The succession lifeline

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.

NEXT:Health and longevity

Health and longevity

Both succession and development are priorities at Simplicity Credit Union in Marshfield, Wis. Board Chair Mark Page has been a director since 1987 and watched as the credit union’s assets grew from $45 million in the 1990s to $429 million today.

Page has witnessed CEO transitions that both fueled and slowed growth. He’s also seen succession plans that worked in real-world conditions—and plans that faltered when reality intruded.

“Until you actually implement a succession plan, you’re never going to see the pitfalls,” he notes.

Simplicity faced a big leadership challenge when former CEO Patricia Wesenberg took a leave of absence before resigning in late 2020 due to health issues.

The board hired a consultant and conducted an internal search that led to Chief Financial Officer Nicholas Faber being promoted to CEO in March 2021. 

Faber says Simplicity’s succession plan created a smooth transition at a time when employees were grieving for Wesenberg, who died in February 2021. She had served as CEO for 26 years.

“The health and longevity of the organization is the No. 1 reason to have a succession plan,” Faber says. “If there is a succession plan in place, it has been communicated, and there is a clear goal and strategy from top to bottom, we will be able to keep moving along the path to accomplishing what we set out to.”

Internal focus

Page says hiring an outside consultant provided an objective evaluation of internal applicant skill sets and competencies, giving the board confidence in its decision to promote Faber to CEO. Choosing an internal candidate allowed Simplicity to skip the tricky process of matching a candidate to the culture.

“Our biggest win wasn’t having to spend an excessive amount of time trying to explain to the leader what our member-focused culture is,” Page says. “We wanted to make sure our next CEO would continue that culture.”

Simplicity is maintaining its culture with a development program for its 110 employees, including a leadership course developed and led internally. Thirteen employees graduated from the first Leadership 1.0 course in January 2022 and can apply for the Leadership 2.0 course. Meanwhile, another six employees will start Leadership 1.0 training.

“It speaks volumes to the desire of our staff who want to improve and continue to grow to do what we need to do to best serve our members,” Faber says. Offering “360-degree feedback” to all employees is a key step because it allows employees to identify weaknesses they can address with training.

The development program has two goals:

1. Make sure employees who step into new roles have the skills to tackle their new positions.
2. Make Simplicity an employer of choice in a tight labor market.

“It’s about taking advantage of opportunities,” Faber says.

Two-week notice

Aurora (Colo.) Federal Credit Union had a “verbal succession plan” based on annual and routine board conversations but lacked a finely detailed written document when the CEO gave two-week notice of earlier-than-expected retirement in June 2021. By coincidence, the executive vice president resigned to accept a new position a few days later.

“There was a little bit of angst on the board,” Board Chair Mark Stephenson recalls. The $128 million asset credit union has 19 employees and two vice presidents, so the leadership gap was an immediate issue. “It certainly illustrates the need for a board to be ready.”

Plus, the leadership change occurred during the pandemic. “There was quite a bit of exposure because we were so thin in leadership,” Stephenson says.

Fortunately, the remaining, experienced vice president had risen through the ranks and was willing and prepared to serve as interim CEO.

The board quickly authorized the interim leader to promote staff internally and bring in new tellers. Decisions made in earlier board discussions about a CEO search—searching both internally and externally and using an outside consultant—accelerated the process.

“It helped tremendously that we all knew what direction we were going to take when the CEO did retire,” Stephenson says. “Having an engaged board with a common vision of the future made it much easier when the time came to begin a CEO search, and made it easier to pick the final candidate.”

NEXT: Accelerating the process

Accelerating the process

Stephenson tapped trusted relationships to compile a short list of recommended recruiting firms, which allowed the board to quickly pick a consultant to help Aurora Federal develop a balanced short list of CEO candidates. He hosted a board dinner at his home so the consultant could get acquainted with the directors and explain the process, which created trust.

“We accelerated everything,” Stephenson says. For example, Zoom interviews made it possible to conduct initial interviews in a shortened time frame.

 

“You use the same process; you just do it in weeks or a few months instead of stretching it out over a year,” he says. “We made prudent decisions; we just made them more quickly.”

Yet the seven-member board was also prepared to work hard and to set aside time for important face-to-face meetings. Five board members met with the interim leader so he understood the process and the board’s priorities.

Board representatives also met with all employees in an honest and transparent conversation, which paid off as the credit union retained all employees throughout the transition.

Conversations with candidates focused on financial skills and core values, as well as Aurora Federal’s desire for planned growth, which includes a potential charter change and increased marketing.

The credit union hosted another board dinner for the final candidate and his spouse, allowing everyone to get acquainted and ask frank questions. Inviting a candidate’s spouse or partner isn’t traditional, Stephenson says, but it recognizes changing times as well as the need to quickly build trust.

“If you have an old-school board, you have to break out of what you felt was the norm and look at what is happening in your environment,” Stephenson says.

Aurora Federal selected new CEO Charlie Watts in November 2021 but delayed his arrival until after the holidays so he could provide year-end financials for his previous credit union. Watts attended board meetings in November and December 2021 and became CEO on Jan. 1, 2022.

   

Planning years ahead

Succession planning and strategic planning are intertwined at $40 million asset Members Credit Union in Cos Cob, Conn., which is planning now for its CEO to retire in the coming years.

Strategic planning helped Members become a community development financial institution and the only financial institution that addresses the needs of low-income, Hispanic immigrants in Fairfield County. In 2017, Members received the Juntos Avanzamos (“Together We Advance”) designation for Hispanic outreach.

Succession planning will ensure that mission is carried forward after CEO Kathy Chartier’s retirement, which is tentatively set for 2025. Chartier joined Members in 1987 when it had $7 million in assets.

Chartier and Board Chair Brian Wood say Members’ roughly 6-year-old succession plan emphasizes development, which brings in fresh ideas and keeps skills up to date among its 10 long-term employees.

That makes it possible to maintain a high loan-to-share ratio, engage community organizations, and create programs that meet the needs of its growing Hispanic membership.

“What we’re all most excited about is the opportunity to network with organizations that we had been chasing for years that are now reaching out to us,” Wood says.

Succession planning also led the board to recruit younger, more diverse directors to better connect with the Hispanic community.

“We made a big turnover in the board through deliberate planning, which is why they are so aligned with what we’re doing,” Chartier says.

The credit union also gains fresh insights by recruiting high school students as part-time summer interns.

Vanessa Molla Kudeuk, Members’ vice president of lending and Hispanic outreach, learned about the credit union as an intern, joined the full-time staff three years later, and is now approaching 20 years of service.

Acting for the future

Wood says he was once hesitant to develop a succession plan because it meant acknowledging that Chartier would someday retire. Watching other small credit unions lose their identity through mergers changed his mind.

“The lesson learned was, start the conversation even if you don’t know where it’s going to go and where it’s going to end,” Wood says. “Then you can have discussions about career development and opportunities for employees to advance. It’s important for us to get our internal people up to where they want to be and make them viable choices for leadership.”

The current plan states that an internal candidate will be the preferred successor to Chartier when she retires. The plan identifies two staff members with complementary skill sets to provide interim leadership if needed.

Both Wood and Chartier say focusing on employee development will help them avoid a merger when the CEO transition occurs while providing continuity to the underserved members who rely on Members for financial services.

“We understand the need and purpose of small credit unions and how they can more closely touch their members,” Chartier says. “Our ultimate goal is to remain independent.”

This article appeared in the Summer 2022 issue of Credit Union Magazine. Subscribe here.