Boards of Directors: Put Success in Your Succession Plan

Your credit union’s CEO just announced they will be retiring next year. Now what? If you have a succession plan in place, you’ll face fewer headaches and a fairly smooth process. If not, you’d better get started!

Doing It Wrong – and Right

Some boards put off succession planning because they’re “too busy.” Others fear stepping on the toes of the current CEO. More commonly, they simply expect the incumbent to take the lead. But what if they don’t? Too often succession planning is ignored or given short shrift by even the largest companies, which resulted in some disastrous transitions at Coca-Cola, Hewlett-Packard and Disney.

Succession planning isn’t just a once-in-a-while task for the board of directors; it’s a discipline. Failing to plan for a CEO change well in advance can result in a poor fit, a loss of the organization’s strategic drive, poor morale and reputational damage. Oh, and there’s the hit to the bottom line. After beloved Coca-Cola leader Roberto Goizueta died in 1997, the board gave the job to his anointed successor, Douglas Iversen, who looked good on paper but was a horrible fit. Not only were outside relationships damaged and internal morale at its nadir, but company profits dropped precipitously and stayed down for the two years Iverson was at the helm. Sadly, the company has continued its practice of CEO churning since Goizueta’s death.

And then there’s Starbucks. When Howard Schultz first retired from the CEO post in 2000, he left the company in capable hands. But when a new CEO was named five years later, Starbucks was on a downward spiral. Schultz came back in 2008 amid skidding profits, nervous investors and soaring competition. It turns out he wasn’t really ready for retirement. Last year, Schultz became executive chairman as Starbucks announced a new CEO, and market watchers said the “passionate purveyor of coffee” got it right this time, praising the organization for a well-designed succession plan after Schultz announced that company president Kevin Johnson would immediately become CEO.

Commitment and Communication

“Plans are worthless, but planning is everything.” This dictum repeated by former President Dwight Eisenhower recognizes there are no absolutes – whether in war or communicating about a CEO search – but planning the process is vital.

Before reviewing the CEO’s job description, engaging a search firm or dusting off the annual planning document, the board needs to develop a policy on how, what and when they will communicate. To ensure everyone is on the same page, consider these protocols:

• Establish an agreement on confidentiality. It may seem obvious, but there are countless horror stories about board members who have casually talked to the media, leaked the name of a front runner or given out conflicting information.
• Speak with one voice. Whether it’s a board member, an employee or even the current CEO, everyone has a slightly different take on a situation. Not only is it confusing when lots of voices are giving their views, but it can damage your credit union’s reputation. As a first step, make sure all board members agree on the message and key talking points as well as who is authorized to speak to various publics. Some credit unions even require board members to sign a confidentiality covenant.
• Designate a spokesperson. Establish a process for directing inquiries to a spokesperson to ensure message consistency and appropriateness. They can also keep talking points updated, run interference with the media, set up interviews and track inquiries.
• Plan a communication timetable. Employees, colleagues, vendors and the media are just a few of the people who will clamor for more info about your CEO search. It’s common for messages to need tweaking and the timing will often change. Creating, updating and sharing a flexible communication timetable can save headaches down the road.

Be Prepared

Most companies create CEO succession plans for emergency situations as one part of business continuity planning in case of a sudden departure, serious illness or death. This article discusses the need for a well-thought-out transition when the CEO announces retirement plans. Finding the right candidate will take time, so start well in advance of the projected retirement date. Most experts recommend carving out time during the annual planning cycle to discuss CEO succession. According to CUNA’s 2011 white paper, “CEO Succession Planning and Transition,” almost half of current credit union CEOs will retire within the next 10 years. Is your credit union ready?

I serve as the board chair of the $1.2 billion Firefly Credit Union, where our CEO, Bill Raker, recently announced his plans to retire at the end of 2018. Bill’s departure will leave a big hole at the credit union, as he served on Firefly’s board for 12 years before taking the helm more than 20 years ago. Finding the next CEO is a big responsibility, but we view it as an exciting opportunity as well.

In the three years I’ve been chair, I’ve learned a few things as we’ve been preparing for this big change in leadership.

• Form a succession planning committee. Our committee is board members only, but you may choose to include the CEO and HR staff. Choose someone highly organized to drive the succession planning process and ensure that everyone understands their roles. Like any working committee, gain agreement on the rules right from the start (e.g., confidentiality, all ideas are welcome, the timetable, etc.). Understand what role the full board wants to play in the process. Do they want to have input on which candidates to interview? Do they want to participate in the first round of interviews? The second? Many boards prefer to leave most of the process up to the succession planning committee, but our board wants to be deeply involved. However, as you formulate the search committee, ensure that the full board receives regular status reports.
• Define the qualifications. This is one of the most important aspects of the search process. Using your credit union’s long-term vision as a starting point, identify issues, challenges and goals for the next three to five years (or even five to 10 years). Describe the experience level and skills the new CEO will need to achieve that vision. In addition to board requirements, discuss what you believe to be your credit union’s culture and how candidates would fit in. Design interview questions that highlight important aspects of a candidate’s suitability.
• Use a qualified, well-respected search firm. Firefly chose to enlist the help of an executive recruiter. Whether your credit union makes that decision or not, you owe it to your members to look both inside and outside the credit union to find the best candidate, even if there are assumptions about who will succeed the retiring CEO. Look at every candidate’s history and evaluate how well his/her background fits the CEO requirements. Keep in mind that to attract and secure qualified candidates, your credit union will need to provide a compensation package that’s in line with or better than what other institutions are paying. And don’t pay someone a CEO’s salary to learn on the job.
• Rely on your board’s experience. For leadership continuity, strive for minimal changes among board members during the transition. Although my term as Firefly’s board chair was scheduled to end in May, I was asked to extend my time to ease the transition. Also, realize that your board can be a recruiting tool. Candidates will observe your board and draw conclusions about your credit union. They will be looking for progressive, engaged board members rather than some who may just be marking time.

Finding top-notch leadership for your credit union is a vital part of the board’s charge and a responsibility that can’t be taken lightly, yet many board members have never gone through CEO succession planning. Revisit your succession planning process regularly, even when there’s no need for a change. According to Howard Schultz, “There is no more important responsibility for a CEO of a public company than to get succession planning right.”

Sarah Lietz is Vice President, Owner Engagement for MEMBERS Development Company and Board Chair for Firefly CU. She can be reached at 612-747-1013 or sarah.lietz@membersevelopment.com.