At 63, Lakeland Financial's (LKFN) longtime chief executive Michael Kubacki is two years away from the company's mandatory retirement age.

Far from waiting until the last minute, Lakeland's board began transferring power four years ago when it moved the title of president from Kubacki to David Findlay, the bank's chief financial officer.

The move effectively designated Findlay as a sort-of CEO-in-training. In 2013 he was promoted again to become Lakeland's next CEO, a role he officially assumed last month.

To investors, a smooth a handoff to a highly regarded insider is a clear signal that the Warsaw, Ind., company will stick to its measured growth plan. Lakeland, the parent of Lake City Bank, has ranked among the industry's best performing companies for years and investors have profited handsomely from its success.

To customers, who value Lake City Bank for its local roots and commitment to its community, the long, orderly transition has eased concerns that the bank would sell itself to an out-of-market bank. To regulators, it has shown that the bank's board has been planning ahead. And perhaps most importantly, to employees it was a sign of continuity.

"The people who come to work every day need to be totally comfortable that they are not going to come in and find a different environment," says Kubacki. "Any worry that life might be different here when I turn 65 has been put completely to rest."

A smooth transition has been the unquestioned goal ever since Lakeland began laying the groundwork for the transition years ago, adds Kubacki, who will remain chairman of the $3.2 billion-asset company for two more years.

Most corporate governance experts would agree that the company has executed a textbook succession in grooming a strong internal candidate—Findlay had been CFO since 2000-and giving all stakeholders ample time to get comfortable with his ascension.

Unfortunately, it is not the norm in banking. Succession planning has long been a top priority at the relative handful of national and big regional banks. The CEOs at Wells Fargo (WFC), BB&T (BBT), PNC Financial Services Group (PNC), KeyCorp (KEY), U.S. Bancorp (USB) and several others all were promoted from within.

But succession planning often gets overlooked at small banks, experts say. A big reason is that many small-bank CEOs are heavily involved in running things day to day and give little thought to grooming successors, they say.

"Bankers are good at being bankers," says Susan O'Donnell, a Boston-based partner at Meridian Compensation Partners of Lake Forest, Ill. "Some do [succession planning] very well, but for others it's an element that gets sidetracked."

Inaction comes at a price. Even succession-planning laggards are coming to recognize that their survival may count on developing a sound transition road map, experts say. Pressure is also coming from regulators, who increasingly view succession planning as a key component of good corporate governance.

"There's definitely more awareness [about succession planning] because it's getting harder to grow, so you've got to have leaders who know how to deal with every constraint that's thrown at them and still make money," says Peter Thies, president of the River Group, an executive recruitment firm.

"Boards need to be thinking all the time about how to best position the company for the future," adds Connie McCann, a consultant at the executive search firm Spencer Stuart. "Arguably, who becomes the CEO is one of the most important decisions a board is going to make."

Good succession planning means identifying and mentoring internal candidates. CEOs and boards that fail to do it risk losing top talent to rivals. Or, if a CEO falls ill or suddenly retires, and the bank doesn't have a formal succession plan in place, the bank may be forced to sell itself, shell out big bucks to hire a search firm or give the job to an internal candidate who is unprepared.

"The most tangible outcome of poor succession is that performance slips," McCann says. "The [bank] is not prepared for the competitive market and isn't able to execute a strategic plan for success."

Banks that don't properly plan for succession could also find themselves in hot water with regulators. Earlier this year, the Office of the Comptroller of the Currency proposed a series of corporate governance measures that, among other things, would require boards to draft orderly succession plans that banks could put in place quickly without disrupting business.

The so-called "heightened expectations" measures only apply to banks with assets of $50 billion or more, but some have speculated that they will eventually trickle down to smaller banks regulated by the OCC.

Even absent formal guidelines, some regulators are asking banks to beef up succession plans as part of their overall strategic planning, consultants say. The problem, they add, is that there is little consistency among examiners, which can frustrate bankers.

"I have a client who has a very well thought-out plan. It's all written out, it has back-up contingencies. But regulators have still questioned it," a consultant says. "Then you might have another bank where a regulator won't even ask about it."

So what makes for a good succession plan?

Spencer Stuart's McCann says that the best plan is one that provides for all possible scenarios. It should lay out a formal transition for a CEO who is retiring and have contingencies in case a CEO becomes ill, dies suddenly or loses the confidence of directors or investors.

"It should never come as a surprise," adds Paul Hodgson, a principal at the corporate governance consulting firm BHJ Partners. "If you haven't prepared for it [succession], then you haven't done your job."

Hodgson says that the very best succession plans are those in which firms identify a range of candidates in the years leading up to a CEO's retirement and ultimately choose one of those candidates as the heir apparent.

Thies agrees on the importance of having a deep bench and ads that companies should always strive to promote from within.

"Studies routinely show that, over the long haul, internally groomed CEOs return more to shareholders," he says.

Even good planning creates risks. A bank that puts a lot of talent on its bench under a long-tenured CEO runs the risk that potential successors will get antsy and move on. Jamie Dimon has been open about his plans to continue serving as CEO of JPMorgan Chase (JPM), so it's no surprise that some deputies once viewed as potential successors have left for other top jobs.

"The danger is that the people who have been identified as [potential successors] get tired of waiting around and they go elsewhere," says Timothy McTaggart, a partner at the law firm Pepper Hamilton.

Another risk that goes along with long CEO tenures is that a leader becomes so closely identified with a brand that a change seems almost unimaginable. Think Berkshire Hathaway without Warren Buffett.

At the $1.2 billion-asset Needham Bank in Massachusetts, Jack McGeorge has been the bank's face in the community for decades. McGeorge, 70, says he is ready to retire, but to ensure an orderly transition he plans to stay on for another year as CEO before handing the reins to President and Chief Operating Officer, Mark Whalen.

The transition began two years ago, when Whalen, then the COO, was given the additional title of president, according to McGeorge.

"I did that because I wanted the world and the community to know that Mark Whalen is a person of significance at this bank," he says.

McGeorge, who will remain chairman, adds that the one-year lead time is necessary to fully prepare the staff for his departure.

"I've been here since 1975, and some people have concerns about what will happen to Needham Bank when I leave," McGeorge says. "I did it this way [with a one-year transition] to smooth out any issues or fears."

Of course, even orderly succession plans don't always work out. M&T Bank's (MTB) Robert Wilmers and TCF Financial's (TCF) William Cooper both deferred to designated successors roughly a decade ago, only to return to their former roles a few years later. Each remains CEO of his respective bank.

Alan Kline is an editor with American Banker. 

Read more: What It Takes to Hire and Keep a Compliance Chief

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