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Executive exodus

Credit union boards lead CEO succession plan strategies

Bob Watson, CEO of PenFinancial Credit Union (20,000 members, $518 million in assets), headquartered in Niagara, Ont., is a trendsetter who is blazing a path that more than 120 of his fellow credit union CEOs will follow over the next three or four years.

By the end of this summer, Watson, who will be 66 by then, will be an ex-CEO who has wrapped up 33 years at his organization and watched it merge with several neighbouring credit unions, growing from $10 million in assets to more than $518 million. “I have lots that I want to do: golfing, gardening, boating, skeet shooting,” Watson says, rattling off a long list of things he hasn’t been able to spend much time on while growing his credit union. A life-long resident in the Niagara area, he also expects to keep in closer touch with the more than 20 friends he has socialized with since high school 50 years ago. “We cottage together, have barbecues, it’s great.”

This is a story about people growing older and retiring — a lot of them — in a short period of time. There’s no real surprise twist at the centre. We’ve all known for years how it was going to play out, and if we looked at the numbers we could even tell when it was going to hit — now.

As demographer David Foot has told us in several bestselling books, the baby boom generation is the largest in Canadian history and it has had a major impact on every facet of life as it has aged. Now, the boomers, who are 51 to 70 years old (born between 1946 and 1964), are leaving the workforce. Lots of them, in a group, as they have done everything.

CEO hiring binge

What will this mean for credit unions? Central 1’s People Solutions recently published CEO Transition: A System-Wide Risk?, which outlines findings from the 2015 Leadership Transition Study (LTS) conducted by People Solutions in collaboration with other provincial credit union centrals across Canada. It offers some general insights and trends; however, they do not represent the credit union system in its entirety.

The LTS is based on survey data collected from 439 voluntary participants in 166 credit unions in every province except Quebec. It questioned boards, CEOs, and executives at all sizes of credit unions.

There’s some speculation that the 2008 recession may have delayed the impact of the retirement wave as many CEOs decided to work longer than planned, or were forced to by market losses. But by 2015 the retirement momentum started to increase.

According to CEO Transition, at the provincial level the majority of CEOs/GMs within credit unions do not plan to retire for at least another five years. In all provinces, between nine per cent to 25 per cent of CEOs/GMs plan to retire by the end of 2017.

Nationally, 17 per cent of all CEO/GMs plan to retire by the end of 2017. In addition, 13 per cent plan to retire in 2018. That number shrinks to six per cent in 2019.

Credit union boards however, have been addressing the retirement issue in earnest since 2013. And in recent years boards of credit unions of all sizes have become more engaged in succession planning. This introduces more certainty into the process and stability for the credit union and mitigates any operational or reputational risk that might be caused by an unexpected change.

Boards that have been through the CEO hiring process, or have updated their succession planning, say the key steps are as follows:

• Actively engaging with current CEOs about their anticipated retirement timing.

• Defining recruitment support needs.

• Engaging in advanced leadership transition planning, which can include facilitated workshops to prepare and build a roadmap.

• Building internal talent to be considered during the recruitment process.

• Connecting with peers on the process and options.

Clear criteria for CEO fit

Selecting a CEO and assuring a succession plan is in place is one of the key roles for any board. By reviewing succession plans annually as credit unions grow and the operating environment shifts, role requirements can be updated to match the credit union’s changing needs.

Andy Poprawa, CEO of the Deposit Insurance Corporation of Ontario (DICO), says the regulator has set out clear rules for boards and explained their duties. “This is the boards’ responsibility, but when we’ve been asked, we have sent people out for one-on-ones with the boards to discuss best practices and what we have learned from others,” Poprawa says.

Poprawa is part of the retirement trend himself. DICO announced in mid-February that he will retire on September 1, 2016. The board said it “will move forward with its succession plan to ensure a seamless transition.”

All regulators stress the need for credit union boards to take the lead. In 2013 the Financial Institutions Commission (FICOM) of B.C. issued its governance guidelines that clearly set out that ensuring there is a CEO succession plan is one of a credit union board’s prime responsibilities, says Frank Chong, FICOM’s deputy superintendent.

“Ensuring there is a CEO succession plan is one of a credit union board’s prime responsibilities ”
Frank Chong, FICOM

Chong says the guidelines were developed after lots of consultation with credit unions and discussion about how boards should act, so the need for a plan is not a surprise.

Still, on occasion, when FICOM talks to a credit union it does discover a gap between the plan and reality. “The biggest gap is that there is no succession plan in place that could be implemented immediately,” he says. This is a bigger issue with smaller credit unions that face challenges if a CEO leaves suddenly. Larger credit unions usually have a plan in place.

Chong says FICOM wants to be sure that boards are clear on their criteria and process for selecting a CEO. “Our worry is that the boards are going to bring a CEO that may not really be fit for the role.”

FICOM is becoming more proactive and meets with CEOs and other top executives before they start or they are announced. “That’s not to say we are here to vet a CEO, it’s merely to ensure that the CEO understands what their role is and the relationship between the CEO and the regulator. At the same time, it may give us a bit more comfort knowing their background before stepping into that role.”

