Gaining Traction in Transition

Contributing Writer

9 minutes

When a credit union has been ably led by a CEO for a decade or more, the tasks of hiring a new chief executive and planning the transition in leadership qualify as rare events for the board of directors.

Through advance planning and a careful inventory of the core competencies the next CEO will need to meet the challenges ahead, the board can be better prepared to oversee the transfer of leadership and launch a fruitful working relationship with the new person. In doing these things the board can gain traction for the credit union’s next chapter.

Years in the Making

Even with the benefit of solid succession planning, the board of SAFE Credit Union committed to a thorough selection process when, in 2013, longtime President/CEO Henry Wirz shared his plans to retire in three years. His retirement would end more than three decades with Wirz at the helm of the $2.4 billion Folsom, Calif., credit union.

The first step the SAFE CU board took was to restructure executive leadership for the next two years, continuing Wirz’s role as CEO and changing David Roughton’s title and duties from EVP/chief operating officer to president/chief operating officer. “Dave had some additional reports during his first year as president/COO and, during the second year, almost all of the VPs reported to him,” explains Chair Ronald Seaman. “That set the stage for the transition.”

The next step of the board, which is a member of the Center for Credit Union Board Excellence, was to hire Paragon Leadership International, Novi, Mich. Paragon Leadership consulted as directors worked through the processes of revising policies to reflect the change in leadership roles, identifying the core competencies and skill sets the credit union’s next leader should possess, and reviewing and revising the CEO position description.

“We specified to the consultant that we were happy with the credit union’s current direction and wanted to align the job description and core competencies with that direction,” Seaman says. “We also wanted to have enough time to do this right—and to put out the call for external candidates if the need arose.”

The SAFE CU board spent several months laying the groundwork for the CEO search before opening the position for internal candidates in February 2015. Only one candidate, Roughton, stepped forward, though the search committee interviewed other executives to gauge their interest in the position and to gain their input on their colleague’s strengths and possible challenges in the top leadership role. One observation was that, with Roughton’s background in finance and operations, he could use more exposure to lending as part of his professional development, Seaman says.

The board announced in August 2015 its plan to hire Roughton as the next CEO when Wirz retired on March 31. Then the transition began in earnest on both the board and executive team levels. As Wirz’s retirement neared, the board took steps to recombine the leadership positions, and the incoming CEO submitted his revised organizational and executive leadership chart. Seaman also provided an overview of the annual performance review process for the new chief executive.

In addition to that formal evaluation, the board offered in June a quick review on Roughton’s first quarter in his new role. “That’s important during the transition—to provide some feedback early and to establish that back-and-forth communication,” Seaman says. 

All in the Timing

As the SAFE CU example demonstrates, the ability to look out three to five years in advance of a leadership transition helps to facilitate the development of internal successors. “The board is responsible for establishing the goals and metrics for CEO performance, which might include starting a rigorous CEO succession program,” says Peter Myers, senior vice president of DDJ Myers, Phoenix. “A smaller, incremental step in that direction might be a talent readiness assessment of the senior team.”

When envisioning the grooming of a potential internal successor, “initiate those discussions sooner rather than later” with the current chief executive to allow adequate time for leadership development, agrees Michael Daigneault, CCD, CEO of Quantum Governance, Vienna, Va., CUES’ strategic provider of governance services.

“Everyone comes to the table with strengths and weaknesses,” Daigneault notes. “Given sufficient time, the candidate will be able to engage in self-study and analysis and pursue additional opportunities to round out their experience and skill sets.”

These preparations might begin with a 360-degree evaluation, DISC profile assessment, and/or an interview with an executive coach to help identify in which areas the candidate might want to focus development efforts. For example, an executive with extensive experience in finance or operations might want to spend time in other departments, while a candidate who has primarily worked within the credit union might take on a more external role by getting out in the member community.

Three years before his last day on the job, now-retired CEO Gary Easterling, CCE, gave the United Federal Credit Union board of directors an initial heads-up that he was thinking about retiring. “That’s good. That’s healthy,” says CUES Director member Mike Hildebrand, chair of the $2.2 billion St. Joseph, Mich., credit union. “As people get more toward the end of their careers, the board needs to be prepared.”

