When it comes to securing the long-term survival of a credit union, factors such as membership growth and increasing market share might take a back seat to having a solid succession plan.
But it is an area where many credit unions have some work to do. About one-third of credit unions do not have a succession plan in place, said Ken Rollins, co-founder and principal of the law firm Pillar+Aught.
"That's a pretty staggering number," said Rollins, who concentrates his practice on advising financial institutions on matters involving regulatory compliance and strategic planning. According to the latest Credit Union Staff Salary Report by the Credit Union National Administration, 68% have a CEO succession plan in place, and 12% expect to have one in place by year-end.
Speaking at the Pennsylvania Credit Union Association's annual convention this week, Rollins said the average age of a credit union CEO in the U.S. is 54 or 55, and about 20% of those leaders plan to retire in the next two or three years. "So without a plan in place, you're really putting your institution at risk," he said.
One of the greatest risks is that the institution will have to seek a merger after the current CEO leaves. Rollins said the lack of a CEO-in-waiting is one of the primary drivers for credit union mergers because those institutions often feel that they have no better choice.
So then why don't many credit unions have a plan in place? One reason is because it is an uncomfortable conversation to have, Rollins said. "You're talking about how to replace someone who is still there," he said.
Also, it is often an easy item to put on the back burner while more pressing issues are dealt with, he said. "It's not like members are calling saying, 'Let me see your succession plan,'" he said. "Members are calling to say, 'The teller was mean to me,' or, 'Your online banking stinks.'"
Rollins said that in an ideal scenario the current CEO will inform the board of their plans to retire in, say, five to seven years. And in those cases the credit union has ample time to prepare. But credit unions must also plan for emergency situations in which the CEO suddenly quits or is fired, dies or is otherwise unable to continue performing their duties.
Former Mechanicsburg, Pa.-based Members 1st FCU President and CEO Robert Marquette died in July 2017. The company's COO was supposed to be the next in line, but it instead named its executive vice president of marketing, George Nahodil, to the position while it conducted a nationwide search. Nahodil was named Marquette's permanent replacement in October 2017.
In an interview, Nahodil said that having gone through the process, he understands the importance of having a solid succession plan in place. The company is early in the process of establishing a new plan because Nahodil has only officially been the president and CEO for about seven months.
Rollins said one decision that credit unions need to make early in the planning process is whether the talent exists in-house or if an external search will be necessary. But Nahodil said a credit union the size of Members 1st — $3.93 billion in assets — typically has a lot of talent already on hand. He believes companies should promote from within when possible, in part because someone coming from outside would not be as knowledgeable about the company's culture or the markets in which it operates.
"For us to bring someone into Members 1st from Michigan or South Carolina when they know nothing about the markets ... that's tough," he said. "Can you learn it? Yeah, but it will take a year or two."
Nahodil said it is much more effective to educate current employees, give them responsibility and let them run with it. That way, the credit union is aware of their strengths and weaknesses, and those latter areas can be addressed. An external candidate might check all the boxes required for the position but there would still be unknowns about things such as character and work ethic, he said.
"You just don't know what kinds of issues you might face," he said.
Nahodil's background was more in marketing than finance, and when it comes down to people skills versus financial skills in a leader he would take the former every day. "You've got to be able to create a culture where people feel comfortable and like they're part of the team," he said. "You have to make people feel like, 'This guy cares about me.'"
