How Credit Unions Can Develop Concrete CEO Succession Plans

LeadershipSuccession PlanningFinancial ServicesBoard and CEO AdvisoryCEO Succession
Article Icon Article
Robert Voth
3月 08, 2022
6 read
LeadershipSuccession PlanningFinancial ServicesBoard and CEO AdvisoryCEO Succession
Executive summary
In January of 2022, the NCUA voted to move forward with mandating federal credit unions develop and follow established processes for CEO succession planning.
rra-insights-esg-20-the-next-gen.jpg

 

In mid-January of this year, the NCUA voted to move forward with a mandate requiring federal credit unions to develop and follow established processes for CEO succession planning.

The announcement was greeted with pushback from smaller credit unions, citing the time, energy and cost associated with developing and implementing robust succession plans that would pass regulatory scrutiny.  They are requesting that r the NCUA  provide additional tools and guidance to better prepare them for their inevitable CEO succession needs. 

The NCUA provides certain levels of online training and, with credit unions who qualify under low-income designations, the ability to apply for technical assistance grants to support succession planning. However, most smaller credit unions do not have budgets that allow for the external help needed to design and execute best-practice succession plans. 

The concern is warranted. Succession planning is more complex than most of these volunteer boards are prepared to design and execute. 

And it’s not just the smaller organizations that are struggling. At the larger credit unions, of which there are 115 with over $2.5B in assets, the challenge surrounding CEO succession planning is magnified and should be of real concern to the NCUA, CUNA, and all boards. 

The credit union industry is to be admired for its ability to consistently grow membership and service standards in the face of the many crises financial services organizations have faced over the last few decades. Successes notwithstanding, the evolution of an industry built upon conservative risk management and an overarching focus on fiscal health, combined with the natural limits of growth that come with membership rules and the parochial/geographical nature of the employee base, has led to a set of unintended circumstances that justify succession concerns.   

Executive management teams at credit unions, on average, consist of C-Suite leaders with long-standing tenure similar to that of the  CEOs. Their careers are often immersed in single disciplines (sales, operations, finance, etc.). They are, by and large, not a racially or gender-diverse group.  Taking all these factors together, the reason for the NCUA’s recent action becomes clear. 

Within the top 50 credit unions, the most recent data shows that senior management teams (defined as business unit leaders as well as the CFO and COO, CIO, and CAO/CMO, when applicable)have an average of 15 years at the same credit union and 11 years in the same role. This statistic in and of itself is not concerning until matched with the fact that less than 15% of these executives have cross-functional experience and their average years of experience are north of 30.  

Chief Executive Officers average almost 11 years in their role with a tenure of over 20 years at the same credit union. Ninety four percent (94%) of new credit union CEOs over the last five years have come from within the industry. Less than 20% are gender diverse and less than 4% are ethnically diverse.

rra-how-credit-unions-can-develop-concrete-ceo-succession-plans-chart

The unique comfort afforded credit union CEOs, in comparison to their banking counterparts, combined with their compensation packages (SERP) and the above statistics regarding senior management, create a dangerous and costly situation for credit unions without dedicated succession plans.

In September 2018,  Russell Reynolds Associates conducted a study of sitting CEOs at credit unions with above $2B in assets. Eight percent (8%) said they are available to consider new opportunities. The 92% unable or unwilling to move to a new role were hindered by retirement age, relocation, compensation (SERP buyouts), and recent appointments. Little has changed in these statistics over the last three and a half years.

rra-how-credit-unions-can-develop-concrete-ceo-succession-plans-chart2

CEOs and board must have ready-made successors in the wings who are truly qualified, have enough career runway to deliver continuity and are confident in their chance to become CEO at their current credit union. But the few candidates that tick these boxes enjoy ample opportunity for recruitment by other credit unions.. Since most credit unions do not have established C-Suite executive development programs to create strong internal candidates, they are severely limited in their choice of executives. 

To fully understand the scope of the problem, consider that on average, there is just one internal executive ready to successfully step into the CEO seat at credit unions above $2B. The math now becomes simple, as does the alarm—with more than nine out of every 10 new CEOs coming from within the credit union industry, and only 8% of sitting CEOs able to move, that one qualified executive is at high risk for recruitment. 

The NCUA is right to bring this situation to the forefront. Time is not on the side of boards. It is unfair to the credit unions themselves, as well as to the hundreds of C-suite executives who have dedicated themselves to the industry, not to have access to advanced leadership training and first-rate CEO succession programs.    

The good news is that boards and CEOs have options when it comes to ensuring their senior management teams are sufficiently staffed, trained, and ready for succession.  

A tangible first step is defining the exact success competencies needed to be a successful CEO at a specific credit union. A credit union can do this by building a future-proofed profile of success. 

Boards are required to project three to five years into the future on the shape and strategic direction of the business, the operating environment, and associated challenges and opportunities. With this map, they can define the type of leader needed to spearhead the institution. This profile provides a clear and detailed blueprint defining the role mandate, critical experiences, and technical and cultural competencies necessary for the next CEO.  

With this blueprint as a foundation, the organization then must benchmark its senior talent through a comprehensive executive assessment program. This will deliver a clear measurement of strengths, gaps, potential and readiness factors. 

These assessments provide a scientific granularity into what each leader needs to focus on to leverage their strengths while closing critical experience and capabilities gaps to prepare them for a potential transition. They also bring an important sense of equity to the process by objectively evaluating talent while avoiding a common trap of over-indexing on technical experience, a common occurrence in credit unions. 

This exercise helps broaden the aperture to include diverse talent who have strong potential but may lack requisite experience. To accelerate leader development, Boards and CEOs should consider investing in executive coaching, CEO accelerator programs, and rotational assignments with the goal of building a larger potential pool.

Most importantly, the rising tide of succession planning lifts all ships. Even if the majority of C-Suite executives are unlikely to become a  true successor, the investment in training, rotational assignments, and leadership development pay immediate dividends to the health of the culture, executive retention and overall performance. 

Credit unions face real demographic headwinds given their unique senior talent landscape, but they can surmount these challenges with the creation of thoughtful succession programs. Boards owe this to their CEOs, the C-Suite, and especially their members. Development takes time; action needs to be taken now to de-risk and build a foundation of leadership for years to come.