Top 3 Risks of Skipping Succession Planning

man jumping gap in mountains
By John W. Andrews, CCP, CSCP, SPHR

7 minutes

Plus, the 4 best practices for securing the future with it.

Sponsored by D. Hilton

All CEOs will inevitably leave their roles.

As experienced professionals approach retirement age and a tight labor market persists, executive succession plans are becoming more important than ever to ensure a culture of stability and limit potential feelings of uncertainty.

Succession planning is not merely about filling a vacant leadership position; it is a strategic process that ensures the seamless transition of leadership while safeguarding the credit union’s mission, expertise and member relationships. CEOs play a pivotal role in shaping the credit union’s vision and direction, and sudden leadership changes can disrupt operations and create uncertainty among employees and members.

Risks of Skipping Succession Planning

Many companies skip succession planning because, frankly, it’s difficult. It requires years of experience and planning to go well and, if handled incorrectly, can put a credit union in a precarious situation. Before diving into the risks associated with skipping succession planning, it’s important to understand what makes the process so challenging to undertake in the first place.

Succession planning is inherently a long-term process that is mired with sensitivities, requires buy-in across a lot of different stakeholders and doesn’t necessarily have any immediate tangible pay-off for those involved. Between the fundamentally difficult nature of succession planning processes and the general lack of knowledge most people possess on the topic, it can be very daunting and difficult to get started—or to even justify why your board of directors should spend the time on this exercise. This often leaves succession plans on the back burner and opens credit unions up to risk.

Top 3 Risks of Skipping Succession Planning 

1. Members may experience decreased trust due to visible signs of instability. The CEO of a credit union plays a vital role in advocating for the organization’s mission and driving toward its vision. They are front and center in the eyes of your members and help to maintain an image of stability and certainty. If a clear succession plan is not in place, the credit union can experience instability over a relatively long course of time in a very public way, which can degrade their overall trust in your credit union.

2. The credit union risks losing irreplaceable knowledge and experience from existing internal employees. Developing a clear succession plan provides opportunities for internal candidates who are interested in a leadership role and already know the company and understand the business and the opportunity to throw their hat in the ring when the opportunity arises. Knowing these avenues exist can help to strengthen their loyalty to the company and keep them on board long-term. If your top employees are seeing only external candidates on-boarded to leadership roles, they’ll see an obvious ceiling for their career and look elsewhere to continue growing professionally, taking all their knowledge and experience with them.

3. The credit union may experience a negative cultural impact due to uncertainty. Without a leader at the helm, both employees and members will inevitably feel uncertainty for the future. Without a good succession plan in place, this uncertainty will be even stronger due to an unclear vision for the future. A lack of communication and clear planning can lead to a “horse race” among potential internal candidates, which can divide your employees. These internal power struggles may create an uninspiring, even draining environment for other employees, who will then feel less motivated in their roles. Those internal candidates who ultimately aren’t chosen for the role may become jaded and leave the organization if they don’t see any alternative growth opportunities.

So, while it may seem like an insurmountable task, it’s in your credit union’s best interest to take it on. When you take on succession planning as a regular part of your governance activities, you are prepared for change and able to take a proactive approach to changes in leadership, whether planned or unplanned. This proactive approach gives your board of directors the ability to drive the credit union closer strategically and intentionally to its goals.

Top 4 Best Practices for Successful Succession Planning

CEO succession planning requires know-how, sensitivity, a clear vision and stakeholder alignment. These are our top four best practices for credit union executive succession planning:

1. Start the process of succession planning the moment you hire a new CEO. Succession planning is a proactive measure, allowing your credit union to make well-informed, data-backed decisions on your next CEO to ensure stability and continuous growth. Starting your succession plan as soon as a new CEO comes on board allows you to ensure you have developed a strong pipeline of internal candidates, set clear expectations for mentorship from your sitting CEO and define what will happen during the CEO search when it inevitably begins.

2. Focus on internal candidates—but don’t discount strong external candidates. Internal candidates are the backbone of strong succession planning. They have the internal company knowledge and skill sets necessary to continue growing your organization while also maintaining company culture. While internal candidates tend to be stronger in terms of specialized industry knowledge, culture fit, and values, external candidates can offer different skillsets and a fresh perspective. In fact, it is critical—and part of the board’s responsibility—to assess internal candidates against best-in-class external candidates. Increasingly, boards are expected to consider viable external candidates as part of their due diligence before affirming any internal candidates.

3. Don’t shy from addressing sensitivities. Succession planning will inevitably result in the need to poke at some sensitivities for your current CEO. After all, who wants to think about the person who will replace them in their role? But, for the well-being of the credit union, questions around performance, projection and mentorship must be asked. Be mindful in your discussion of any insecurities these discussions may create for your sitting CEO and mitigate them where possible. This is not an exercise intended to make them feel as though their job is at risk. This is an exercise intended to set the credit union up for success long-term. When boards and sitting CEOs can come together to measure their current performance, make projections for the credit union’s future growth and discuss opportunities for mentoring future leadership candidates, they can set the credit union up for success.

4. Set up your CEO succession process for success. The credit union’s chair and board of directors are broadly responsible for the hiring of a new CEO. They are, therefore, the driving force behind CEO succession planning, and it is their job to define what good candidates look like, select the candidates and oversee the transition of power when the time comes. Additionally, the sitting CEO should be setting up the best conditions for succession through internal candidate development, mentorship and monitoring leadership development plans. Both the board and the sitting CEO should also work together to build development paths for unsuccessful internal CEO candidates—whether they be for future CEO succession processes or other leadership roles—to help ensure overall leadership retention.

In conclusion, succession planning is not a luxury but a necessity for credit unions seeking long-term success. By recognizing the potential risks of ignoring succession planning and implementing proven strategies, credit unions can ensure a smooth transition of leadership, preserve institutional knowledge and maintain a competitive edge in the face of a rapidly changing landscape.

The future is uncertain but by securing the future through effective succession planning, credit unions can thrive and continue to serve their members with dedication and excellence for many years to come.

John W. Andrews, CCP, CSCP, SPHR, is EVP of D. Hilton. Andrews specializes in staff and executive compensation, board governance, sales and variable pay design, and strategic planning. He has worked for D. Hilton Associates since 1986 and for KPMG, the Center for Coastal Studies and the National Association of Insurance Women. Andrews has served as an expert witness and executive compensation consultant to regulatory agencies such as the National Credit Union Administration, the Pennsylvania State Department of Banking and the California Department of Business Oversight. He has served as an executive compensation and organizational development consultant to numerous corporate, not-for-profit and trade associations, including the Texas Methodist Foundation, the ELCA Mission Investment Fund, the Texas Municipal League, and The Woodlands Ballet Theatre. Andrews is currently an associate director on the Houston Achievement Place’s Board of Directors.

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