Set the Date

In planning its leadership transition, the United FCU board initially discussed posting a position opening for a president/chief operating officer who would work alongside Easterling for a year or more until he retired. However, Hildebrand says the board’s recruitment consultant, Deedee Myers, Ph.D., MSC, PCC and CEO of DDJ Myers, advised against this plan for a “long baton hand-off.”

“She told us, ‘If you want to acquire top-tier talent, they have to know that they are the boss as of such-and-such a date,’” Hildebrand recalls. “At that point, our other plan went out the window.”

Instead, CUES member Terry O’Rourke became CEO the first day he joined United FCU, with Easterling on hand for a week to make some key introductions and serve as a resource for some of the work in progress.

If an organization has had adequate time to ramp up for the transition, Daigneault suggests that “a clean break is usually in everyone’s best interests,” with just a short period in which the outgoing CEO remains on hand to consult with his or her successor.

“I’m not convinced that the outgoing CEO has to remain in a formal role, as a consultant or member of the board,” he says. “But if there are circumstances where the transition period is short or an external candidate might benefit from the CEO’s understanding of the organization and community, for example, a short-time contract for consulting might be appropriate.”

Once the board has hired a new CEO, there needs to be “a clear line of sight that on this date, everything is going to change,” Peter Myers says. “Having that be ambiguous is a recipe for a power struggle. You don’t want to put the staff in a position of wondering, ‘Do I do what my current boss wants? Or what my future boss wants?’”

The longer executives have to train as CEO candidates, the better, says Greg Longster, partner with CUES strategic provider Davies Park Executive Search, Vancouver, British Columbia. “But in terms of the actual overlap after the new person is hired, whether it’s an internal or external candidate, with the departing CEO still on board, I’ve seen it run far too long. That can cause all kinds of awkwardness and troubles for the executive team and staff. In my mind, anything past two weeks is too long.”

“The new person coming in needs to establish their own credibility, develop their own relationships, and start carving a path in a new direction,” Longster adds. “Often the outgoing CEO, as long as the departure is on good terms, will still be available if any questions arise.”

There may be a wide variation between what the board, the outgoing CEO and the new CEO believe to be the optimal length of the overlap period with both executives working together, he notes. At a recent board conference, Myers asked for a show of hands on how long that period should be. Only a few directors agreed that the outgoing executive should work side-by-side with the new CEO for a few days or less; the majority agreed that a month or longer would be best. Widespread surprise greeted Myers’s announcement that the vast majority of incoming CEOs would prefer an overlap of no more than a couple days.

“The longer it goes, the more cause there is for breakdown and confusion. And the longer it goes, the more potential there is for the executive team and staff to get confused and uncomfortable, especially with external candidates,” he notes. “I’ve heard new CEOs say, ‘That was the longest three days of my life,’ because they are put in an awkward position where they see the retiring CEO make some calls that they fundamentally disagree with.”

Align Strategy and Leadership

The transition to new executive leadership should be guided by a credit union’s strategic direction, Myers says. He recently worked with an already high-performing credit union that developed an ambitious new vision, “much bigger and bolder than in the past.” The CEO recognized this major turning point as a good time for new leadership and arranged for cross-training and executive coaching for his second-in-command while discussing his retirement with the board. Over the next year, Myers consulted with the board and executive team on the role of the new CEO and other senior leaders and competencies needed to accomplish that new vision.

“When we do strategic planning, one of the things we ask the board and the senior team is, ‘Do you have the technical and leadership skills to fulfill this mission?’” he says. “That’s a question that is almost never asked in a typical strategic planning process. But if credit unions actually considered from a board and governing perspective whether they have the coordination, competencies and collaboration skills necessary to execute on their vision, then I think more plans would be realized.”

All in the Details

The board also needs to be clear about how expectations for the incoming and outgoing CEO might differ, Daigneault says. As just one example, the outgoing CEO might have been internally focused on financial performance, whereas the board might want the next CEO to take on a larger role and presence in the community.

“The board should not assume that the incoming CEO, even an internal candidate, is going to be a replica of the departing CEO,” he says. “Treat them as though they’re an external candidate and give them the ability to put their own stamp on the organization.”

Karen Bankston is a longtime contributor to Credit Union Management and writes about credit unions, membership growth, marketing, operations and technology. She is the proprietor of Precision Prose, Portland, Ore.

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