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How to succeed at succession

Finding – and keeping – the right mix of directors is a science and an art

Credit union succession planning

Scott Kennedy is only half jesting when he admits he is one of the “old white men” singled out in a report on U.S. credit union boards he has recently read.

“I am only different from that report in that I am 64 instead of 61,” chuckles the one-time CEO of the former Superior Credit Union and current board member of its successor, Copperfin Credit Union in western Ontario. “While our contributions are legion, our time is limited or should be.”

Kennedy, who has been involved in Canada’s credit union movement for 27 years, hastens to add that he means no offence to others in his age bracket. But he says that getting young blood onto the boards of credit unions like his is not an isolated problem. In fact, interviews with credit union leaders across the country suggest that succession planning is one of several issues that they grapple with in trying to ensure they have a diverse range of directors to represent their memberships.

The author of the work that Kennedy cites is the Filene Research Institute’s George Hofheimer, who has studied credit unions on both sides of the border. His report, Effective Credit Union Board Succession – New Demands Shine Spotlight on Standard Practices, introduces the topic by featuring the “typical 61-year-old director” who has served on average more than 10 years on a U.S. board. Central 1 Credit Union figures reveal a similar picture in Canada where one in five directors is 65 or older and has an average tenure of 9.1 years. The good news is that Canadian credit unions are ahead of their U.S. counterparts in addressing issues such as board turnover, director diversity and succession planning, says Hofheimer.

“Generally what we find is that the Canadian credit union system from a governance perspective is fairly well developed in terms of its practices,” says Hofheimer, chief research and innovation officer, at the Madison, Wisconsin-based Filene Research Institute. “The U.S.-based system lags behind in certain areas, such as around succession planning and bringing new individuals to the board.”

Long hours, low pay

That doesn’t mean that Canadian credit unions are problem-free when it comes to board governance. Small- and medium-size credit unions still fret that they labour under more regulation than ever before and face fierce competition from other financial institutions. All this means that they have problems finding directors willing to put in long hours for relatively low remuneration. They also encounter constant challenges ensuring a healthy and timely turnover in boards.

Kennedy served a decade as CEO of Thunder Bay, Ontario-based Superior Credit Union, and now is a director at Copperfin, which absorbed Superior and other credit unions en route to its present state of 19,476 members and $309 million in assets under administration. While he sees many strengths at Copperfin, he also worries that there is much more work to do.

“We need a balance that more accurately reflects our membership,” he says. “The two areas that are significantly lacking are youth – the average age of our 12 board members is about 55 – and First Nations.” While he feels there is a good gender mix on the board, seven men and five women, “we don’t have anyone in that youthful age group of 18 to 40.”

Age is an issue that goes beyond particular boards, he says, adding he believes that retirements, especially of CEOs, and director burnout have triggered many of the mergers that have swept Ontario credit unions over the last several years.

“Our plan needs improvement and development,” says Kennedy. “We know what we need to do but haven’t drawn out a map of how we are going to get there.”

Thousands of kilometres away on the West Coast, Glen Wong, a director on the Coast Capital Savings Credit Union board since 2007, is somewhat more positive about the state of governance at Canada’s secondlargest credit union. He attributes that partly to Tracy Redies, Coast Capital’s president and CEO, who has highlighted succession from the beginning of her tenure.

“I remember her first interview with the board [selection] committee in 2010,” says Wong. “She laid out her five objectives and among them was a CEO succession plan and figuring out her own replacement. The board got a succession plan and a CEO who gets it.”

He feels that Coast Capital – with its 504,000 members and $12.6 billion in assets under administration – has put some good governance practices in place and has a solid succession plan. Its directors are also diverse: three of the 10 are women and two are from different, non-Caucasian ethnic groups. Still, he questions whether imposing targets for diversity or setting limits for director terms is effective in prompting board turnover. “I think it is a little bit like setting gender and ethnic quotas,” he says. “It is a very heavyhanded and crude approach and I’m not sure it works. You have to have more objective ways of turning over the board.”

Rigorous self-evaluation

Those “objective ways” at Coast Capital include a rigorous regime of board and director self-evaluation each year, a process that can lead to incumbent directors failing to obtain their board’s endorsement for another term.

“It is really hard to do – to be objective and have those hard conversations on a board about colleagues,” he says. “You have, in essence, a group of peers that have to make sure we are the best the credit union can get. It’s like a hockey team that doesn’t have a coach to point them in the right direction.”

Wong also says diversity has a particular meaning for him. “It’s not diversity so that it looks good in the annual report picture,” he explains. “We believe in diversity in thinking that comes from people with different backgrounds. That diversity in the team allows us to look at problems from multiple perspectives. If we all have the same background, we are going to look at things one way . . . and there are a lot of blindsides to that.”

“If the average board size is about nine, then there is usually six men and three women, and that is fairly consistent across small, medium and large credit unions”

—Stacey Huberman, lead consultant, People Solutions at Central 1 Credit Union

Stacey Huberman, lead consultant, People Solutions at Central 1 Credit Union in Vancouver, says Canadian credit unions are pretty much there in terms of gender balance. “About a third of those on boards are women. If the average board size is about nine, then there is usually six men and three women, and that is fairly consistent across small, medium and large credit unions.”

