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A presentation on

CEO & Board Succession Planning Volunteer Achievement Program V422

Supply of Experienced CEOs • For the sake of this presentation ~ ½ of CEOs are expected to retire in the next 10 years Now for some interesting statistics from the Credit Union Journal on Succession Planning (9-29-2010) • 6.2% of CEOs plan to retire in the next two years • The average credit union CEO age is 53 • Nearly 65% of credit union CEOs in organizations that are over $500 million are older than 55 • 20% of CEOs at credit unions over $100 million plan to retire over the next five years • 58% of credit unions say they have a plan in place (which means at least 42% do not)

Why Succession Planning? Credit unions need to be high performing organizations to compete successfully. Jim Collins, the author of Good to Great, says: “The first step in achieving greatness is that you must have the right people on the bus.” • A succession plan provides a process for replacing the CEO • Internal Controls is a key area for the system that measures Capital Adequacy, Asset Quality, Management, Earnings, & Asset/Liability Management • Succession plans help with controls

Heidrick & Struggles and Stanford University’s Rock Center conducted a survey of boards from a variety of industries on CEO Succession Planning in the spring of 2010. Take a look at their key findings – How would your credit union respond?

The Survey Insights

The Questions You need to Ask Now

Only 50% of boards have detailed documents that outline the skills required by the next CEO

Has your board met to formally define and reach consensus on the job requirements of the CEO?

69% think they need a CEO successor that is ready now But only 54% say they are actively grooming someone

Are you truly convinced that your credit union is actively and effectively grooming a successor that meets the board’s criteria?

Boards spend about two hours per YEAR on succession

How much time does your Board spend in succession? How rigorous is this process?

Surprisingly, 65% of boards have not asked internal candidates whether they want to be a CEO or not

Have you asked? If you have, do you think you are getting an accurate answer, or are they just telling you what you want to hear?

39% say they have no internal candidates

If something were to happen tomorrow morning, does your credit union have an internal candidate who could step into the CEO’s role on an acting or permanent basis?

Only 50% of boards fund a process for acclimating the new CEO to their organization

Would your Board support a CEO transition process for your new CEO? How are you helping this individual to build the foundation for longer-term success?

Emergency Succession Plans • Emergency CEO succession plans prepare you for sudden death or rapid unexpected departure – This plan can be customized and installed within your organization in about a month

• Plans should note that communications should combine brief information about the CEO with the key message “business as usual” will continue at the credit union • Emergency succession plan may be part of the overall succession management plan

Emergency Pre-Planning Process •

Successfully manage the communication – Checklists assist the board and employees to perform essential tasks in a timely manner

Within 24 hours, notification should be communicated to the following: – – – – –

Board Employees by Management Team SEG or Sponsor Group Members Media Regulators

Name a team of two or three members of the management team who will be responsible for communication – this will assist in the immediate needs it the CEO and second in command are unavailable

Special Board Meeting • The plan should include the Chair to call a special meeting to take place as soon as possible, but within 24 hours of the Chair being notified. The first meeting should include: – – – –

Designation of the interim CEO or team Authorize transfer of power Develop a communication plan Determine whether records and/or property should be secured (passwords, access, etc) – Order an audit

Succession Planning & Leadership Development • • •

The need for CEO replacements will increase (once economy turns around) This may create a shortage of all executives within the credit union industry To truly address long-term leadership needs, credit unions must also address leadership development – Leadership development helps connect the credit union with people’s aspirations within the organization

Long-term succession planning is designed to prepare successors to move into the CEO position – This plan is more of a process that requires active involvement of the board, CEO, and HR – this process focuses more on the “development” than the “replacement”

Top organizations actively built a top team by making sure they had the right people on the bus, and then they consciously moved people around to other functions to strategically broaden their skills, know-how, and experience base

Advantages of Succession Planning • Succession planning that is paired with leadership development offers a number of benefits • The credit union operates smoothly despite CEO loss • Maintaining member services is the single most important contribution of succession planning – Member services continue without interruption

• NCUA has started looking closer at policies related to succession planning as part of their annual exam

Creating the Right Plan • A good succession plan always focuses on a process, rather than one specific individual • Start with the end in mind • Identify the elements of the plan – A comprehensive succession plan has three primary elements • Emergency succession plan • CEO succession plan • Successful CEO transition

• Establish a timeline • Form a succession planning team • Update your succession plan annually – these updates ensure the job description and other materials are accurate

The Succession Planning Team The Board Succession Planning Committee: • • • • • •

• • •

Initiates an emergency succession plan framework and oversees the CEO succession planning process Develops a fair and reasonable succession timeline with the CEO Establishes a clear understanding of the CEO transition process Works with the CEO to develop a list of the organization’s core business issues and strategic priorities Uses internal and external resources to develop a realistic, future-oriented CEO position description that outlines tangible leadership and business requirements Holds the CEO accountable for developing a process with clear, agreed-upon objectives and a results-driven methodology that will adequately prepare a slate of viable successors Requires the CEO to provide a formal, semi-annual review to the Board to ensure ongoing attention and accountability to the CEO succession process Funds the initial development process Funds a process that optimizes the new CEOs critical first-six-month transition

