tMichaelB is the web site for Tom Bengtson, who writes about business, religion, family and politics.

Monday, October 31, 2005

Community banks are distinct from the attention-grabbing big guys

When I tell people I am a journalist who covers the banking industry, often they respond with a story about bad service they received at one of the big banks in town. Or they may ask me if I know a friend who works at Wells Fargo or U.S. Bank. (Usually I don’t.)

I cover a part of the industry that few people –- especially residents of large cities -- think much about. I cover community banking. I understand why people typically think of the big banks; they dominate the industry. Banking is an industry in which there are a few big players and everyone else. I cover the banks in that “everyone else” category.

You may think that every bank is huge, but in fact, only three banks have more than $1 trillion in assets: Citicorp, Morgan Chase and Bank of America. There are about 500 banks, or about 7 percent of the industry, that have $1 billion or more in assets. Those banks, however, control 86 percent of all the assets of the industry. There are 7,549 banks in the country, which means about 7,000 banks have less than $1 billion in assets. And 3,996 of those banks have assets of less than $100 million. That’s more than half of the banks in the industry, and they control just 1.9 percent of all the industry’s assets.

In Minnesota, when you mention banking people think of Wells Fargo, U.S. Bank and TCF Bank. Funny thing is, only TCF is actually based in Minnesota. Wells Fargo is based in San Francisco and the U.S. Bank charter is in Cincinnati. Minnesota has 449 banks, with 305 of them having less than $100 million in assets.

What does a $100 million bank look like? Typically, it would have about 30 employees and perhaps two or three offices. It would have a board of directors, meeting monthly, with outside board members earning compensation of about $500 per meeting. The owners of the bank likely would have about $8 million invested in the business and if the bank performs about average for banks of that size, they would earn about $1.2 million in a good year to divide among them. The president of the bank would make an annual salary of about $125,000, plus a bonus if the bank performs particularly well.

But the best stories I write about the banking industry usually don’t have a lot to do with the numbers; they are focused mostly on the people. In 20 years of covering community banking, I have had the opportunity to write about people who have done extraordinary things for their communities and neighbors. There are bankers who take big risks lending to start-up businesses, and others who work evenings and weekends to attract new businesses to town. I have written about bankers who have renovated and restored historic buildings, bankers who have funded theaters and special schools, bankers who have hosted visitors from all over the world including third world countries and Russia. I have written about bankers who have devoted a lot of energy to educational efforts designed to combat financial illiteracy. And I have written about bankers who have donated millions of dollars to students, hospitals, community projects, art organizations and many other endeavors.

Oh, I’ve also written about crooks who have ended up in jail or about ventures that failed or never worked out as intended. But my point is, there are thousands of interesting stories in the community sector of the banking industry which go almost completely ignored by the big time media.

Thursday, October 27, 2005

Ethicist offers life principles for doing the right thing

One of the latest fads for newspapers and other organizations seems to be to hire an “ethicist.” The New York Times has an ethicist who writes a column in its Sunday magazine. The Minneapolis Star Tribune just added an ethicist to its business section. CNN has a news analyst, Bruce Weinstein, who calls himself “The Ethics Guy.” These guys have a tough job; usually they comment on situations without treading into any moral judgments but I am not sure that you can ever really separate morals from ethics.

I had an opportunity to hear Weinstein address a business group recently and he offered five “life principles,” as he called them, “for doing the right thing.”

First, do no harm. He said this applies to everyone, not just physicians. It means things like we don’t let others drive while intoxicated, and that we immunize our children. If we couldn’t trust that people were not out to harm us, we would never leave our homes, Weinstein said.

Second, make things better. It is not enough to simply try to avoid doing harm, we actually need to make a positive impact on our world. If our sole goal were to avoid doing harm, we’d never get out of bed. Making things better is a positive call to action, and motivates us to get out in the world and do things.

