Lack of director and annual meeting engagement and succession planning can lead to mergers.
The fate of most businesses is determined by owners or shareholders. Lacking shareholders, the fate of most credit unions is determined by a small group of insiders.
Technically, boards still govern credit unions and are chosen by members’ votes, reports Stephen Morrissette, visiting professor of strategic management at the University of Chicago Booth School of Business, but the reality is that members attending annual meetings and casting votes to elect directors is long gone. “The old annual meetings were parties where members did attend and vote and win prizes,” he recalls. “It was great fun. Now it is surprising if 30 members show up. They mostly sign proxies and let the current board vote their shares.”
Members’ meaningful influence these days comes from voting with their feet when they switch institutions, not from voting their shares, according to Morrissette. Most directors are recruited by CEOs or other board members and run unopposed.
Concentrated power could lead to abuse, but more often it leads to vulnerability as that insider group could weaken under stress or events and withdraw, leaving a leadership vacuum. Part of the problem, says Ancin Cooley, CIA, CISA, principal of Synergy Credit Union Consulting, Chicago, is due to board fatigue—volunteers who are wearing out from donating time to deal with challenges that just keep coming.
Volunteer directors in these cases are tempted to abdicate their responsibilities and let the CEO drive the credit union, he says. Recently, the National Credit Union Administration issued a proposed rule that would require CUs to develop succession plans for executives and board member on the supervisory and credit committees.
The CEO plays an outsized role in credit union survival strategy, partly because there is no role for shareholders, notes Charlie Kelly, a director of a small credit union and a partner in Remedy Consulting, New Berlin, Wisconsin.
So the future of the credit union may come down to one person. For a CU, losing a CEO is an inflection point, maybe a turning point, says Vincent Hui, a managing director at CUES Supplier member Cornerstone Advisors, Scottsdale, Arizona. “Not having a succession plan could force a CU to pursue a merger at some point since the departing CEO may have much of the institutional knowledge about the credit union—potentially leaving the remaining management and board without the skills and knowledge to lead the institution.”
NCUA has noticed. One of the reasons why so many mergers are occurring is the lack of succession planning—especially in smaller credit unions, NCUA Board Chair Todd Harper has said. “Overall, about one in five credit unions lack CEO succession plans,” he noted. And some data indicates that a large proportion of credit union CEOs and managers are baby boomers, who will be part of a retirement wave that has already started.
But staffing for succession, particularly the top spot, can be expensive for a small credit union. Negligible profits mean little money for paycheck increases, Kelly observes. When a board looks at a CU’s expenses, the CEO’s salary is often a noticeable item. “Wiping out a big salary through a merger can be a cost-savings move.”
It’s getting harder to staff a CU, let alone staff for a succession plan, reports CUES member Maurice Smith, CEO of $3.4 billion Local Government Federal Credit Union, Raleigh, North Carolina. Not planning for succession is not always negligence, he adds. “It can be a dose of reality. Boards and CEOs see the writing on the wall, that merging may be necessary. Boards are tired from the stress. Some local economies are deteriorating. We can’t expect to live forever.”
Once all the factors are weighed, the key to credit union survival may come down to personal stamina. While margins, technology, talent and net worth, along with COVID-19, are all adding pressure, the biggest driver of credit union consolidation, says Randy Chambers, president of $1.4 billion Self-Help Credit Union, Durham, North Carolina, may be cumulative fatigue. “People,” he points out, “are just exhausted.”
Richard H. Gamble writes from Grand Junction, Colorado.