Taking a More Strategic Approach to Succession Planning

As the most important act a board of directors will take, give CEO selection the time and process your members deserve.

By Deedee Myers | September 13, 2024 at 09:00 AM
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With a continued wave of industry leaders retiring, now is the time to ensure your credit union takes a strategic approach to succession planning. There is a wide range of approaches to this critically important process.

Some institutions simply point to a box on the organization chart to identify who is next in line or has been there the longest. Others are moving beyond one-time or occasional conversations toward a more strategic, relevant and effective succession planning process, which is a critical and valued factor supporting organizational health and sustainability. The size and complexity of the organization impact the availability of succession planning resources. Larger and complex organizations have more executives at the senior level, whereas smaller credit unions might rely solely on the president/CEO as its only executive leader, limiting succession possibilities.

Succession planning is the process of ensuring an organization has the right people in the right places at the right time. For mid- to larger-sized credit unions, the strategic succession planning process starts ideally two to five years in advance of an anticipated CEO transition. The board of directors is responsible for hiring the CEO and, therefore, determining the characteristics and competencies needed in their future CEO. A best practice is to link these characteristics and competencies to a longer-range strategic vision using a succession planning rubric or tool. The incumbent CEO leverages these parameters and sponsors a professional development, executive coaching or CEO-readiness program for potential internal candidates using a combination of internal and external resources.

Board Considerations in CEO Succession Planning

A best-practice CEO search has at least 240 steps. Here are 10 for the board to consider as they prepare a timeline for this important work.

1. Consider cross-functional training with the assignment of new roles or a leadership role in major organization-wide strategic initiatives.

2. Executives take responsibility for their CEO-readiness plan. The organization provides resources that display a commitment to advocating for professional development. This advocation, however, is not a promise for promotion; it is a promise to provide resources. The potential internal candidate has the accountability to rise to the occasion and leverage the resources.

3. Executives who attend industry professional development programs are more equipped to understand the leadership issues and potential approaches that will support their credit union and to make effective decisions, manage change, build a needed network, and improve operations and processes. These industry development programs are cohort based.

4. Executives who participate in a CEO-readiness program, a one-on-one customized leadership development program, have increased clarity of self in multiple leadership scenarios, enhanced emotional intelligence, clarity in decision-making and a centered leadership presence, and they are more readily able to create and articulate a compelling vision. Both the industry professional development program and the individually customized CEO-readiness program are meaningful steps in CEO development.

5. Assuming the CEO has an employment agreement, be mindful of the advanced notice required by the board. For example, an employment agreement might stipulate the CEO provide a 60-day notice before leaving the organization. Unfortunately, these 60 days are when too many boards start the succession planning process. We recommend that the CEO and board have a timeframe conversation two years out from the anticipated CEO transition date. This advanced notice allows for overlap and continued in-depth coaching and mentoring of internal potential candidates.

6. One year from the expected transition date, plan for the board to know if there will be an internal successor or if an external search will parallel the ongoing development of potential CEO candidates.

7. Update the employment agreement, compensation philosophy and performance criteria three to six months prior to making an offer of employment to the next CEO. Reeducate yourself on supplemental executive retirement plans and what might have changed within this new economic market.

8. A CEO search committee or the executive committee logistically facilitates best-practice CEO searches. The full board is involved in agreeing to the competencies and characteristics, and participating in the final round of interviews.

9. External candidates see a red flag when the CEO is involved in the evaluation and interview process of external candidates. There is a perception that the CEO oversteps authority and/or the board is complacent.

10. Prior to conducting a CEO search, update board policies to address the action the board takes when a board member decides to be a CEO candidate. A best practice is to ask that board member to resign from the board or, at a minimum, recuse themselves from the process. The challenge in the latter scenario is when that board member does not get the job and remains on the board, so the new CEO reports to this person, a former candidate. As much as the board attempts to organize without bias, there will be residual unnecessary and possibly unspoken concerns in this reporting situation.

CEO Succession in Smaller Credit Unions

CEO succession for smaller credit unions may appear less complex. However, in reality, there is the potential of putting the organization at risk of being acquired or merged. The smaller credit union CEO serves in a lot of roles and has tremendous responsibility. The board should understand the earliest anticipated date the CEO may leave and agree to and memorialize a plan of action – for example, who in the organization can step up, who in the industry could step in as an interim, and how the league or association could support the smaller credit union that is locating the next CEO. The board members need guidance if they decide to conduct their own CEO search process. They must also understand the best media sources for posting a job, what the employment agreement should be, the most important components of a compensation package and how to provide best-practice CEO oversight.

Board and Executive Turnover

Succession planning is about ensuring the right people are ready at the right time, in the right places, to effectively lead and manage the organization. However, succession is not limited to CEOs. Assume that with each CEO retiring, there will be one to three executives, on average, also retiring within a short period of time. Additionally, we anticipate that 30-40% of boards currently hiring a new CEO will have two to four board members step off the board within three years. Today is an ideal time to do a skills inventory matrix, assess how your board expertise aligns with the vision and strategic trajectory of the credit union, and be ready to experience a paradigm shift in board recruitment. A common phenomenon is that older board members' circle of influence is typically smaller or might be connected to a fixed demographic, which requires complementary executive search services for a best-practice board search.

There's too much at risk in waiting until the last minute in succession planning. Instead of being reactive, instituting a strategic succession planning approach is a best practice. The organization will feel less anxious, the board will have a structured process, the candidates will feel the board is high-performing, and there will be relevant on- and off-boarding to support the honeymoon period. The first steps in strategic session planning are for the board to set aside time to be refreshed on what is happening in the industry, adopt a process to articulate characteristics and competencies for their next CEO, and put together a relevant game plan with dates and accountabilities plus a communication strategy. Deciding who the CEO is and how to provide oversight are the most important acts of a board of directors. Give it the time and process that your members deserve.

Deedee Myers

Deedee Myers, PhD, is CEO of DDJ Myers, an ALM First Company, based in Phoenix, Ariz.