth, forced consolidation and structural challenges – all of which require scale to remain competitive. These challenges have nuances that Mutual Banks have not had to contend with before.

The importance of diverse skills

As the financial landscape continues to evolve, Mutual Banks must ensure that those around the table are equipped with a diverse range of skills and experiences. This diversity is essential for fostering innovation, agility, and a deeper understanding of the challenges and opportunities that lie ahead. By regularly refreshing the composition of their Board, Mutual Banks can bring in fresh perspectives that align with their strategic priorities.

Mutual Banks are facing a true strategic crisis

Operating in a competitive and highly regulated environment is not new for Mutual Banks. Boards have been able to navigate these challenges. However, the ability to adapt to new challenges and opportunities outside traditional pillars is crucial for survival.

There is structural shift occurring and Mutual Banks must act quickly to be ready to adapt to this shift.

Mutual Banks are facing unparalleled events in the market – fighting for space, questioning their market position and ultimately  pressure from regulators, both with regards to funding as well as the more serious ‘encouragement’ to merge in recent times.

Boards that regularly refresh their composition are better positioned to bring in new skills and perspectives that align with the evolving strategic priorities of the bank

Navigating mergers and acquisitions

In addition to the need for diverse skills, Mutual Banks must also consider experience with mergers and acquisitions as a critical board skill.

This is not to say that Investment Bankers should be parachuted in, en-masse to Mutual Boards – that is unlikely to be helpful. However, the financial sector is witnessing an increase in mergers, and it is essential for Boards to be prepared.  A Board that understands the complexities of mergers can better guide the organization through this transition, ensuring a smooth integration and the realization of synergies.

Mergers may catalyse this movement, but is there not benefit in thinking about this skills and diversity now?

Are regulatory bodies pushing for change?

Regulatory bodies play a crucial role in promoting good governance practices.

The Australian Prudential Regulation Authority (APRA) has highlighted the importance of Board composition and tenure in its reviews of Mutual Banks. APRA’s findings suggest that poor governance, including issues related to Board tenure, has contributed to the failure of some mutual banks. By advocating for regular board turnover or more proactive succession planning to ensure that Directors are not entrenched/ stagnant (i.e. maximum tenures), regulatory bodies can help ensure that mutual banks remain resilient and capable of meeting the needs of their members.

Why hasn’t this been solved before?

There are several reasons why Boards have been reticent and resistant to change.

Often, the status quo is maintained due to the “boiled frog syndrome,” where incremental changes go un-noticed until a critical point is reached. We are at that point now; the pot has moved from a comfortable environment to one where the heat has been turned up. Things are getting steamy, and the activity is about to boil.

Some Banks has seen this shift approaching. They have played out the scenarios as a sub-scale Bank and taken action before reaching the cliff edge – either merging or closing up shop via an asset transfer.

Some ways to approach this thorny issue

Although this challenge is a multi-faceted and tricky one, it does need to be dealt with – the stakes are too high. Having successfully navigated similar industry challenges and having partnered with Mutual Boards on many occasions to help them navigate change, we believe there are some processes that you can facilitate that will encourage the right sorts of conversations, and in turn, decisions that can help the organisation. Some of these can include the following:

• Conduct a comprehensive skill review
• Perform an industry deep dive
• Undertake a regulatory and landscape review for Executives and the Board
• Engage in scenario planning and modelling

Preparing for the future

The call to action is clear: change is coming, and Mutual Banks must be ready. Now is the time to address the Board’s firepower before these changes take full effect. By focusing on the need for new and diverse skills, and considering the experience of mergers as a valuable asset, mutual banks can position themselves for success in an ever-changing environment.

When is the last time you reviewed your M&A plan or your skills matrix?

The need for dynamic and responsive governance in mutual banking has never been more apparent. By embracing a governance model that prioritizes diverse skills and prepares for mergers, mutual banks can ensure they are well-equipped to navigate the future with confidence and success.

Change is coming – is your board ready? Now is the time to address your firepower before these changes take full effect and the purpose we hold dear is jeopardised.