CEOs and boards in sync

executivepicHaving a plan and implementing it in time are key to a successful transition. It takes “at least six months” to recruit a new leader, according to CEO Transition. Viewed properly and far enough in advance, the retirement of a CEO is often a good chance for a board to consider its strategic plan, how it plans to grow the credit union in the future, and for some, a good time to consider a merger.

Survey data shows that nationally about 90 per cent of boards review the plans annually, or every other year. It does seem that the boards and CEOs are on the same page. The 2015 survey found that over the next three to five years, 31 per cent of boards anticipate that they will have to recruit a new leader, matching the fact that 31 per cent of CEOs anticipate retiring within that window.

The survey asked boards about the challenges they faced during their credit union’s last CEO/GM transition. Nationally, 28 per cent of boards said that they had no viable internal candidates as a possible successor, while 20 per cent had a small or limited talent pool, and 18 per cent said they had difficulty attracting candidates due the geographical location of their credit union.

In Ontario a lot of smaller credit unions have used their CEO’s retirement as an opportunity to seek a partnership or merger. “Our observation has been that unless you have a really strong plan to develop someone internally, it is hard for a small credit union to have a spare CEO,” says Poprawa of DICO.

Chong says FICOM also worries that a smaller credit union that is ill prepared for a CEO’s departure might be inclined toward a merger that is not really in its best interests. That’s why it stresses the need for succession plans.

Selecting a new CEO with the right skills and personality is key to a credit union’s long term success, shows a research report done by the Filene Research Institute, Leading for Credit Union Success: The Roles of Personality and Practices in CEOs by Murray Barrick.

“In these increasingly competitive times, credit unions need to have the best possible understanding of what a good CEO looks like and how to best develop a leadership approach,” said Ben Rogers, Filene’s research director.

“After all, the CEO serves as the credit union’s principal representative to a wide range of external stakeholders — suppliers, corporate partners, governmental agencies, and members — and is the key driver of strategic direction within the credit union. Understanding the key variables that separate good from not-so-good CEOs could make a difference across a wide spectrum of areas, including credit union performance.”

Rogers says Barrick’s research shows that the two traits that are the best indicators of both employee engagement and credit union success are CEO conscientiousness and emotional stability.

“Smarter hiring can make a difference,” Rogers says. “Credit unions should recognize the importance of these personality traits and abilities when hiring and factor them into the recruiting process.”

At PenFinancial, Watson says his board developed a formal succession plan five years ago, and two years ago he told the board that he would like to step down in 2016. He made a formal announcement last November, which started the official clock running. Watson is aiming to retire on August 31, but he says will leave earlier if a new CEO is in place and feels comfortable.

C-suite shuffle

One challenge Watson’s successor will face is that several members of PenFinancial’s executive team also plan to retire over the next two to four years, creating a 40 per cent turnover at that level in a fairly short period.

Across the country in Salmon Arm, B.C., Salmon Arm Savings and Credit Union (19,000 members, $581 million in assets), better known as SASCU, has been on the same route but is even further down the road to transition.

“In these increasingly competitive times, credit unions need to have the best possible understanding of what a good CEO looks like and how to best develop a leadership approach”
Ben Rogers, Filene

Longtime CEO Michael Wagner announced last spring that he planned to step down this year. SASCU’s board undertook a nationwide search and hired Barry Delaney, who had been interim CEO at Northern Savings Credit Union (17,000 members, $976 million in assets), leaving a gap to be filled there.

Glenn Hill, SASCU Financial Group’s board chair, said the process went smoothly. The board had a plan in place and implemented it. It created a four-person hiring committee that assessed the candidates. Hill says SASCU had several strong candidates, including a current vice president at one of the big banks. “We had a range of experience and ages, including one [person] who was 38.”

Hill says, “The key is to determine what criteria you are using and what you are looking for. You need to be clear what qualities you want. We had a good idea of what we needed.”

The committee chose a candidate who was recommended to the board and, after a presentation, was unanimously accepted. Hill says SASCU had considered its strategic position a few years ago and decided to focus on its core area where it has no competition from other credit unions, 50 per cent market share, and healthy profitability.

A time to rethink recruitment

Looking at the U.S. market, outplacement agency Challenger, Gray and Christmas Inc. has warned that the retirement wave will make it harder for companies to attract key staff in coming years.

“Employers will have to increase their recruiting efforts to find the best candidates,” says its report 2016 Employment Outlook. “They will have to rely more heavily on referrals from current employees. They will have to be more open to considering candidates who might have longer-than-desired gaps on their resumes or whose skills and experience do not perfectly align with the job opening. We could see starting salaries increase, as well as the salaries of existing workers, as employers try to attract and retain the best talent.”

Poprawa says boards need to consider a CEO’s retirement as a time to reflect. “It’s an opportunity to refresh, to rethink strategy. An opportunity for them to sit back and think about the future, that’s the message we give.”

He adds that the transition has brought a lot of talented, experienced people into the system. “In many cases — we call them ‘bank refugees’ — people coming from banks have tremendous skills,” Poprawa says. “But quite frankly, some have a lot to learn about community involvement and dealing with boards.”

But Poprawa notes many make the transition very well. “I always remind people that Monique Leroux spent a long time at the Royal Bank before she [went] to Desjardins, and now she is going to be head of the International Co-operative Association. She made a very successful conversion from a capitalist bank to a cooperative environment.” ◊