Community Banks: The Hidden Value of Good Governance

Management has long benefited from good governance practices. With the renewed and focused attention on ESG initiatives, governance takes on a new urgency and elevates to a pivotal role in risk management. Unfortunately, for many community banks, enhanced risk governance automatically relates to increased infrastructure and costs. The truth is that we may not want to look at the situation like that.

Good governance does not translate to increased infrastructure.  Many community banks are already aligned with many governance practices. Staff in different business functions typically has a fairly good hold on risks affecting their processes. Through self-assessment processes, quality control exercises, and automated monitoring, many controls are validated already. The key is to bring those disparate processes together in an efficient and effective manner.

This can be accomplished through existing infrastructure through expansion of committee purpose and/or charter. There is no need to create a new risk committee if an existing committee can be repurposed. While this may take some additional time and education it can be most effective in strengthening risk management practices.

Additionally, good governance may not lead to increased costs.  When we consider a fully load cost/benefit analysis, we find that there may be an actual cost saves through good governance.  Determining which processes might be redundant helps to eliminate unnecessary controls or processes thereby saving money. 

Process analysis may also discover that some processes are poorly designed.  By reviewing process design cost saving enhancements can be made thus reducing operational costs. Further, reallocation or repositioning of controls can also reduce operational costs as well as streamline processes. Clearly aligning current management infrastructure to process design and strategic goals is important. Supporting this effort with a GRC product that allows for proper documentation, monitoring and reporting of risk management efforts can further increase productivity and effectiveness.