Succession Planning

The time to develop a CEO succession plan is before you need one.

September 1, 2010
succession planning


  • One-quarter of CUs overall say they won’t have a succession plan in place this year.
  • Every CU needs an emergency succession plan to ensure business continuity.
  • Board focus: Revisit succession plans at least annually and hold CEOs accountable for potential successors’ professional development.

Many credit union CEOs have delayed retirement to steer their credit unions through tough economic times—and to nurse their recession-depleted retirement funds back to health.

Only 6.3% of credit union CEOs plan to retire in the next two years, according to the 2010-2011 Complete Credit Union Staff Salary Survey Report, published by the Credit Union National Association (CUNA). After that, however, retirement rates probably will accelerate.

The average age of a credit union CEO is 53, CUNA’s survey reports, and about half are older than age 55. Nearly 65% of CEOs in credit unions with more than $500 million in assets fall into that category.

“There will be a pent-up demand for retirement at the CEO level when the economy turns around,” predicts Gene Mandarino, organizational development manager at HRN Management Group, Salt Lake City. CUNA’s research finds that 20% of CEOs at credit unions with more than $100 million in assets plan to retire within the next five years.

The need for succession planning is clear, especially when you factor in unexpected CEO departures as a renewed job market beckons, or through illness or death. Many credit unions are ready: 58% overall have a formal plan in place and 16% will by year’s end, reports CUNA’s salary survey. But others clearly have work to do: 25% of credit unions say they don’t expect to have a plan in place this year.

A strong bench

Replacing a CEO can be a lengthy process, indicates Robert Reh, chief information officer at $340 million asset Nassau Financial Federal Credit Union, Westbury, N.Y., and vice chair of the CUNA Technology Council. “When you lose a CEO, the credit union can lose direction,” he says. “A succession plan helps ensure business continuity, and the time to develop a plan is before you need it.”

Regulators expect to see a succession plan, adds Laida Garcia, president/CEO of $285 million asset floridacentral Credit Union, Tampa, Fla., and a CUNA Board member.

“It’s not yet a requirement, but it could become one and it behooves you to be prepared and ahead of the game,” she says. “Also, you can better ensure the continuation of a stable management structure by identifying and preparing interested, capable employees to occupy leadership positions, including that of the CEO.”

That creates a capable pool of managers ready to step in as needed. “You want a strong bench if the CEO leaves. The most appropriate person to replace him or her will depend on the environment at the time,” says Mandarino. “Your board will be much more comfortable if you have a plan that names several possible successors they can choose from.”

Every credit union needs an emergency succession plan, he asserts. “It should outline what you’d do tomorrow if something happened to your CEO—who would take charge on an interim basis, what their role would be, if you’d create a temporary board committee to help them, and who would assist with a candidate search. It’s pretty straightforward, and you can find templates online to assist.”

The next step—the blueprint for a planned succession—is more involved. “It should include your current and projected organizational structure and show what the organization will look like in, say, five years when the CEO retires,” says Mandarino. “It should define what you’re doing to prepare potential successors: an assessment of their abilities, what competencies they need to develop, and what you’re doing this year to accomplish that.”

It should also detail the current CEO’s role during the transition. “You might have the heir apparent run the credit union for several months before the CEO retires,” he suggests. “The CEO can ease out of operations and act as a mentor.”

When Mandarino assists credit unions with CEO succession planning, he usually works with the CEO to develop the plan and they submit it to the board for approval. “Sometimes the board has a succession committee, which works well,” he says. “The committee provides input to the succession plan and helps finalize it for the full board’s approval. Then the committee makes sure the CEO reviews and updates the plan annually.”

Some boards also get involved in approving policies for expenses such as tuition reimbursement or continuing education. These allow CEOs to invest in potential successors so they’ll be ready. “You can’t have a really good succession plan if you don’t allocate resources to develop people,” says Mandarino.

Unexpected transitions

Reh’s credit union followed its succession plan when its CEO passed away unexpectedly seven years ago. First, the credit union’s board appointed the then-chief operating officer (COO) as acting CEO.

“Our plan requires us to actively seek internal and external candidates for a permanent CEO and give each one equal consideration,” says Reh. “The COO submitted an application and went through the interview process along with several other candidates, and the board selected him as the permanent CEO based on his tenure and experience with the credit union. He’s still here today, confirming the right candidate was chosen for the long run.”

The plan worked well, and Nassau Financial Federal has expanded it to cover all senior management positions. “It’s beneficial to appoint an interim replacement to provide continuity,” Reh says, “usually someone who worked closely with the former CEO. This also gives the person an opportunity to prove themselves.”

At floridacentral, the CEO planned to retire at the end of 2009 and the board had signed a letter of intent naming Garcia as CEO-apparent. The succession accelerated with the CEO’s unexpected death in March of that year.

