Changing C-Level Structure

When the long-time head of Direct Federal Credit Union in Needham, Mass., retired in mid-2014, Joe Walsh was chosen to lead the CU. At that time, the CU’s board brought in CUES Supplier member and strategic partner DDJ Myers Ltd., a strategic leadership consultancy, to conduct an organizational alignment assessment.

Though Walsh, now president/CEO of the $440 million/24,000-member CU, had been with the company 24 years, he says the findings of that assessment were illuminating. “We were very siloed,” he recalls. “There wasn’t a lot of cross-departmental collaboration.”

The layers of the CU­—from the board down through the 53 full-time equivalent staffers—each largely existed on its own independent plane. Walsh says there was little communication up and down, and the organization had become fragmented. “We were very process, operations and functionally driven, as opposed to interpersonal, team coaching and collaboration driven,” he explains.

Addressing the disconnects entailed a number of complementary initiatives, including reorganization at the C-level. “When we completed our strategic plan, we had defined six areas of strategy that we wanted to pursue,” he says. The previous CEO had leveraged a leadership team composed of three senior vice presidents. With the assessment’s findings and the organization’s strategic plan in hand, Walsh moved forward by bringing in a couple of seasoned professionals from outside the CU and shifted responsibilities in other areas.

One area Walsh and his team identified as a priority was human resources. The old organization chart had that function reporting to the CFO, something Walsh wanted to change. “I took the director of HR, who is very, very competent, and moved her out from under the CFO and had her report directly to me,” he says.

In addition, the information technology group was lumped in with marketing and retail, a mix that needed updating. “The SVP of IT, marketing and retail retired recently, so I brought in a brand new vice president of IT and left her solely responsible for that,” Walsh explains. With a significant access and delivery infrastructure—the CU has only one branch and the vast majority of members do their banking online—it was important that IT have the visibility and influence necessary to support the organization’s digital initiatives. A new vice president of sales and marketing was also recruited so the CU could focus on growth, another high-priority area.

Moving Forward

The team at Royal Credit Union also chose to restructure its C-level reporting hierarchy to pursue forward-looking initiatives. For nearly nine months after joining the Eau Claire, Wis.-based organization as president/CEO, Rudy Pereira, a CUES member, assessed how the CU was performing, its internal talent capabilities, and the effectiveness of its leadership structure.

A firm believer that accomplishing goals requires the right people, Pereira was keen to know where the $1.6 billion organization could do better in reaching its goals and supporting its 164,000 members and 502 FTEs.

Pereira closely examined the executive team as part of his assessment, looking to see if those helping to shape the strategy were individuals who worked well together. “I didn’t go in thinking that I already knew I was going to make changes,” Pereira recalls. “That sort of evolved.” He needed a team that could think organizationally rather than functionally. To achieve success, the C-suite would have to be capable of driving the organization forward in a healthy and sustainable way.

The framework Pereira inherited was composed of four primary roles—the chief operating officer, the chief security officer, compliance and marketing—all of whom reported to the CEO. Everything else was structured around the COO, a position that oversaw IT and HR among others.

It was a hierarchy Pereira knew needed to be changed. “One of the parallel things I did when I first arrived at Royal CU was to not only assess the team, but, more importantly, to find out what our core purpose was, and to articulate what our core values would be in the organization,” he says.

Working with a small team of highly respected employees, Pereira ultimately identified six areas around which the leadership team would be built: HR, IT, lending, member services, risk and compliance, and the CFO (marketing reports to HR). “Those are the six core disciplines of the organization,” he says. To focus on those values, Pereira shifted the top-level structure to increase visibility and influence where necessary. The CU is now led by six executive vice presidents who oversee these core areas and who report directly to Pereira.

Focus on Growing

Like many financial institutions, Coastal Federal Credit Union, based in Raleigh, N.C., spent much of the past six years in defensive mode following the financial crisis. CUES member Chuck Purvis, CUDE, CCE, who had been with the $2.5 billion institution since 2001, took over as president/CEO in 2012.

One of his first priorities was to renew the team’s focus on growing the organization. Much of the long-time senior management group has since retired, and Purvis determined it was time to rebuild the leadership structure to support the 205,000-member/450-employee CU’s growth goals. “After taking over three years ago, I had learned some things about the organization that I thought we could do better, so that was part of the change,” he says.

One of the things Purvis wanted to improve was the CU’s service levels. “We did a core system conversion last summer, and in the six to nine months after that our service levels went down,” he explains. “As I looked at it, we were trying to do member service and back-of-house operations in four different divisions in the company.” Purvis saw an opportunity to bring those functions together under one leader “whose sole focus was going to be member service and back-office efficiency,” he says. The new C-level role of member service officer was created to fill that need. (Read an article about rise of the chief experience officer.)

Also vital to the CU’s future success was elevating the function that would help drive the game plan into the future. “It was the whole strategy side of the organization,” Purvis recalls. Gathering and defining a path forward was something he wanted to focus on at a high level and, he says, “this was the first time in the last 10 years that one of our execs had the formal designation of strategy officer.”

Winds of Change

Credit unions may find a C-level restructuring beneficial for a number of reasons. Along with increased efficiencies and reduced operating expenses, one of the key drivers behind the new leadership structure at Direct FCU was the desire to pursue growth opportunities.

“In order to achieve economies of scale, we need to grow the balance sheet, most notably loans,” Walsh says. By narrowing the role occupied by the leader of the lending group, the institution can more closely focus on such functions as the development of new loan products. “I made the lending role at the C-level less of an operational role and more of a credit risk, business development role,” Walsh explains.

