A family-owned community bank prepares for a leadership transition amid new regulatory burdens
In the rural town of Springfield, the name Pieschel is synonymous with banking — specifically, local banking. Current owner and president Paul Pieschel represents the third generation of the family involved in running the town's oldest bank, Farmers and Merchants' Bank of Springfield.
Barring unforeseen circumstances, the 96-year-old bank is still quite a few years away from its next major leadership transition. But with the members of F&M Bank's management team now in their mid-50s, the bank is getting a head start on preparing for that day.
In 1918, Paul's grandfather, Frank Pieschel, came back from service in World War I and took a job at the bank, which local businessmen had founded one year before. By the 1940s, Frank had worked his way up to bank president, and served in that position until his death in 1962. Paul's father, Mike Pieschel, grew up in the Springfield area, entered the service during World War II, then returned to attend Georgetown University in Washington, D.C., where he earned a law degree. Mike Pieschel became an executive vice president in 1962, with a non-family member serving as president. Pieschel acquired majority control in 1969, and became president.
After graduating from Springfield High School, Paul Pieschel attended St. John's University in Collegeville, spending a few summers working as a teller at F&M Bank. After graduating from St. John's, he spent a year working at Ridgedale State Bank in Minnetonka and returned to Springfield in 1983. Back at the bank, Paul "started in the teller line, did some bookkeeping, emptied wastebaskets ... I did a little bit of everything. I really learned about banking." After a stint as a loan officer, Paul was named executive vice president in 1989, and he became president when his father stepped down in 1992.
Now 55, Paul is about a decade away from retirement, as are several other members of the bank's management team. So leadership transition is on his mind.
When Mike stepped down in 1992 and Paul took over, things went smoothly, Paul says. That's in spite of the fact that his father practiced an "old school, top-down" management style. "He was a very good manager who largely relied on his own expertise and experience in making decisions," says Paul. "When I became president, one of the first things I did was establish a management team to more readily access [staff] input. We have all grown together over the years."
Most of the management team didn't come into the bank as senior offices, but rather grew into those positions over time. That, says vice president of investments and marketing Cindy Hillesheim, has proven valuable. "For example, we understand what tellers go through because we have done that," she says. "Paul started here as a loan officer, so he knows the ‘ins and outs' of that job."
Paul's 85-year-old father is still involved at the bank, except when wintering in California. Indeed for many locals, Mike Pieschel "is still the face of the bank," Paul notes. "He's still one of the first guys to come to work every day, greeting customers and doing all kinds of projects, such as volunteering his time with the Springfield Area Foundation and Springfield Area Historical Society."
Time to transition
For small, family-held businesses, such as community banks, "it's impossible to start too early" on succession planning, says Dave Watrud, whose Edina-based firm, Watrud Leistico Associates, specializes in working with small businesses and community banks on their strategic-planning, operational, and marketing issues. "Many of these banks have an executive pool of bankers in their 40s and 50s who have ‘grown up' together. So they need to start the replacement process early. If they don't start early, like Paul has, they might wake up 10 years from now and say ‘What happened?' He has great foresight to think long-term ... and genuine caring for the employees, executives, and the community."
One of the essential elements of succession planning is identifying what roles are required to meet the organization's needs, Watrud says — not necessarily based on the person currently filling that role, but identifying educational, experience, character, and other requirements that will be needed and the competencies within that. "You need to develop the profile of the ideal individual for each role, so you are not just hiring people who are ‘competent.'"
Watrud has been working with F&M Bank for about a decade; he was originally brought in to help the bank develop a plan to take on a new competitor that was about to set up in Springfield. Since then, he has helped the bank review and update its strategic plan on a quarterly and annual basis, and as needed.
"One of the hallmarks of the state's family-held banks is long-term commitment to the community," says Watrud. "When big banks buy community banks, that community involvement often goes away."
That can mean bad news for Minnesota in particular. The state has a higher-than-average number of independent community banks because of state legislation originally passed in the Depression-era 1930s that made it difficult for banks to branch into other areas. Over the years, the laws have changed, but Minnesota still has a relatively high number of community banks, many of them family-held. Since 2005, theIndependent Community Bankers of Minnesota trade group in Eagan has offered the Family Held Bank Institute, a two-year program the Pieschels have participated in, to help the relatively large number of family-held banks in Minnesota. The program, says Paul, "helped us gain a better understanding of the challenge sometimes involved in bringing a family member into a business."