Third, respect others. We do this, Weinstein said, by observing three principles: confidentiality, telling the truth and keeping promises. When people share things with us in private, they expect you to keep it to yourself. If they discover that you shared their secret with the neighborhood, they will no longer respect you. Telling the truth is a fundamental obligation, although in some cases it is okay to lie if telling the truth threatens a greater obligation. For example, the obligation to protect life is greater than the obligation to tell the truth, so if you were hiding Jews in your house during World War II and the Gestapo knocked on your door inquiring about who was in your home, you could lie to protect the innocent. And keeping promises is essential to maintaining relationships. The bigger the relationship, the more important it is to keep the promise. Marriages break up when spouses break promises they make to one another on their wedding day.

Fourth, be fair. Many of us try on this point, but get steered in the wrong direction. Weinstein said, “one size does not fit all.” He said too often we try to treat everyone the same and consider that fair. But, in fact, sameness and fairness are not equal. He gave an example where it was fair for a mother to give a thin child a big piece of cake while giving a fat child only a small piece of cake.

Fifth, be loving. Weinstein offer three simple ways to show your love for others – not just your family members, but your neighbors and co-workers as well. First, smile. “When you smile, others smile back. Smiling is contagious,” he said. “Moods rub off on one another.” Second, take a genuine interest in others. “Ask others questions about them,” Weinstein said. And third, show sincere appreciation. “How often do you take the time to tell those around you that you appreciate them?” Weinstein asked. Note peoples’ contribution to the company or the neighborhood and you will make a big impact on those people.

Friday, October 14, 2005

Old-timer from Central Minnesota shares stories

John Owen Bohmer is an 84-year-old gentleman living in the central Minnesota community of Brooten. He is chairman of the Bonanza Valley State Bank there; he was president of the modest bank from 1954 to 2000.

I had a chance to meet Bohmer last spring when he presented me with a copy of a book he had written to commemorate the bank’s centennial anniversary in 1994. The book is called: “Your Friendly Hometown Banker.”

“I wrote it in 19 days in our motor home in Arizona while it rained outside,” he said. Bohmer is the author of six books, including a book he wrote for the bank’s 60th anniversary.

The book is a collection of 83 short stories or reflections. Bohmer writes about growing up during the Great Depression, about farming in the early 20th century, about being a banker in a small town and about a number of other things that I found interesting. I am an advocate of ordinary people writing down their personal stories for the benefit of peers and future generations. This is what Bohmer has done.

I want to share a few of the gems I discovered in “Your Friendly Hometown Banker.”


For many years, we cooperated with the school in training a senior boy or girl in the bank, and then when the training period was over and after graduation, we would help them find a job in another bank.

The first thing we did to get them acquainted was to introduce them to the staff, show them where they would be working, and what they would be doing, and then sit down and have a talk.

The talk consisted of being polite to customers, about correcting mistakes, about being careful with names, among other things, and about confidentiality.

If there is anything people want confidential more than their personal life, or their church or school problems, it is their financial matters.

I always told the employees that when they leave the bank premises, they must leave their “bank knowledge” behind them. I have a permanent sign in the back bookkeeping room that says: “Warning: When you leave this bank, leave your knowledge here. Failure to do so will result in your immediate dismissal.”

People are inquisitive, and if one of the employees is out for the evening, he or she may be questioned about one of our customers. It may be hard to say “no” in certain cases, so I give them a good excuse. I say: “Just tell them if they want to know the answer, they should ask John Bohmer.” That is the end of that, as nobody has ever asked me.

We hired a brilliant young girl from school, a local girl who started in the fall when school started, and worked faithfully every afternoon for an hour and a half like we required. This went on all during the fall and winter, and sometime during spring a local businessman came to me and said: “How come so and so knows how much money I have in the bank?”

I was taken by surprise, as this had never happened before. After discussing it further, and looking into it, I determined that the leak came from the girl.

