There have been a lot of changes of late among the senior executives at local banks. The most recent is the announcement on July 24 that Citizens Bank Rhode Island President Joseph J. MarcAurele will be taking over the reigns of leadership at the Washington Trust Co., replacing John Treanor, retiring chief operating officer and president, and eventually John Warren, the chairman and CEO who is stepping down next year.
Geoffrey H. Bobroff, an East Greenwich-based investment management consultant who is knowledgeable about the landscape of the banking industry, answered five questions about the personnel changes.
PBN: Citizens Bank Rhode Island President Joseph J. MarcAurele is taking the leading role at Washington Trust Co. Does that development surprise you?
BOBROFF: As banking has changed over the past several years in terms of ownership, local banking is not the same. An executive of an out-of-state or foreign-owned bank has less ability to make a difference and so, to a greater extent, the banking executive is basically an employee. Thus, to see the head of Citizens Bank move to a much smaller, but local, institution should not be a surprise. I am sure MarcAurele believes he can make a difference at Washington Trust and can see his efforts play out.
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PBN: There has always been movement of personnel between banks, but the trend appears to be picking up steam. Why?
BOBROFF: As mentioned earlier, there has been a significant change in the landscape of banking in the United States even before the recent credit crisis. Many local banking institutions have disappeared, being absorbed by large domestic and/or foreign banks. This change in banking has led to a significant movement of key executives. The opportunity to make a difference and to be compensated for accomplishing meaningful change has become much harder in the larger institutions, causing those executives who believe they can make a difference to leave and join a smaller, more dynamic institution.
PBN: Will these departures from the bigger banks – Citizens also lost its Massachusetts president to retirement, and the president of parent Citizens Financial Group recently stepped down – significantly weaken those institutions?
BOBROFF: There is no question that the departure of a key executive can weaken the relationship the large institution may have in a community, but the larger institution is less concerned about that. Larger institutions are less about people and more about the policies established by the parent institution. Thus, the larger institution becomes just that: a larger institution with no real identity in the community since identity flows from the senior executives.
PBN: What does a smaller financial institution offer a senior banking executive that a larger institution can’t?
BOBROFF: While it may be the case that the smaller financial institution may not be able to match the total compensation payable by a larger institution, it is not all about compensation. In addition, the smaller institution can offer the executive a stake in the equity of the business, which over time can be more financially rewarding than basic compensation. The accomplished executive from a larger institution has probably had some very big compensation years and may welcome the entrepreneurial opportunity afforded by a smaller institution. As an executive with a large financial institution, you may be asked to uproot your family to take on another position within that firm while a local opportunity allows the executive to maintain a more stable personal life.
PBN: Will the pendulum swing back the other way?
BOBROFF: The pendulum does swing back and forth, but it is hard to envision the return of the strong local large financial institution. What will change over time is the ability of a smaller institution to offer executives unique opportunities. Should the financial industry hit a difficult patch, it will be more difficult to pry executives from the comfort of the larger institution. I believe much of the decision is a lifestyle decision by the executive. At some point, I would anticipate the larger institution will wake up, recognize the situation and, for many executives, try and satisfy the urge to be more in control.
