When faced with the task of replacing a CEO, search committees often have their biases as to internal and external candidates. But credit union consultants who do this for a living suggest the best option is to consider both.
Limiting your search to only one option limits the likelihood of selecting a CEO with the right combination of skills and vision to lead your credit union into the future. While it’s important to give credit to internal executives’ contributions by inviting them to apply, it’s just as important to test their qualifications against outside applicants on a level playing field.
Nearly half (47%) of credit union search committees first consider internal applicants when replacing the CEO, compared with the 41% that pursue internal and external applicants simultaneously, according to CUNA’s 2012-2013 Complete Credit Union Staff Salary Survey. Only 7% consider external applicants exclusively.
Financial performance, marketplace conditions, and internal candidates’ preparedness and availability all factor into this decision. But in most situations, combining internal and external searches can help credit unions find CEOs with the right mix of skills and vision.
♦ Conducting both internal and external searches can help CUs find CEOs with the right mix of skills, experience, and vision.
♦ About half of CUs consider internal CEO candidates first, while 41% pursue both internal and external applicants.
♦ Board focus: Hiring a new CEO is the most important decision your board will ever make.
“Ideally, you want to keep credit union morale high and show that you value employees and hire from within,” says Charles Shanley, vice president/executive search group director at John M. Floyd and Associates. “That’s a good strategy if you have the talent. The problem is, sometimes you don’t know if that internal talent is the best talent out there.”
Shanley joins with David Hilton, president/CEO of D. Hilton Associates, in advising credit unions to set clear criteria for the CEO’s replacement, create a pool of qualified internal and external applicants, and then focus on the strongest applicants through interviews that involve the full board.
The biggest advantage for internal candidates is the strong likelihood they’ll be a good fit with the culture while delivering proven capabilities, Shanley says (“Internal vs. external candidates,”
p. 23). But it can be more challenging for internal candidates to offer a fresh perspective.
“You might not get that true visionary as you would with someone who is an outsider,” Shanley says.
External candidates often face the challenge of learning and adapting to the credit union’s culture. The most common reason for short tenures of CEOs recruited from the outside is the failure of their families to feel comfortable in their new homes, Hilton says.
Credit unions with shaky financials or other challenges will be more likely to look outside for a fresh vision and a new direction even if they have qualified internal candidates.
Cost-conscious boards might prefer internal candidates to save money on search firms, relocation, and compensation. But that strategy can be penny-wise and pound-foolish if the new CEO fails to perform.
“This is the most important decision a board is ever going to make,” Hilton says. “Short-circuiting the search process is usually not in your credit union’s best interests.”
As the recession eases and the economy picks up, executives who have delayed retirement to rebuild their 401(k) plans are more likely to leave the workforce. That could boost the number of CEO vacancies at a time when the regulatory compliance burden, earnings pressures, and operating complexities demand seasoned professionals with proven leadership skills.
The supply of top CEO candidates is already tight, Hilton and Shanley say. That has prompted some credit unions to consider people outside the traditional CEO replacement pipeline of chief financial officers (CFO) and executive vice presidents (“Who’s qualified to replace the CEO?” p. 24).
NEXT: Seeking stability