(Editor’s note: This is the final installment in a series of stories examining the various sources to which banks may turn for ideas, expertise and feedback.)

Banks carefully choose a board of directors to administer, advise and counsel bank executives and employees on economic and community affairs in an effort to guide the overall direction of the company.

Whereas management oversees the daily decision making of the company, the reputation of a financial institution often is only as good as its board of directors.

“Having a board of directors is important because [it perpetuates a system of] checks and balances in our society,” said Timothy L. Vaill, chief executive officer of Boston Private Bank & Trust Co., which manages over $1 billion in assets. “Management is dealing with shareholder money and shareholders want somebody representing them at the table.”

According to Vaill, directors of a bank have responsibilities to the depositors and the owners.

“The FDIC [Federal Deposit Insurance Corp.] wants to be certain that their deposits are secure and wants to make sure that the board of directors are qualified people,” said Vaill. “The board members represent various constituencies in the community and help with the devising and strategizing of a company, and help with execution [of plans].”

At most banks, the board influences a combination of fiduciary and business decisions, and the process by which the board is selected is well thought out and meticulously defined.

The formal process by which a board is selected at Danvers Savings Bank starts at the nominating committee and, according to the bank’s President and Chief Executive Officer Kevin Bottomley, the selection procedure is a strategic one involving careful consideration.

“We have a Governance and Nominating Committee and people to be considered [as directors] will go through that process,” said Bottomley. “The nominees tend to be locally prominent people [chosen by] town of residence … with occupational diversity.”

Before sitting on the board at Danvers, a nominee must be a “corporator” – outside townspeople who vote at an annual meeting but have no stake in the bank – and as Bottomley points out, there can be that “get to know somebody” process before a nomination occurs.

Williamstown Savings Bank, which has approximately $151 million in assets, operates its selection process in a fashion similar to that of Danvers, which currently has over $515 million in assets.

“Our board and governance here is ahead of the curve because of our good practices,” said Stephen G. Crowe, president and chief executive officer of Williamstown Savings Bank, and newly appointed president and chief executive officer of Hoosac Bank as of Nov. 1. “As a governance matter, we have long discussions about the quality of people we want on the board and we set up criteria [for directors] each year.”

According to Crowe, a variety of factors, including business experience, technology experience and a person’s involvement in the community, dictate whether a person would be a good nomination to the board, and while it is important for board members to have business knowledge, it is more important for members to know the people they represent.

At Danvers, the board of directors currently is composed of 14 different men and women, including Bottomley. But with the exception of Bottomley, none of the members are from the financial services industry.

The role of the board is to provide a risk-management process and assurance that internal controls are in place. Boards also evaluate and select top executives and have a hand in developing long-term strategy.

“Board members are local people because they know the people and the businesses in the community,” said Crowe. “Because [the bank is located in a] small town, [the board] is made up of local people – they keep up with employee morale and keep me involved in employee issues.”

‘The Boss’

The current board of directors at Williamstown Savings Bank consists of an accountant, a venture capital partner, a small-business proprietor, an engineer, a human resources consultant, a funeral home director, a retired physician, an architect, a retired school superintendent and a homemaker.

Members of the board of directors advise banks in appropriate situations based on various committees on which they serve.

The Executive Committee meets in the event of a corporate need; the CRA [Community Reinvestment Act] Committee makes sure certain banks are meeting the needs of the local community and fulfilling regulatory requirements; the Audit Committee, according to Vaill, is the “watchdog” for the bank; the Compensation Committee analyzes high-level compensation and general policies for employees; the Loan Committee oversees the lending side of organization; and other committees based on bank size and necessity are formed from the small group that makes up the board.

“These are all highly educated people,” said Crowe. “We have been more forward-looking in where we think the bank is headed and what kind of talent we need. Currently, I’m the only insider on the board.”

In choosing a board of directors for any company, industry analysts say creating a board that complements existing management and appointing people who bring new areas of expertise to the company is essential for growth.

According to Vaill, diversity is important among the 15 people that make up the Boston Private Bank & Trust board because they also represent the community and “banks want to be certain that we have people who are familiar with the community.”

Bank executives agree that boards of directors are most needed for the guidance they provide, and since board members have the power and privilege to hire and fire bank CEOs, it is essential that board members and bank executives develop sound working relationships.

According to Vaill, the management team of the bank looks to the board for coaching and mentoring and, depending on a particular board member’s area of expertise, managers often develop a special communications link with each board member.

“In each case, the board of directors is very customized to the particular bank and the linkage between board and management needs to be a very good relationship,” said Vaill. “At the end of the day, the board is the boss.”