“We didn’t have a formal succession plan,” says Garcia. “The transition in leadership was nearly transparent because I had worked side by side with my management team and staff for years. We had grown to respect and trust one another and understood our unique strengths and weaknesses. The gap was that we didn’t have anybody to replace me as executive vice president, so I’ve had to perform a combination of both jobs. We may hire a replacement as the economy improves.”

She made succession planning a priority, beginning by reviewing other credit unions’ plans to get ideas. “We’ve identified one person who could step into my shoes in an emergency and several others who could in a planned succession,” she explains. “My job is to see that we retain and continue to train and educate these people. The board’s job is to select my replacement.”

The credit union’s human resources director will interview senior managers annually, looking at competencies and interests, and update the plan for Garcia. “We look at competencies such as change management, creativity, leadership, and negotiations skills. And strategic thinking is very important, as are resilience and energy,” she says. “Someone who’s not interested or ready for a leadership position this year may be next year; it’s a work in progress.”

Planned retirement

Summit Credit Union, Madison, Wis., has been implementing its succession plan during the past two years, since the fourth of five mergers that have helped it grow to $1.5 billion in assets. Kim Sponem was president/CEO of Great Wisconsin Credit Union when it merged with Summit in 2008. She became president of Summit, with Andy Faust retaining the CEO role.

Sponem will become president/CEO when Faust retires this October. “We outlined the succession plan at the time of our merger; it’s part of the merger agreement,” he notes.

It’s a simple, orderly process since the two work closely together. “We meet formally each week and we attend a lot of the same meetings,” says Sponem. “Our offices are next to each other, so we frequently have informal conversations as well. We discuss and come to conclusions about anything that will impact
the business or change directions or philosophies.”

It’s important that the outgoing CEO refrain from making unilateral decisions that will affect the credit union after his or her retirement, indicates Faust. “I’m careful, especially with financial decisions, to consult Kim.”

He’s finding a two-year transition too long. Employees sometimes become confused about which issues have transitioned and who’s handling what. “I’d shorten the transition if I had it to do over; it’s simpler and more clear-cut if it’s quicker,” he says.

After Faust’s retirement, Sponem will develop a more extensive succession plan. “I’ll have some conversations with the board and outline an internal and external communications plan they could use if something were to happen to me,” she says.

“The plan also will spell out the steps for finding the best candidate for the job, whether they use a search firm or not,” she adds. “But the timing and order of communications will be the first piece.”

Small CU challenges

Even a planned CEO retirement can pose special challenges for smaller credit unions. Often the CEO wears many hats and it’s difficult to find a successor with the necessary skills.

“We’re a smaller credit union serving low-income members, and it’s critically important for an organization like ours to have a very strong succession plan,” says Cheryl Fatnassi, CEO of $31.8 million asset Opportunities Credit Union in Burlington, Vt.

“There aren’t only the complexities involved with managing a credit union but we have a mission serving low-income, often unbanked members,” she adds. “We need candidates who understand financial transactions, the regulatory environment, and how to carry out our mission. The skills aren’t widely available.”

The credit union’s founder had been CEO since 1989, when she intended to stay for five years. “She’d recruit people and bring them in, but we have a tough mission and it’s very difficult to pay them enough to retain them,” says Fatnassi. “She’d develop potential successors, but every time they’d get to the appropriate level of training, they had the skills to move to another job.”

Fatnassi agreed to act as interim CEO when the founder retired in 2008. “She had a written succession plan,” Fatnassi explains. “She’d been working since 2006 to identify and groom three or four people from the senior management team to run the credit union while the board searched for a new CEO.”

During the succession period, two senior managers resigned. “It made for a very different transition than the board expected,” says Fatnassi. The board could have had more direct communication with the senior management team, so board members had a better understanding of the senior managers’ goals and expectations, she notes.

It also was challenging for the board to assess the skill set required in a CEO. The job description lacked a lot of documentation, Fatnassi recalls. “It’s important to bring in a third party who can look objectively at the role and the skill set needed.”

Fatnassi was named CEO for three years and the board is updating the credit union’s succession plan. The credit union also has improved its documentation, staff education, and communication. Roles and responsibilities, schedules for submitting reports, and things like contact information for vendors and partners are all documented.

Opportunities also now has a CEO employment agreement with professional development objectives tied to the credit union’s strategic plan.

“We review our financial and strategic goals monthly at the board level, and we periodically bring senior managers to board meetings to talk about their areas,” says Fatnassi.

The plan still calls for senior managers to run the credit union while the board searches for a successor.

“We’ve tested it several times when I’ve gone out of the country for an extended period, and they’re very capable of managing on an interim basis,” says Fatnassi.

Revisit your plan

Mandarino emphasizes no succession plan will work if the board isn’t invested in the planning process.

“Boards must revisit the plan annually and hold the CEO accountable for potential successors’ adherence to professional development plans,” he says.