10 minutes
Planning for an executive-level changeover may sound like a human resources issue, but at its core, it’s all about risk management. It is a key piece of the long-term viability of any organization. Whether it’s the CEO or other top employees, your credit union needs a plan for who will step in next.
“I think every CEO has—and if they don’t, they should have—a responsibility to always have people being groomed for the CEO spot,” says Wayne Tew, CCE, CEO of $540 million/34,000-member Clark County Credit Union, with 108 employees in Las Vegas, Nev. “None of us want to think we may be hit by a truck, but that is a distinct possibility, and anyone who’s not planned for having a second level of executives who could step in under such unusual circumstances is not planning well.”
Matt Fullbrook of the University of Toronto’s Rotman School of Management echoes Tew’s sentiment, as well as his language about potential traffic mishaps.
“The best practice [for CEO succession planning] would be that it’s on the agenda for the board at least once a year so that they’re thinking about it all the time,” he says, “because the CEO could win the lottery, on the positive side, or get hit by a bus, on the negative side, and unexpected turnover might be necessary. If you’re completely unprepared for such an event, you’re leaving the organization in a situation where there’s tremendous risk, because the CEO is the operational leader of the credit union. To have a void in that position due to a lack of planning and a lack of preparation is really a failure on the board’s part.”
CEO Talent Scouting
While the responsibility for CEO succession planning lies with the board, it is the CEO and the executive team who must put the plan in practice and keep it current.
“The board makes planning internally for the development of leadership talent an operational priority, and they delegate that responsibility to management,” says Fullbrook. “I think the first step is for the board to make that clear to the management team that this is a priority—not because we think that we want to replace you, necessarily, but because it’s a very material business risk and we want to make sure that we’re covered. So step one is to make sure that they have explicitly delegated responsibility to management to oversee the development of talent.”
How exactly is that done? First, there should be a constant flow of information from the management team to the board regarding the development of internal talent. The CEO should document, on an ongoing basis, which candidates are potential successors for important positions, then regularly pass that information on to the board, so directors have a chance to assess the candidates and take note of any gaps or weak spots.
“We have a board policy that requires me to submit to the board, on an annual basis, an update of who we have as internal candidates, and who we have below them who might step into those roles if something were to occur,” says Tew.
“Every year we write about a one- or two-page summary: here’s who we have: Here’s who could step into these roles quickly, should we have some sort of an emergency, and here’s how the senior executive team could cross-pollinate, with one of them assuming the responsibilities of another one if we had something go down. That is my responsibility and that’s designated as such by our policy.”
At any given time, there’s always a second tier of people who have the educational background and experience to step into a top role, Tew says. Sometimes one or two of them will leave for an outside opportunity (a sign of the credit union’s excellence in grooming top people, he says), and then it’s Tew’s responsibility to assess who’s left and what new talent should be brought up.
Developing Leaders
Tew says one big part is cross-pollination: “For example, I’ve got right now a former CIO who is now our chief operations officer. I’ve got a current VP over what we call our non-consumer areas—commercial lending, real estate lending, wealth management —who previously was responsible for our consumer sales group. So we’re not looking for specific skill sets so much as we are capabilities of leadership and understanding a broad aspect of financial institution responsibilities. Another big part is making sure people are sufficiently educated to take on higher responsibility.”
Tew is a firm believer in higher education. “We will not promote anybody into management positions unless they have a degree,” he says. “So we do require some form of formal education for that. And I know some would say, ‘can’t you work your way through the ranks?’ I have a real bias for formal education as it relates to having a broader understanding of the world and everything else that goes on in what we do.”
Jeff Harper, VP/lending at $1.19 billion/90,000-member Orange County’s Credit Union, with 257 FTEs in Santa Ana, Calif., says that when developing candidates for promotion, he looks for a track record of accomplishments and impact toward the organization’s strategic goals. “What is their reputation in the organization?” he asks. “What have they done in their current circles of influence? I look for how they are with people and their teams. I look for positive energy. I look for people who are naturally curious and are driven.”
Coaching is a vital part of the plan, he says. One-on-one coaching conversations should include discussions about development and self-improvement. Management should spend a great deal of time with the organization’s champions, he says, developing formal leadership plans and holding those people accountable for growth in their performance reviews.
Harper says a leadership culture is potentially even more important than individual policies and procedures for talent development.