Since the summer of 2011, F&M Bank's leaders have also been working with consultants from Minneapolis-based Leadership Transitions to develop the bank's next generation of managers. The firm helps businesses with "human issues related to business performance," according to founder Abigail Barrett, a licensed psychologist with more than 25 years of experience in executive coaching and team development.
Before starting Leadership Transitions in 1999, Barrett worked with a local consulting firm and helped develop one of the first models for understanding the overlap of family dynamics with business dynamics. "At that time, there were no university-based [research] programs organized around family businesses," she recalls.
Barrett's current firm focuses on leadership development, especially in times of transition or leadership succession, and has developed a specialty in helping family-owned businesses, which typically face unique challenges in integrating family and business.
Many such businesses operate under the entrepreneurial model, in which roles, responsibilities, and organizational structures develop over time, often with little planning or analysis, and may not be particularly clear, Barrett says. "Those roles might not make sense to an outsider; something about that person's skill set caused the job role to be shaped around them, rather than based on a more objective assessment of the organizational needs." In working with F&M Bank, Barrett and two of Leadership Transitions' other consultants, Katy Mitchell and Maggie Kilpatrick, have helped the bank develop a succession plan built around "competency modeling," which means "deciding what competencies will be necessary for the next wave of leaders," Mitchell says. "It's a necessary process because business conditions change and businesses change."
Leadership Transitions uses a proprietary process to create a competency model that outlines 15 core competencies and then "behavioralizes" them — identifies what types of behaviors are needed for those business functions. "It's a great tool for figuring out what competencies are needed, and it also provides a tool for evaluating people as they come in the door," says Mitchell.
After generating the list of competencies, the next step was leadership development and coaching, an opportunity for each of the current managers to evaluate their own "commitment, competence, and character." The process, says Pieschel, "has helped us identify what characteristics we should be looking for in our next leaders, and deciding what changes we may or may not make in regard to titles and responsibilities. It's also an ongoing process to help us learn how to work better as a team, and a good strategic planning process."
Pieschel and his management team have already implemented some of the recommendations and are considering "re-engineering" some positions to reflect changing needs. In replacing the members of the current management team, the bank has two basic options, according to Pieschel: recruit bankers from outside the community — which can be a challenge for a rural bank — or develop leaders among bank employees or those with roots in the Springfield area.
One unresolved question is whether any of Paul and his wife Sharon's three children will decide to go into banking. Their oldest daughter, 24-year-old Olivia, recently earned a master's degree in finance at the University of St. Thomas and has accepted a position in Minneapolis with Chartwell Financial. "Olivia worked her way through college in our bank, and in banks in the Twin Cities," Paul notes.
The Pieschels also have a 20-year-old daughter, Madeline, who is a sophomore in business communications at Marquette University. Both daughters have worked at the bank. Their son Joe is an eighth-grader in Springfield.
Paul recalls his own early-career indecision. "When I was a junior in college, Dad asked me if I thought I would ever go into banking. I was a history major at the time, and he wondered how I would make a living doing that. That got the wheels spinning ..."
Massive new burden
If any of Paul's children do go into the family business, they'll face a challenge that has for small community banks grown exponentially in recent years: new regulatory burdens. Numbers often tell the story in the banking business, and 10,000 has been on Pieschel's mind. That's the approximate number of pages of new bank rules and regulations introduced by the Dodd–Frank Wall Street Reform and Consumer Protection Act, passed by Congress in 2010 as a response to the financial crisis of 2008-2009.
Since the financial crisis, the regulatory burden on banks has mushroomed, Pieschel says. The legislation that created the new Consumer Financial Protection Bureau (consumerfinance.gov) is making the process of vetting and deciding whether mortgage applicants are qualified buyers "much more onerous than it used to be," he says, noting that banks both large and small will need to add compliance officers, affecting their bottom lines.
For the banks, there is a certain irony in the situation, since many of the problems that led to the mortgage crisis were caused by those in what Pieschel calls a "shadow banking industry" — unregulated mortgage brokers who abused the system to write as many mortgages as possible, and profit accordingly. Community bankers and their lobbyists have been asking those in Congress "to step back and look at what will be the real impact of these new laws," Pieschel says. "We all want to do the right thing and see consumers protected, but the overreach of government is going to choke our industry; it will tighten credit, with unintended consequences."
Watrud at Liestico Associates has similar concerns. "Small banks in Minnesota and elsewhere that didn't cause the financial crisis a few years ago are taking on a significantly heavier regulatory burden," he says. "A lot of bankers in Greater Minnesota are struggling with, ‘How do I continue this entity?' But there is a continuing need for viable community banks, and bankers like Paul are redoubling their commitments because they know how essential they are to their communities."