Having an up-to-date succession plan in place will help ease anxiety and speed the process of hiring a new CEO.
Few things can create more anxiety among members of a board of directors than the need to hire a chief executive officer.
Depending on how long the outgoing CEO has held the position, the reaction may range from “What in the world do we do about this?” to “Not again!” But whether it’s been five years or 25 since the last CEO was hired, finding the right person for the job is a challenging task that requires considerable time and attention. And the time to begin is well before the announcement that the current CEO is departing.
Indeed, when it comes to best practices in a CEO search, No. 1 on the list is already having a plan.
“Boards should have a formal succession plan at all times,” says Jeffrey Hamlin, chairman of the search committee for Houston-based, $624 million Smart Financial Credit Union (www.smartcu.org), which recently went through a CEO search. Hamlin emphasizes that he considers having a strategy in place the most important aspect of succession planning.
His credit union didn’t.
Case in Point
CUES member Gary Tuma, the well-known president/CEO of Smart Financial CU, had held the post for about 25 years when he announced that he was going to retire at the beginning of 2016.
“That caused flurries of activity,” Hamlin says. Tuma was uncertain of the exact date he’d leave, but the timing of his announcement gave the board roughly 18 months to find his successor.
“The next step was a general discussion on the board level,” Hamlin says. It took directors several months to put together a plan for hiring a new CEO and a timeline backing up from Tuma’s approximate date of retirement, he says.
As part of that plan, the board considered who might act as interim CEO if directors didn’t agree on a permanent replacement by 2016, or if Tuma decided to leave earlier.
“It’s important to establish up front who is going to sit in if you’re not going to have someone in place,” Hamlin says.
Then the board needed to decide who was going to work on finding the new CEO. This was somewhat complicated by the fact that there were three strong internal candidates for the position.
That was both a blessing and something of a curse, Hamlin says. Naturally, the whole board knew the candidates and thus wanted to be involved in the search process.
But Smart Financial CU has a board of 11 directors. “That was kind of unwieldy when it came to looking at the candidates,” Hamlin says.
So the board decided to establish a five-member search committee. As chair of the HR committee, Hamlin was the natural choice to head it up. The then-board chair took another seat.
One director had been on the board for about 40 years, and had been through the CEO hiring process twice, so he was added.
“At least it gave us an idea of the machinations they went through,” Hamlin says, noting that in both of those cases an external candidate was chosen. “Even old hiring records were not available, and to make matters worse, the current CEO job description was out of date. So, in addition to how we would proceed to hire and onboard a new CEO, we first had to clarify what expectations the credit union had for the new CEO, but also what type of personality fit was required to meet perceived future needs and competition, and what core competencies were expected to come with the candidate.”
Although they didn’t know it at the time, in making these decisions the Smart Financial CU directors were following the advice often given by professional recruiters.
For example, experts say that although some CUs may prefer to have the whole board involved in the entire process, if there are more than five or six directors, the search can become cumbersome, confusing and protracted.
“I love it when the board establishes a search committee. It’s much easier,” says Charles Shanley, SPHR, CFS, executive vice president of Houston-based CUES Supplier member JMFA Recruitment Services. “The whole board slows down the process too much.”
Shanley finds the magic number for search committee members is five. Fewer, and there are not enough members to represent the board; more, and progress bogs down.
“Most of the time, I see the executive committee becoming the search committee,” Shanley says. “That makes sense. They understand how the credit union works and what the board wants.”
The chair helps drive the committee, dealing with an outside firm or setting strategy, Shanley says.
“We will work with a committee or the whole board, and have a contact such as the chair,” says Deedee Myers, PhD., founder/CEO of CUES Supplier member DDJ Myers, Ltd., Phoenix, and co-founder of the Advancing Leadership Institute. “The best practice is a dedicated committee—a search committee or the human resources committee.”
Myers says she prefers that the board chair also chair the committee, because the relationship between the board chair and the CEO is so important.
The panel should start by setting a budget, Shanley advises. Members must decide whether they are hiring a recruitment firm; if not, they still must budget for advertising, travel costs for candidates, the retiree’s package, and more.
Smart Financial CU decided to use JMFA Executive Search Group after doing some research that showed how much work a CEO search is, and also that there is a whole industry performing CU executive searches.
Outsourcing the search “was the most economical,” Hamlin says. “We sat down with the credit union’s SVP of HR as well as other resources and developed a budget for this search if done internally. This included the cost of advertising, internal resources for review of 800 or more resumes, the interview process, and relocation. Our budget quickly exceeded $150,000. I can assure you that our final cost was much less than that.”
As for the make-up of the committee, Myers says she likes to see people who have made hiring decisions before play a part. But that doesn’t always happen, she says, because so many long-term CEOs have been transitioning of late. Smart Financial CU was fortunate to have a director who had served enough years to have been involved in two searches.
Shanley recommends diversity. Not all search committee members should be finance experts. Those with skills in marketing, accounting and understanding regulations, among other areas, should be included.
What’s at the Core?
Shanley underscores the idea that the search committee must identify the core competencies and values it needs in a CEO.
Vision, innovation and strategic direction are most important. Making sure there is a cultural fit is also vital. For instance, the prospective CEO may want to introduce a culture of change, but the board may not want to embrace that.
The committee should also define what it is looking for in terms of leadership, Shanley says, as well as community and industry involvement and overall experience.
Once Smart Financial CU’s requirements were developed, JMFA started lining up prospects. It started with about 1,000 individuals, quickly winnowing the list to about 45, who were examined closely.
Ultimately, the committee was presented with six external candidates in addition to the three internal ones, for a total of nine.
Beyond collecting resumes, JMFA performed personality analyses, assigned the candidates strategic projects, and more. The committee insisted that all contenders go through the same process.
The committee interviewed nine candidates, and recommended one—an internal contender—to the full board. “We had intended to take three, but we decided we didn’t need to do that,” Hamlin says. The board accepted the candidate and recommended making an offer.
In late August, the CU named CUES member Larry Seidl as its new CEO effective Jan. 1, following Tuma’s retirement on Dec. 31. Seidl is currently SVP/chief lending officer.
Hamlin is optimistic about the other internal candidates staying on. “They had developed an excellent team,” he says. “They supported each other through the process.
“When you have one position to fill and three good people, you have to make your decision by the criteria and the process established. The chips have to fall where they may. But I believe they respected the process and knew it was fair, even if they were disappointed.”
Myers says that at credit unions passed-over candidates don’t choose to seek another employer as often as they do at other institutions.
“They know what they have to do to have a shot next time,” she points out. cues icon
Charlene Komar Storey is a veteran credit union writer based in New Jersey.