Gaining and maintaining a competitive edge was also behind Walsh’s choice to elevate the HR role. The CU’s human assets are something he believes require—and deserve—greater visibility. “At the end of the day, you can have the best systems, the best procedures, the best whatever, but it’s up to the people to get it done,” he says. Ensuring a successful future for the organization means “treating people the way they ought to be treated, so you get the maximum benefits for the members of the organization.”

In some cases, the exit of one or more key C-level individuals prompts a new look at the shape of the executive team. For Coastal FCU, Purvis was the fifth (and youngest) senior executive when he was hired in 2001. Of those five senior management team members, the other four have all since retired. “One of the things that creates an opportunity to look at your structure is any time there is a retirement,” Purvis says. “If there was one trigger event for the kind of restructuring we did this year, it was that [last] retirement which I found out was coming in February.”

Matching Structure to Strategy

Aligning the CU’s structure to its strategic objectives is one step toward helping the organization reach its stated goals. Deedee Myers, Ph.D., CEO of Phoenix-based DDJ Myers Ltd., says that enhancing cross-functional openness

is one reason a strong alignment pays dividends. “When you have a strategic initiative, very rarely does it require the competencies of just one function,” she explains. “You need to have cross-functional collaboration.”

The space where marketing and technology come together to drive member engagement through online initiatives is just one example that’s increasingly relevant in today’s highly competitive digital landscape. “Those are two areas we’re seeing increased attention on cross-functional collaboration,” Myers says.

The need to break down walls and improve communication and collaboration—while also deepening specific areas of expertise—may be addressed more successfully by realigning the executive team in a way that looks not only at the concerns of today, but at those issues the CU is likely to face in the future.

When approached in a thoughtful and deliberate manner, organizational change can help a CU in some surprising ways. Improving specific metrics, such as member satisfaction, is often the goal, though there are other benefits the CU is likely to reap.

“First of all, changing the organization’s structure brings new breath into the company,” Myers says, adding this is especially true when a new CEO comes in who is highly compelling. Under strong and engaging leadership, she says, “people aspire to do better every day when they walk into the CU. They’re able to tap into their previously untapped potential.”

Results Take Time and the Right Support

CUs shouldn’t expect to begin seeing all the tangible effects of an executive realignment right away. It’s been only a few months since the organizational changes at Coastal FCU, and it’s still too early to determine how the long-term results will turn out.

CUES member Willard G. Ross, the CU’s  SVP/chief strategy and talent officer, says his team measures its service level using the Net Promoter Score and “we’ve had a goal for some time to get to 70.” The CU bounced down a small amount after the core conversion—when departments were still implementing changes and adjusting to new roles—but Ross says the Net Promoter Score is “a measure we’ll use to see how well our realignment is affecting our service,” once the realignment begins to settle.

Helping employees adjust to the new structure, whether it’s a change in the reporting relationship or the introduction of a new role, is critical to the ongoing success of any executive-level realignment.

When Pereira laid out his plan for organizational change at Royal CU, employees were quickly notified that the institution was going to be moving in a new direction. “Then they started seeing some of our fee reductions and some of the organizational changes, and then it started making sense to them,” he says of their reactions.

Not only did Walsh put an emphasis on communicating clearly and regularly with employees about the planned leadership changes at Direct FCU, the executive team also implemented a practical, effective timeline for those internal messages.

“We had a very detailed communication plan of what to communicate, to whom, by whom, and in what order that needed to happen,” he explains. This enabled the leadership team to engage with the various groups at the right time, and to set expectations and solicit feedback most effectively.

The result? “It was very organized,” Walsh says. “And that paid off hugely.” Not only did employees know what was going on without feeling overwhelmed by huge information transfers, they also knew where to direct questions during each stage of the realignment.

Myers agrees that strong communication channels are imperative in any restructuring effort. “What we’re seeing work is when the CEO connects with every level in the organization, not just through the C-suite,” she says. Leaders who know employees’ names, who seek their opinions, and who encourage two-way dialogues through events, such as town hall-style meetings, are likely to find broader support for proposed organizational change initiatives.

“Where you’ll see change happen quickly is when you get those at the mid-level management,” Myers says. “It’s right between the C-suite and the front-line staff. They can coach up, they can coach their peers. Pay a lot of attention to the mid-management level,” Myers says.

Where HR Fits

Human resource functions are gaining in prominence throughout the CU sector. For Coastal FCU, it was important to increase HR’s visibility as part of its top-level reorganization.

“We haven’t been as structured around developing talent and developing leaders as we need to be, so if we’re going to make sure we’ve got the talent pool and the individuals ready to carry this organization long after several of us retire, we’ve got to be more focused on that,” Ross explains of Coastal FCU’s choice to change HR’s reporting structure. With HR’s elevation to the leadership level, Ross and Purvis plan to put greater focus on the function beyond the typical day-to-day HR tasks.

Including HR in the top ranks of the executive structure is a must, according to Pereira. “Having a strong HR leadership is such a competitive advantage that, sadly, I think a lot of people just don’t consider, especially in credit unions.”

The revenue side of the business receives considerable attention, though savvy CUs are increasingly aware that it’s only part of the puzzle. Driving a culture-first environment requires an HR team that understands the value in that approach.

“First you’ve got to hire the right people at every level so they’re highly engaged in what the purpose and the values of the organization are,” Pereira says. Talent acquisition was one of the key success factors identified by Royal CU’s team and, Pereira says, “To me, HR is a very strategic area. It’s hiring and training, and it’s a function, but in our organization it’s also extremely strategic.”

Julie Knudson is a freelance writer and owner of Olympic Bay Media Inc., Arlington, Washington.