That afternoon when the girl came to work, I called her into my office to discuss it with her. She immediately began crying and told me her mother made her tell how much money was in that account.

How low can a mother get? To sabotage her own daughter is unthinkable. I had no choice but to let her go. I’m quite sure that if I could have kept her she would have been an excellent employee after she had learned her lesson.

She was so ashamed of herself that she never again came into the bank, and went out of her way to avoid meeting me on the street. After graduation she left town, and I haven’t seen her since. What a pity.

Counter Checks

Why carry a book of check blanks along with you? Not necessary. Every filling station, and store had a supply of “counter check” laying around which you could use to pay your bills or get some cash.

Counter checks are just a piece of paper printed with the necessary blanks just like regular checks. They were originally intended to be used on the check counter at the bank, and that’s where they got their name. A handy way for you to withdraw a little cash while in the bank if you forgot your checkbook at home.

Because of lax rules, the counter checks spread in popularity to the point that our counter checks were in other business places and in other towns, and we had checks in our bank from other banks in other towns. In fact, we had counter checks on hand from all the surrounding banks.

You can imagine how tempting this situation would be for someone who was broke but had no account anywhere to just write out a check on any bank and get some cash.
As the morals of people have changed of the years, it has become necessary to eliminate the counter check.

Another drawback of the counter check was that the amount of the check probably did not get marked down in the stub of the regular checkbook, and soon there would be an overdraft of their account.

In this day and age, you must use your own check blanks, which have magnetic numbers of your bank, and of your personal account. Unless he gets one of your check blanks, the unscrupulous person cannot write a check on your account.

We had a flamboyant character that usually came to our auction sales years ago. He would buy some things and when it came time to pay for the items, he could say “fill out a counter check for the amount.” When the clerk asked on which bank, he would say “It doesn’t make any difference,” and he would be quite loud about this to be sure his friends would hear.

The clerk had all the local counter checks, so she would fill out a check on some out-of-the-way bank and he would sign it. The check was always good however, and we felt that he was trying to impress his friends to make them think he had lots of money in many banks.

What really happened is that he would drive to that town the next day, go to the bank and leave enough money to cover the check. What a character.

Growing old is not for sissies

Do you remember when you were five years old? There was that kid in first grade who was so much older and smarter than you were. Oh boy.

Then when you were a freshman in high school, how inferior you felt to the juniors and seniors. They hardly wanted to associate with you.

How about asking a girl out for a date that was a senior when you were only a junior? Fat chance!

Then when you get into your working life, you start all over again. You enter an arena where everyone is an expert except you. By this time however, most of your associates try to help you get going. You hope they are doing it so you will take on part of their workload.

Throughout your lifetime there is competition of one form or other. There is competition in sports, competition in business and competition for your favorite girl. There is competition between ages. The older person readily and easily competes with you when you are young, but later in life, you are that older person.

Competition is good for the soul. It keeps you on your toes, and it keeps you healthy in body and in mind. Everybody needs it.

As you grow older you become more confident in yourself, in your own values, and at the same time more tolerant of differences.

Young adulthood and middle age doesn’t leave much time to explore the heart and spirit; we’re too busy making a living, but as confidence grows, competition becomes less important, and it’s in the latter years of life that spiritual development becomes a reality. The older you get the more wisdom you acquire, but it’s hard to share that wisdom with a young man who doesn’t want to listen, but instead chooses to acquire it by experiencing his own hard knocks.

For people who keep an open mind to change and growth throughout their lives, the mature years are unexpectedly rewarding.

You can use every experience you have ever had, everything you have ever done or known, and use it better than you ever have used it before.

You were given two ends: One to sit on and
one to think with. Your future depends on which one you use the most.

Spit & Whittlers

The rate of unemployment in the 1930s during the Great Depression was up around 25 percent. It was no fun to sit around home all day, so [the unemployed] would come downtown and find a bench on Main Street where they could visit with their friends, and where they may be noticed by someone needing some help, where there was a possibility of getting a job.

