Get your money's worth from your bank.

"There are more challenges in corporate banking relationships today than ever before," says Frederick Militello, author of a new Financial Executives Research Foundation study, Reassessing Corporate Banking Relationships. And no wonder. Commercial banks are simultaneously jockeying for position as core credit providers and vying for investment-banking contracts, all against a frenzied backdrop of mergers and acquisitions and large-scale consolidation.

The FERF study ties together the disparate elements and tensions in the banking industry, through case studies of 11 companies and four banks. Militello observes, "The 1980s were all about transactional banking, but now both companies and banks are most interested in mutually creating value."

For all of the case-study companies, the focus on becoming a valued customer to banks is a resounding theme. Companies want banks that can demonstrate a commitment to them during the lows and highs of a business cycle. To strengthen their ties, "some companies are reversing the meeting process. Instead of waiting for their banks to call on them, companies are visiting their most important banks," he reports. For example, Northwest Airlines, which values continuity and close contact with its banks, conducts face-to-face meetings with representatives of each first-tier bank at least twice a year. In 1996, Northwest tallied about 150 of these meetings to achieve the relationship commitment it wanted from its banks.

Along with the renewed emphasis on relationship banking, access to credit remains the central concern for companies, says Militello, and for most, commercial banks are still the preferred providers. "The consolidation in and increased health of the commercial banking sector simply proves to companies that commercial banks are their best bet for credit," Militello reports. But at the same time, commercial banks have been struggling to make inroads into advisory and other higher-yielding areas.

This is a major compensation issue for companies, many of whom would like to support their banks' efforts to move into other areas but feel they have a fiduciary responsibility to use banks according to their track records and reputations, he notes. One big reservation, say many companies, is that banks focus too much on closing deals and not enough on excellence of execution.

Yet all the case-study companies were willing to consider using commercial banks for major advisory and security underwriting assignments. "Most say they will gradually be able to allocate more of their higher-compensating business to commercial banks with good track records," because financial executives recognize the need "to manage the cooperative and competitive dimensions of the relationship together to protect the interest of both banks and companies," Militello reports. "That's why many companies like the 'one-stop shopping' concept - it gives them an opportunity to get the credit they need and still reward banks with the higher-compensating business. They're simply being cautious in how they manage the transition."

But not all companies are so enthusiastic about "one-stop shopping." Some are uneasy with the idea of banks being all things to all companies, especially when meeting local banking needs. A treasurer of one participating company reports, "We have tried this before and it does not work ... Many larger banks want to simply open the sample case and hope that something sticks." This is why mid-sized banking is still appealing, he says. "There is still no substitute for being able to call your relationship manager on the telephone and talk through the problem." But as banks grow larger through mergers and acquisitions, the relationship side can get lost, he adds.

Finally, the study also found that technology is driving some of the trends in relationship banking. For example, many financial executives think banking relationships will be "heavily influenced by the advent of single point of data entry systems and the ability of banks to effectively interface with them," Militello reports.

Also, a growing number of banks are making their technology available to their most important customers, and by the same token, some companies are leveraging technology to generate data on their banking relationships and activities. Northern Telecom has developed an online financial supplier library, enabling it to coordinate its global banking activities and to better understand each bank's major strengths. The library allows the company to record banking relationship information globally on a real-time basis and facilitates the sharing of this information between regions and with Nortel's corporate treasury. Eventually, the system will provide ratings on suppliers to ensure "best in class" service.

Another company, which requested anonymity, maintains an internal bank performance and evaluation system. The system not only tells the company exactly how much volume it is doing with each bank, but lets the company calculate how much the bank is earning from the relationship. Armed with data, the company can assess where each banking relationship is working and where it is not. And by sharing this information with its banks, the company has been able to fine-tune its dialogue with many of them. As with any relationship, communication is a two-way street.

Practice Audit Checklist

On your way to a meeting with one of your core bank's representatives? Take a moment to ask yourself some questions:

* Has our company communicated to its core banking circle the message that each bank in the circle is "equally important but highly substitutable"?

* If not, why not? What are the dangers in not doing so? For example, can we jeopardize the strategic importance of the core if certain members perceive other members as more important to the company?

* In setting up formal loan syndications, should we avoid designating lead agent status to any single member of the core? Would co-lead designations work better? How about just implementing a rotating lead-agent policy among the core members?

* To ensure the core's integrity, have we actively participated in selecting banks to syndicate our credit? Should we allow loan sales outside the core and/or relationship family?

* Instead of formal loan syndications, can we manage the syndication process ourselves, so-called "club" arrangements?

* Do we have the time and expertise to manage such arrangements?

* Should we consider using both approaches? For larger bridge loans, formal syndications with broad-based core participation? For general revolving credit or term facilities, informal club arrangements?

* Do we have a contingency plan if a member of the core decides it no longer wants to provide us with our single most important banking need?

* Does this plan include other alternatives than simply asking the remaining core members to increase their credit (or other product area) exposure to our company? For example, have we been proactively courting noncore relationship banks to provide for such contingencies?