A sudden change at the helm of Berkshire Hills Bancorp Inc. surprised the investment community and led one analyst to speculate about potential cultural issues at the bank.
Berkshire Hills announced Nov. 26 that Michael Daly stepped down as president, CEO and director, effective immediately. Daly had long been the face of the institution, which calls itself "America's Most Exciting Bank."
The bank provided no reason for the departure, leaving analysts with questions. Compass Point managing director Laurie Havener Hunsicker wrote that there were "no financial issues" related to the removal in a Nov. 27 note, and FIG Partners analyst David Bishop wrote that the departure had "nothing to do with any fraudulent activities or corporate malfeasance." He added that it was a "mutually agreed upon decision" between the board and Daly.
Workplace culture may have had something to do with the resignation, wrote Piper Jaffray senior research analyst Matthew Breese in a Nov. 26 note. He pointed to the bank's rating on job review site Glassdoor.com and an anonymous letter that Piper Jaffray received in October from alleged disgruntled employees. The contents of the letter have not been made public.
"In October 2018, we received a letter from an anonymous source (stated they were a group of employees) sent to covering analysts, several bank insiders and several prominent members of the community calling for intervention given a toxic workplace environment absent of leadership," Breese wrote.
Breese also noted that Berkshire Hills ranked the lowest of more than 30 banks in the northeast on Glassdoor.com for factors like culture and values, work/life balance, senior management, compensation and benefits and career opportunities. He wrote that only a quarter of employee reviews on the site said they would recommend the bank to a friend, compared to a median of 62%, and a little more than a third approved of the CEO compared to a median of 84%. It should be noted that Glassdoor is a review website and it may have a weakness of bias similar to other sites that allow users to review companies and items anonymously.
Breese also tried to rule out other reasons for a sudden CEO replacement, including stock performance and profitability. He said the bank's stock performance and profitability indicators like return on average assets did not stand out in terms of a need for change.
"As a result of weighing internal vs. external factors (where it can be measured), we believe the change was done not for stock performance but to improve internal culture," he wrote.
Berkshire Hills declined to comment further on its leadership transition. But in an emailed statement to S&P Global Market Intelligence, Senior Vice President and Marketing Officer Elizabeth Mach said the bank recognizes that its employees are its "most valuable asset."
"Workplace culture is one of our top priorities and we are constantly working to assure that our environment is one of mutual respect, fosters career growth, and creates greater connections between our bank employees and the communities we serve," she wrote.
The analysts all noted that Daly was closely associated with Berkshire Hills, given his 16 years at the helm. A summer 2018 profile of Daly in The Wall Street Journal highlighted the bank's work environment, including the CEO's penchant for playing rock music at meetings and his arrival into an employee town hall on a zipline flinging $100 bills into the crowd. Daly said the bank was "not boring" in the article, and that employees who do not buy into its culture tend to leave quickly.
The board entered into a resignation and separation agreement with Daly, which stipulates payouts totaling $7.5 million. The board appointed Berkshire Bank President Richard Marotta president and CEO of the parent company. It also named Berkshire Bank COO Sean Gary president of the unit. Daly will be available to assist in the transition of the CEO role, the bank's news release said.
Marotta joined the bank as chief credit officer and later served as chief administrative officer. He has been an "integral" part of Berkshire Hill's most-recent acquisitions and integrations and was responsible for restructuring its credit, risk, compliance and anti-fraud programs, wrote Havener Hunsicker. He could clarify the bank's approach to future M&A, such as potential growth in the Boston area and commitment to discipline in deals, she wrote.
Breese said Marotta is not as well-known to the sell-side industry, and surmised that there would probably be no major changes to current bank strategy. He added that management may want to signal continuity during the transition, but cautioned that the improvements may not be "immediately transparent" to the investing public.