A strong succession plan can be a lifeline that allows your credit union to survive the waves of change when the CEO or other leaders retire or resign.

Yet the succession plan alone may be inadequate to provide the ongoing leadership that determines whether a small or mid-size credit union can stay afloat on its own or must resort to a merger.

To be effective, credit union leaders say the succession plan must be backed by an internal development program that ensures the organization has the talent available to thrive whether the new CEO is promoted through the ranks or recruited from outside.

Plan now or merge later

Without a succession plan, credit unions with assets of $250 million or less are often forced to merge when they learn the CEO or other senior executives plan to retire or resign, says Scott Butterfield, founder and principal at Your Credit Union Partner. The firm provides strategic planning services to about 35 credit unions each year, which Butterfield says also means providing succession planning advice because the two issues are so closely linked.

“I always tell the board, ‘You have one employee and that employee is the CEO,’” he says. “Their job is to make sure they have a succession plan for that position.”

Butterfield is regularly contacted by anxious credit unions after their CEO or other senior leaders unexpectedly retire or resign, or after NCUA examiners criticize the credit union’s lack of preparedness for that event. He’s dismayed when well-established credit unions with aging executives choose to merge rather than planning now to recruit the next generation of leaders.

NCUA recognizes the problem in its proposed rule on succession planning, which requires federal credit unions to establish a succession planning process for management officials and key board positions.

The proposed rule states that NCUA’s analysis shows “poor management succession planning was either a primary or secondary reason for almost a third (32%) of credit union consolidations.”

“It’s a huge issue,” Butterfield says.

Domino vacancy

Even credit unions that have a CEO succession plan may learn the CEO failed to create succession plans for other senior executives, creating a domino effect in vacant leadership positions.

“This is where I see a breakdown,” Butterfield says. “This isn’t about a one-time event. It goes deeper than that.”

Succession planning is essential as baby boomers—those born from roughly 1946 to 1964—continue to retire in large numbers. For example, a credit union may have four boomer-era senior executives with more than 20 years of experience, which could mean they all retire at roughly the same time.

If such credit unions don’t have anyone prepared to step into these executive positions, they may lose their entire management team, Butterfield says.

He recommends a strong development program at every level of the organization to prepare future leaders.

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