John Pesh, Director, TruStage

After years of promising to do so, the NCUA is attempting to permanently elevate succession planning in the minds of credit union leadership. Whereas examiners have long encouraged credit unions to form such plans, a new proposed rule attempts to mandate and prescribe them. 

According to the NCUA, the move is driven in large part by the long-running trend of consolidation. The regulator’s analysis indicated that poor succession planning was either a primary or secondary reason for 32% of the federally insured credit union mergers considered.

Whether or not the entirety of the proposed rule becomes regulation, it is sparking industry-wide conversations about best practices for leadership continuity. What may be the most impactful result of this proposed action is that the move itself is causing many credit unions to rethink their processes.  

Credit unions may want to consider incorporating these best practices as they improve their succession planning capabilities:

• Amping up the level of detail to improve a plan’s executability and usefulness.

• Identifying—by position or name—those leaders most crucial to the credit union’s sustainability.

• Preparing for contingencies with upfront research and pre-approval of compensation and benefits options.  

Highly executable succession plans are crucial for today’s global talent marketplace

Beginning with the basics, simply having—and regularly updating—a succession plan is a best practice for safety and soundness. Yet, many credit unions do not have such plans in place. Or if they do, they are out-of-date, irrelevant or lack prescriptive details, such as identified roles, executive names, timelines, action steps and budgets. 

The global economy makes detailed and highly executable plans more necessary than ever. Layering the ubiquitousness of remote work on top of unprecedented interconnectedness has complicated talent strategy for nearly all industries. It’s harder than ever to keep top talent with recruiters from literally the world over wooing away great leaders. It’s just as difficult to sift through heaps of new executive leads from a vast, global pool of diverse, highly educated and terrifically experienced financial pros. 

Any succession plan that has not been updated to accommodate these emerging market realities—not to mention changes to the credit union’s strategic direction—is most likely insufficient. A plan that can’t be executed is just as risky as no plan at all. 

Naming names and sharing plans boosts transparency

Identifying which leadership roles are most critical to a credit union’s strategic growth plan is the foundation for a sound succession plan. Boards that approach this tactic with extra critical thinking and a futurist mindset, however, have the best chance of ensuring the completeness of their leadership continuity strategy. 

Say, for instance, a credit union determined during this year’s strategic planning session to strengthen its focus on its merchant processing line of business. Last year’s succession plan may not have considered the chief payment officer role. 

Similarly, the integration of greater technology is elevating the demand for new roles, like a chief AI officer, a chief data analytics officer or a chief digital officer. These rapidly emerging C-suite spots may have been overlooked as key components of successful succession. 

Of course, leadership roles are just the beginning. Sometimes, planners fail to consider the real people who occupy those boxes on the org chart, and as a result, many succession plans stop short of naming names. While this is a common practice, it is not a best practice. Particularly as the C-suite increases in diversity, it’s both smart and compassionate to have plans personalized to the individual contributor. One-size-fits-all compensation, benefits and incentives are rarely effective in today’s multicultural workplace. 

Boards should have one-on-one check-ins with identified leaders at least annually to understand their plans for the future and how the credit union does—or can—fit into those plans. Those conversations should include input on who is best suited to fill the executive’s role when they are ready to leave, as well as how the executive envisions adequately training the successor. The board should include the identified successor in these conversations when appropriate. 

Identifying successors by name—and, importantly, socializing that decision with the full leadership team—accomplishes a couple of things: For one, it incentivizes the successor to stay; for another, the transparency prevents hard surprises for up-and-comers who may feel overlooked upon the plan’s activation. 

Contingency plans for stretch incentives alleviate stress in stressful times

As mentioned above, talent retention is more complicated than in prior years. In addition to increased competition for great leaders, employers also have many more tools in the compensation and benefits toolbox to make for very attractive job offers. 

This is where contingency plans that include different budgets for different incentives can be a huge help to credit unions. By expecting Plan A—and even Plan B—not to work, boards can push themselves to imagine otherwise unexpected scenarios and prepare for them. 

Say, for instance, the CEO’s plans to retire in three years are accelerated, and the successor does not feel ready to assume the role. An opportunistic recruiter gets wind of the successor’s hesitancy and offers a parachute in the form of a job offer the successor can’t refuse. When the credit union starts the process of finding a new CEO, it learns the compensation and benefits—which had been acceptable to the planned successor—are no longer adequate for the market or the candidate the credit union wants. 

In a circumstance like this, it’s crucial for executive committees to have enough knowledge to feel empowered to move fast. A comprehensive succession plan that includes well-researched compensation packages, as well as contact information for pre-approved executive benefits vendors and consultants to help with the last mile of an applicant offer, is a lifeline in an otherwise grave situation. 

Now’s the time to rethink the way it’s always been done

The ultimate destiny of the proposed rule mandating succession planning remains to be seen. However, reviewing the rule in its current proposed form will provide insight into regulators’ concerns, and it can also be a good way to assess your individual credit union’s strengths and weaknesses around succession planning. By asking yourself which areas of the proposal would be most onerous, you may uncover a potential area for improvement of your processes. 

It’s never a bad idea to take a second look at “the way things have always been done.” Succession planning is ready for a revival. The credit unions that leverage this moment to grow in their leadership continuity posture will be in the best position to not only comply with an expanded set of rules if they come but also to thrive amid significantly shifting talent trends.

John Pesh is a director for TruStageTM who consults with credit unions on advanced planning, including executive compensation, benefits packages and leadership continuity.   

The views expressed here are those of the author and do not necessarily represent the views of TruStage.