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A co-worker suggested that I dive deeper into the phenomenon of a dominant management official, which I touched on in last week’s column about a Kansas banker charged with embezzling $47.1 million and losing it in a cryptocurrency scam.
Bank examiners had identified CEO Shan Hanes as a dominant officer as far back as 2017, long before little Heartland Tri-State Bank collapsed last summer.
Bank examiners have been specifically watching for bank officers who have “material influence over virtually all decisions involving the bank’s policies and operations” since 2016. The Federal Reserve’s Office of Inspector General announced that it would train examiners to spot these guys on the front end after they were identified as a factor in four bank failures in five years.
The very next bank failure in which a dominant executive was identified as a contributing factor was here in Arkansas: Allied Bank of Mulberry in 2016. Owners Lex and Alex Golden, referred to by titles rather than names, were both identified as dominant officials.
Few industries are as heavily regulated and face such public scrutiny as banks, since their deposits are insured by the federal government. But dominant management officials are not peculiar to the banking industry and, of course, most aren’t crooks.
If I were to generalize the traits identified in dominant bank officials, I would expect him — all the banking examples have been men — to have significant or even sole ownership of the business. (I worked for one decades ago in the nonprofit sector, but he definitely thought he owned the place.) He will surround himself with enablers, sometimes by paying them more than they could earn elsewhere. Any board of directors will be hand-picked and expected to rubber-stamp the dominant official’s decisions.
A dominant executive would not be as worrisome if he only had his own money at risk, but that’s rarely the case. Even in a sole proprietorship, employees can have their livelihoods and personal lives upended by a boss who insists that they follow instructions, serve his interests and ask no questions. In Arkansas we’ve seen subordinates sanctioned, charged and even imprisoned for going along with a CEO’s demands.
In the Kansas case, the bank CEO directed 10 wire transfers totaling more than three times the bank’s equity capital in a five-week period, and yet two more weeks passed before the chief financial officer finally filed a suspicious activity report. As the Fed’s OIG noted, “[T]ypically when suspicious activity involving insider abuse occurs at a bank with a dominant official, most employees involved explain that they were following the orders of that dominant official.”
If you work for a dominant executive, you know it. Be careful about just following orders.
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