The use of a search firm may be advantageous for boards that don’t have much experience hiring CEOs, says Smith. However, not all directors may agree.
Some believe the price is too high. For example, a typical contingency-based executive search firm may charge a fee of 20% to 30% of the candidate’s first-year salary.
“The cost is often shocking to boards,” says Smith. Other boards may believe it’s worth the investment to secure the right person for the job.
Finding a search firm that can understand the culture of the board and the credit union is essential to the working relationship.
Prior to choosing a firm to aid in its CEO succession, PCM and Central One Federal each interviewed three search firms. In consultation with the credit union’s human resource department, a committee of Central One Federal’s board reviewed the methodologies and screening criteria the firms used prior to making its selection.
Another key element of a succession plan is researching realistic salary comparables, Smith says. Looking back, Sylvester would have tapped the search firm to assist with setting up a compensation package.
‘Have a plan, and make it a regular topic of conversation.’
Devon Lyon, Central One Federal Credit Union
“Somehow, the board missed the contract element,” she says. “So, with the assistance of human resources, we developed the package ourselves. In hindsight, I wish we would have used the search firm for this as well.”
The CEO and board should discuss the succession process regularly, Lyon says.
“It’s important for both sides to know if there are potential internal candidates, or if the credit union needs to look outside,” he says. “Have a plan, and make it a regular topic of conversation. The tenure of the CEO and their retirement plans will determine the steps and frequency of having these discussions.”
In an ideal world, succession planning should start the new CEO is hired, Smith says.
“The board is wise to establish that expectation from the start, and ensure that plans are living organisms that develop, change, and evolve constantly,” he says. “The next best time to do this is today.
“My own version of a viable plan is when the chosen successor leaves within a year of taking charge, but the board doesn’t panic,” Smith adds. “They have other options, and know what the next steps are. No one is flummoxed.”