The CEO • • • • • • • •

Takes the lead in identifying and establishing the actual CEO succession planning process and methodology Works with the leadership team to identify candidates that have the interest and potential Ensures that a meaningful, comprehensive baseline assessment is completed on each executive in the candidate pool Supports candidates in constructing an individualized development plan that accentuates strengths while filling in critical gaps Works with each candidate to establish a set of clear development goals with deadlines Shares the development focus and plans with the board Takes a personal interest in the development process by providing counsel, coaching, and insight Keeps the board informed of candidate progress through informal communication and formal semi-annual feedback

Human Resources • Facilitates the development of a Leadership Success and Derailment Profile for the organization • Coordinates the development of candidate Career Profiles • Coordinates a candidate baseline assessment • Supports candidate development through coaching, process tools, and implementation problem solving • Supports the CEO in tracking development plans and process quality checks • Coordinates candidate reassessments (tools, administration, summary write-up) • Copyright, Cardwell Leadership

Succession Issues & Ideas • Heir Apparent – Boards should think carefully about the potential pitfalls of pre-naming a successor to the CEO position – It is acceptable to hire a senior executive or groom an internal candidate with the intention of creating a strong succession option for the CEO – Formally naming an individual as the CEO’s intended successor may create a legal obligation to fulfill that promise when the CEO departs – Until the board is ready to formally select a CEO who demonstrates the ability to meet all the credit union’s leadership needs, they should avoid designating any single individual as the “heir to the throne”

Interim Issues • The board should address a number of issues before the interim CEO takes the position – Decisions requiring board approval • Authority levels • Spending limits

– Term of interim employment • Set a time limit on the interim CEO’s service

– Payment • Additional pay or some type of bonus should be considered

– Ability to apply for CEO position • Make it clear that the interim CEO candidate competes on equal footing with all other candidates

– Sensitive issues • Conducting performance evaluations and determining pay increases

Time & Money • Many credit unions fail to anticipate the costs related to succession management • Three areas where costs typically fall into – Transition Costs • The transition from one CEO to the next may cause unbudgeted funds to conduct an audit, retain legal council, and obtain services of a search firm

– Search Costs • Search firms typically base their fees on a percentage of the CEO’s salary with an average of 30% to 35%

– Leadership Development Costs • Budget dollars are needed to ensure that the credit union can provide training to develop internal leadership talent

Define the CEO Requirements • • • •

Identify the CEO’s basic role – List first year goals Look for a mix of hard and soft skills in your CEO candidate Effective leadership is often the result of combining education, experience, and the art of leadership Look beyond the list of experiences and accomplishments – a candidate may look good on paper but can come across flat or unprofessional in person A CEO with excellent soft skills may need to gain depth in specific areas – keep in mind, some hard skills can be gained through education or experience Last but not least, define the core elements of your organization's culture

Leadership Development • • •

Credit unions must continually develop employees so there is always a replacement Develop a management assessment that can review your executives’ strengths and weaknesses Enterprise-wide development programs are good for credit unions on several levels – Employees who aspire to rise beyond their current positions typically pursue education and experience – Provides new ideas and information to the credit union which can be used to develop new services and refine existing products – Employees understand the value of well-rounded experience – Creates a strong pool of candidates for every vacancy including the CEO position A variety of methods can be effective in developing your next leaders; education and study programs, CU Schools & seminars, job rotations, and mentoring

Board Succession

Many credit unions recognize that the search for good board candidates is an ongoing task, just like the task of developing leadership talent among managers and employees. Credit unions that take board succession seriously continually look for opportunities to identify and groom volunteers

Changing Demands • The role of the volunteers who serve on the board of directors has evolved to add new challenges • It once was an accepted practice for board members to make hands-on contributions to credit union management • Most credit unions today are to complex to take the hands-on approach • Today, it is widely accepted that the board should focus on setting policy for a diverse organization that must be managed by the experts

Identifying Good Board Members The credit union of yesteryear is a bit different from today. You should avoid the risk of putting unqualified or uncooperative people on your board of directors. • Desirable Board Qualities – – – – –

Act as a team player Displays volunteer spirit Values community involvement Displays commitment to their profession Lifelong learner

Develop a nominating committee to recruit strong board members.

Nominating Committee Tasks • Create a time table for the nomination process • Determine a process for soliciting nominees • Review progress toward recruiting nominees with diverse backgrounds • Develop a job description • Write effective interview questions and procedures • Utilize the resources of your HR department • Meet with applicants • Recommend likely board members • Monitor the approval process • Report results to the board

Nominating Committee Tasks • Get a background check – Conducting a background check during the nominating process can reveal a barrier to service before it creates embarrassment for the member or the credit union • Please refer to your HR department as there are disclosures that need to be signed prior to conducting background checks

• Provide a packet to nominees – This packet could include information about the credit union movement, a regulatory overview, credit union bylaws, and a policy manual

• Offer orientation – Have directors spend at least a half-day at the credit union to lean more about its history, membership, objectives, and operations

• Encourage education – Self-study programs like CUNA’s VAP can be combined with seminars and conferences to expand directors’ knowledge and ability to make meaningful contributions

Define the Board’s Role • The role of the board is to determine policy • Create clear guidelines that help board members understand expectations • Create a job description with expectations for your directors


Lisa Hammock Director of HR Services/Executive Recruiter 866.231.0545 x1146