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About a decade ago, our firm met with the chairman of the NCUA to discuss succession planning. After many years of working in this industry, we were concerned about the lack of succession planning on credit union boards. Our significant in-depth experiences told us that if term limits were not established and if there were no procedures and rules put into place to ensure succession planning for board members and CEOs, as well as rotation of committee chairs, that the ability of credit unions to navigate successfully would be greatly diminished. We were years ahead of the curve on this subject.
Now, 10 years later, there is movement in this arena. In July of this year, the NCUA approved rules for incentive-based compensation as required by the Dodd-Frank Act stating that credit unions with $1 billion and above in assets, which covers 443 credit unions, must disclose and report compensation. These rules are approved, but still await comments before enactment.
The purpose of this rule, according to current NCUA Chairman Todd M. Harper, is to provide both transparency and accountability. The focus should be to encourage long-term health of the organization, rather than short-term gain.
Additionally, there is a new approved rule requiring federally insured credit unions’ boards of directors to “establish and adhere to processes for succession planning” and to review their established succession plans no less than annually. Also required will be written succession plans for specified executives and other positions. The plan would be required to address the credit union’s strategy for recruiting candidates to assume each of the key positions. Chairman Harper stated, “A credit union board’s failure to plan for the transition of its management and key decision-makers could come with high costs, including the potential for an unanticipated merger of the credit union, when key personnel depart.”
Directors have a significant role to play in succession planning. It is one of their two major responsibilities as well as the oversight of the credit union’s strategic plan.
When you talk about succession planning, you have to understand the impact that it will have on leadership and people’s careers as well as the credit union’s standing in the community.Succession planning, by raw definition, means looking at your own mortality, length of service and ability to contribute to the safety and soundness of an organization. Nobody wants to talk about being replaced or their own departure from an organization. This results in a type of gridlock caused by self-interested thinking.
It takes character to define when it’s time to go. And it takes character to commit to developing a conversation around the next generation of leadership. Those discussions are driven by changes in technology, member and customer needs, and employee expectations. Employees have a right to expect competent command. The delivery of institutional safety and soundness is driven by a transparent strategic discussion on a plan going forward. It takes a strong individual to reference the need for the next generation to evolve and give up requisite power of the title of director or chair.
One example was the board of a $500 million in assets credit union, where there was no criteria for director performance. The charters and bylaws had not been reviewed in over a decade. The reason that’s a problem is because there was no independent assessment of the directors responsible for overseeing the organization and their level of engagement with the institution.Charters and bylaws outline the responsibilities of the directors and the committees. The basis for succession planning comes from a charter review by the Nominating and Governance Committee that lays out the responsibilities of the nominating process for all officers and directors.
A strategic decision was made to undertake several critical steps. First, an independent review of each committee charter that defines the nominating process was conducted, along with a review of the financial oversight process. Additionally, the full board was engaged in developing a strategic plan with the CEO and senior leadership team, which included the creation of a CEO dashboard outlining the leader’s responsibilities. Both the board and management recognized the necessity of this thorough process to reach effective strategic and governance solutions.
If you believe in creating a meaningful legacy for your credit union, it begins with a candid assessment of who will lead it effectively into the future. It is essential to envision the evolving relationships and needs of members, their families and their businesses. Legacy is the most powerful motivator, and pursuing these important directions requires courage and strong leadership.
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