To pass the time of day, they took up whittling. Everyone had a pocket knife that was kept razor sharp, and it was used to carve something out of wood. Usually it was used just to take a twig and carve off the bark, and then chop it into tiny pieces only to start on another one when that was finished.

When they were whittling, they were also smoking that pipe or chewing tobacco, and naturally they had to spit out the juice every once in a while. Brown juice it was. The aim was for across the sidewalk into the gutter in the street but it didn’t always make it that far. The bulk of it perhaps did, but the overspray colored the sidewalk.

It’s no wonder the merchants didn’t like them sitting in front of their establishment.
My grandfather heard a rumor at one time that our bank was going to be robbed. He immediately went to the lumber yard, had two benches built and put one on either side of the front door of the bank. He then invited the spit and whittlers over to the bank so they could be witnesses in the event the bank robbers did show up.

The robbers never came, or if they did, they probably didn’t like the looks of all those witnesses. In that respect, the spit and whittlers served the community well. We wonder if it was hard to get them to move away once the threat was past.

The Survivors

I did a little research recently and discovered some interesting information about survival and live expectancy of a new business.

For every 100 new businesses established in the United States, only 10 of them remain in business after one year, and only one will be in business at the end of 10 years.

This gives you some idea of how really tough it is to reach the age of 100. Some people say the race is to the swift, the risk-taker; but the ancient Greeks knew that steadiness of purpose over the long term is a surer path to success.

As bankers we’ve learned this lesson. Through the many periods of depression and bank failures over the years -- and there have been quite a few -- it’s the conservative banker that has survived the onslaughts, and the periods of roller-coaster economics that have occurred.

To roll with the punches and do what has to be done while at the same time serving your community in the best way possible is the ultimate goal for survival.

Thursday, October 13, 2005

Expert offers insight into growing local economy

Living in the Twin Cities of Minneapolis and Saint Paul, I don't hear a lot of talk about economic development. We have many large companies here, and a fairly diversified economy. But economic development is important in other parts of the state. Minnesotans are better off if all communities across the state are economically strong, not just the metro area. For many small communities, economic development is a matter of attracting new businesses. And the competition is fierce. Small communities all over the country vie for a small number of major businesses which relocate every year.

I had an opportunity to hear William Fruth address this issue recently. Fruth is president of an economics research firm in Palm City, Fla., called POLICOM, Corp.

Communities that want to attract new businesses need to have developed land to offer. “The most important issue relative to the site selection process is having an actual site,” Fruth said. “Economic development is ultimately a real estate transaction,” said the former mayor of Tiffin, Ohio.

Fruth explained that communities grow when they import more money than they consume. Money comes into communities through primary or contributory businesses, which generate revenue by selling products or services outside the community. In most cases, Fruth said, primary businesses are manufacturers.

Dependent businesses spring up because of those primary businesses, and they ultimately consume the wealthy the primary businesses import into the community.

“Typically, 75 percent of all the jobs in a community are dependent upon the 25 percent of jobs provided by your primary business,” Fruth said. “ Roughly 95 percent of all businesses are there because of the presence of some 5 percent of the businesses that are primary in nature. So improving a local economy is about creating more primary industry jobs which pay a wage higher than the average area wage.” Fruth noted the wages paid by primary businesses set the standard for the rest of the jobs in the community.

Many primary businesses are mobile in the sense that they can operate anywhere in the country, if not the world. When they decide to move, they look at three factors, Fruth said: cost, timing and community attitude.

“Cost relates to the cost of set up, land, building, permitting, moving employees to the area and long-term operating costs such as labor, insurance and utilities,” Fruth explained. “Time refers to how long it takes to get set up in a community. Companies might have five or six months notice that they need to move, so communities that are ready have an advantage.” Communities that have existing buildings have an important advantage, Fruth said.