“[We want to see] that you’re a leader. We want to see your influence, and that you can take action and be empowered in any position,” he says. “We’ve been putting together leadership tracks for our staff, to kind of help them in terms of what they want to develop, what they want to grow in, what’s their career path. What’s going to be the next version of you? What’s going to help you to be even more successful in your job and your job satisfaction?”
To help his team grow, he assigns difficult projects, while providing the support and coaching needed for successful implementation. “Expose them to lots of things. Encourage them to continue to develop themselves and not settle into the status-quo,” he says.
“My team has done an outstanding job of passing down information and training folks so we can continue the operation,” Harper continues. “We do a great job of cross-training and making sure everyone is skilled and that they know the question behind the question on different strategies. That’s the benefit of thinking about succession planning ahead of time is that you create a culture where your folks are sharing knowledge and sharing information and trying to make sure that you’re thinking ahead. If someone falls off the face of the earth, do we have things documented? Do we have processes and people trained?”
Outside Influences
Of course, when a credit union develops top-notch people, those people are all the more likely to be poached by other organizations. That’s one reason the CU should always be ready to consider outside candidates. Another reason is simply to make sure the bases are covered and the management team is well-rounded.
Harper says outside searches are a tough call, because in some ways, his CU tends to lean toward promoting from within. Existing employees are in many cases already a good cultural fit; and of course the credit union wants to keep the talent that it has expended so much effort in cultivating. Ideally, management should spot strong leadership skills early and start promoting those people into key positions.
But it’s a rare CU that has all the skills it needs internally. “In some cases, we don’t have the pool of people ready yet, or maybe there’s a skill that we need that we don’t have in our staff, based on the environment changing,” says Harper. “So you have to go outside. There are pluses and minuses, and I think we are pretty balanced in that area.”
Going Deeper
Just as the board of directors needs a plan for CEO succession, credit union managers should have a plan in place for the turnover of other management positions.
“Our policy calls for a report on who could step into any of the senior level or lower management positions as well,” says Tew. “We’re not huge, but we’re still bigger than 95 percent of the credit unions in the country. If you looked at billion-dollar credit unions and beyond, I would hope they have a very secure, formalized process of some sort [for those other positions].”
Harper says it can be surprisingly hard to fill some non-CEO management positions, and that these positions are also prone to opening up at short notice when executives leave for other organizations. That makes it all the more important to create a succession plan for them.
“There’s definitely a growing scarcity of talent, especially in the consumer lending area,” he says. “We’re starting to see it get more competitive in terms of folks hiring and trying to go after our talent in the consumer lending area, especially in underwriting and in leadership positions, where there’s an assistant vice president or a manager. We saw a very similar case in the mortgage area. When we went through the recent refinance boom, we were seeing a very heightened amount of competition and people coming after our underwriting staff and our mortgage leaders.”
Success Profile
A couple of years ago, Harper was faced with the retirement of two of his key leaders, and the situation launched him into action. He compiled a list of all his vice presidents, assistant vice presidents, and managers, then put together a “success profile” that laid out the key skills needed for their positions, so he was able to assess the level of risk he faced in trying to replace those people. The skills ranged from functional skills to strategic thinking and leadership.
“Based on that, I put a matrix together, and I tied a risk formula: What do I have? What do I need? Do I have any gaps between the skills needed and the skills that we have? And then, more importantly, who’s at risk for retiring and leaving soon? That helped me to prioritize my action plan.”
Going through this exercise helped him to focus his time on some of the imminent retirees, so that he could help document their knowledge and experiences and pass that information on to up-and-comers.
“I had, on the consumer side, a VP who retired,” he recalls. “But he did such a good job of passing down information and training folks that we didn’t have a high disruption in that area. We had done a great job of cross-training and making sure everyone was skilled. That’s the benefit of thinking about succession planning ahead of time, that you create a culture where your folks are sharing knowledge and sharing information and trying to make sure that you’re thinking ahead. If someone falls off the face of the earth, you need to know that you have things documented, and that you have processes in place and people trained.”
“That’s what we’ve done really well,” agrees Tew. “We’ve done well with the concept of being a mentoring organization. Our responsibility is to make sure we have people in place that could take over if we get hit by a truck. But probably more importantly, it’s also our responsibility to provide rewarding career experiences for those we do hire. And hopefully that becomes a culture.”
Jamie Swedberg is a freelance writer based in Athens, Ga.
