Nothing succeeds like success, as the saying goes. For credit unions seeking to secure their future, nothing succeeds like ensuring a smooth CEO succession.

Hiring a CEO is one of the biggest challenges facing credit union boards, says Kevin Smith, consultant/publisher at TEAM Resources. “It’s also the most important work of the board—and it takes longer than anyone thinks.”

Lack of adequate CEO succession planning often results in a poorly thought-out successor who’s not well-suited for the credit union or is ill-prepared, he says.

“There are several bad scenarios for not having a CEO succession plan, but the worst-case scenario is that the credit union goes away completely—usually a merger because the board doesn’t know what else to do,” Smith says. “An attitude of ‘we’ll cross that bridge when we come to it’ often results in a merger or takeover.”

A board blind spot

Credit unions without a viable succession plan aren’t alone.

Succession planning has long been a blind spot for boards, according to researchers J. Yo-Jud Cheng, Boris Groysberg, and Paul Healy, writing in the Harvard Business Review. Their 2016 global survey of more than 5,000 board members found 41% of boards don’t regularly discuss CEO succession, and 54% don’t have an effective planning process for CEO succession.

‘My version of a viable plan is when the chosen successor leaves within a year of taking charge, but the board doesn’t panic.’

Kevin Smith, TEAM Resources

More than half (54%) have no contingency plan.

Researchers Robert Hooijberg and Nancy Lane found similar results. “The strategic importance of CEO succession is indisputable, and the elements of effective succession planning have long been known,” they write in the MIT Sloan Management Review. “So, why do many boards plan poorly for CEO succession when the cost of failure is so high?”

Hooijberg and Lane cite three reasons:

1. Boards don’t align the hiring criteria for the future CEO with the organization’s strategic needs.
2. Boards are reluctant to antagonize the incumbent CEO by confronting succession planning.
3. Boards fail to address executive development below the CEO level.

A proposed rule from NCUA would require federal credit union boards to establish and adhere to processes for succession planning to ensure “the credit union has plans to fill key positions, such as officers of the board, management officials, executive committee members, supervisory committee members, and (where provided for in the bylaws) the members of the credit committee to provide continuity of operations.”

The rule also would require board members to be knowledgeable about the credit union’s succession plan. NCUA notes that although the proposed rule would apply only to federal credit unions, the purpose is to encourage and strengthen succession planning for all credit unions.

NEXT: Key elements