The actions of local governments reflect community attitude, Fruth explained. A large employer is not going to move to an area that has a history of shifting the cost of government onto the non-voting commercial sector away from the voting residential sector.

Communities that are growing take economic development seriously, Fruth said. “The 25 best local economies have had well-financed, active, economic development organizations for some time,” he said. “They have multiple primary industries, and that did not happen by accident.”

Companies also want access to reliable pools of labor, so communities that have money to spend on training have a significant advantage. Fruth said access to state training money is nice, but if it takes a year or more to get it, those funds won’t be of much use to a company that needs to get up and running in a matter of months.

Other advantages, Fruth noted: access to the interstate highway system, good roads that keep typical commutes to less than 30 minutes, and sophisticated bandwidth and telecommunications.

The presence of a four-year university in eight out of 10 cases is a neutral factor. In one case out of 10 it actually retards economic growth because of the anti-business attitude of faculty and administrators; in one case out of 10, a university declares that part of its mission is to encourage local economic growth and it is successful.

Monday, October 10, 2005

Preparation and focus on people key in crisis management

A month after Hurricane Katrina devastated the Gulf Coast and flooded New Orleans, elected officials, pundits and others continue to second-guess nearly every decision made during the crisis. Mayor C. Ray Nagin, Louisiana Gov. Kathleen Babineaux Blanco, former FEMA Director Michael Brown and President George W. Bush all made decisions which affected the well-being of thousands of people and their property.

Most Americans could only sit and watch the events unfold on television. Many responded with money and other forms of relief. But could we learn something from this event about decision-making –- something that might help them make good decisions in a crisis?

I asked three business professors about the process of decision-making. Can a person learn how to make good decisions? The consensus from these experts is “yes.”

“A key part of leadership is decision-making,” said Pierre Meyer, a consultant living in University Park, Fla. “Strategic thinking always has an element of worst-case analysis. Predicting the worst case prepares an executive team.

“In New Orleans, they knew the worst case but pretended it wouldn’t happen. They did a lot of simulations but said that it may not happen. That was their mistake. [Businesses] have to go forward as if the worst case scenario will happen.”

“The thing is, the worst case scenario projected is never worse enough because you haven’t experienced it,” said Lyle Sussman, a professor at the University of Louisville. “Chaos by definition is unpredictable.”

John Hamilton, a business consultant in St. Paul, Minn., said potential problem analysis is particularly challenging. “This is where people fall asleep at the switch,” he said. “A good analysis will identify pivotal points where something can go wrong. It will ask what is the likelihood of something going wrong, what are the effects if they do go wrong, and how could they be prevented. What is the immediate plan of action if something goes wrong, what triggers the plan, and who is accountable for the response?”

Sussman said that in a crisis, it is important to have a team that is willing to “break the rules” to get the job done. “In many situations, particularly a crisis, the normal rules and bureaucracy will slow you down, and prevent you from solving the problem quick enough,” Sussman said.

He cited an example that Captain Michael Abrashaff wrote about in his popular management book “It’s Your Ship.” Abrashaff turned one of the least efficient ships in the Navy into a top performer.

“He needed to get some stuff for his ship,” recounted Sussman. “The normal procurement channels for the Navy would have taken forever, further demoralizing his crew. So he just used his personal credit card to buy the stuff himself at a local Wal-Mart. It was against policy, but something got done.”

Sussman also said it is important for leaders to get as close to the problem situation as possible. “If the police call you in the middle of the night and tell you the [business] has blown up, go to the site,” he said. “Get as much first-hand knowledge of the situation as possible. If the police call you and tell you [you have] been robbed and people have been shot, get to the police station, or to the hospital right away. Go where the suffering people are.”

Sussman said leaders need to be able to put themselves in the shoes of the victims. Sometimes leaders “have a hard time seeing the world through the eyes of people who will be affected by most problems,” Sussman said. “You need to try to see the world as those in trouble see it.”