Getting up to speed

But these credit unions still face many challenges, Huberman says. The time commitments demanded of board directors means that retirement-age directors – who have more time than younger credit union members juggling jobs and family responsibilities – are more heavily represented on boards.

“And one of the biggest challenges is the amount of time it takes for anyone to get up to speed (on a credit union’s affairs), says Huberman. “I was recently up in northern B.C. working with a board and the people who had been on the board for two years were still feeling like they were just coming into a good understanding of how the board worked. Once you are on a board, you have a two- or three-year ramp-up until you feel you are fluent in everything the board is doing.”

Huberman says that as she travels the system, she finds more and more boards see the work of nominating committees – which recruit and often recommend candidates for board elections – as much more serious than before, and not just before director elections at annual meetings. “It makes the top five list of board priorities over the last five years.”

Changing clientele

In Windsor, Ontario, Martin Gillis has more than 40 years in the credit union system and has been chair of the board of Windsor Family Credit Union for the last 21. He may well be one of the longest serving chairs in Canada. A machine toolmaker, who has worked for all of the Big Three automakers, Gillis started in the 1970s at a small credit union for plant employees with a few million dollars in assets. He now oversees an organization with 32,000 members and over $950 million in assets.

“The reality of it was that the people we were dealing with back then were [auto] plant employees,” he says, noting the skills needed were far more modest than those needed today. “Now you are serving all walks of life. You are serving the person with the minimum wage job and the multimillionaire.”

Like Wong, he favours board self-regulation versus mandated limits on aspects such as director terms to promote board turnover. Gillis believes in board diversity, but says it is more important to ensure diversity among the credit union’s staff of 150.

“We have on staff people who can speak 19 different languages,” he says. “I think that diversity will bring the concerns of their groups to the forefront and, in doing so, will bring them to the management level and to the board. I think it is much more important that staff [makeup] is a reflection of the membership.”

At least one credit union found that imposing a limit on director terms led to yet another problem. At Island Savings Credit Union on Vancouver Island, chair James McKenzie said “we went from no firm limits to three consecutive, three-year terms.”

“We have on staff people who can speak 19 different languages. I think that diversity will bring the concerns of their groups to the forefront and … will bring them to the management level and to the board”

—James McKenzie, chair, Island Savings Credit Union

“In doing that, we set up a significant transition issue because everyone on the board at that particular time had to be off the board in nine years. The first six years went by quickly. Now we’re faced with a large turnover. We can’t have six new board members in one election. “I voted for it because I thought it was the right thing to do at the time, but as we move forward I am less sure,” he said. He notes there might be a chance to right the situation now that his credit union has begun merger talks with Langley, BC.-based First West Credit Union. Overall, McKenzie feels very good about the governance of Island Savings, which has 60,000 members and $1.7 billion in assets under administration.

“Our average age of 50 is pretty good. We’ve got some people in their late 40s and some in their mid-60s.” Two of the nine board positions are held by women and McKenzie’s predecessor was a woman lawyer.

Island Savings has had a process of director self-evaluation in place for years, says McKenzie but “we didn’t do enough with it.” They now use a third party to interview board members about themselves and their peers.

Senior management succession

succession planningAt Servus Credit Union in Alberta, Taras Nohas has been vice-president of strategy and governance for six years but has more than 30 years in the credit union industry in various capacities, including as a board director.

With 400,000 members, $12 billion in assets and 101 branches, Servus is the product of the merger of several smaller credit unions. To this point, Servus has focused its succession planning on senior management rather than the board. It has a board of 12 and to date has never had an issue getting people to serve.

“There are four up for election each year. We don’t have any term limits in place because it’s a new credit union that merged with several others in 2008,” he explains. “It’s only six-years-old right now. Will term limits become an issue? Possibly. But in five years [of] elections, we have brought on eight new directors.” Nohas feels that gender and age have not been an issue and appear to be self-correcting. “I think our members consider these issues when they elect individuals to the board as we have a good cross-section of young and old directors.”

An embarrassment of riches

However, Servus has had a situation that many other credit unions would be happy to have: a field of up to 16 candidates vying for four positions, which poses a challenge for members trying to make informed choices, says Nohas.

“Prior to last year we did not have a mechanism in place to limit that number. What we were finding is that there was a bit of dilution and difficulty for our members in reviewing all 16 candidates. So you could have some voting based on gender, name recognition and even what [the candidate] looked like in the picture for lack of more firm information.”

The solution was to develop a nominating process where the governance committee vetted candidates prior to an election. The committee interviews the candidates about less tangible details, such as behavioural qualities, how candidates fit in their community and why they are running for the board. They also compare the individuals against a skills matrix and consider the technical or strategic knowledge that the board needs.

The nominating committee then recommends up to eight candidates for four positions. No other candidates can run.

If credit unions have doubts that there is a road map and a destination for their institutions, they probably need to look no farther than Vancouver City Savings Credit Union, Canada’s largest credit union and one of its oldest. With nearly 500,000 members and $17 billion in assets under administration, it appears to have found the appropriate balance for many of the issues other credit unions have raised, says corporate secretary Karen Hofmann.

Some years as many as 12 to 15 candidates vie for three director positions and one year there was a field of 25 candidates. Hofmann describes the situation as enviable.

While any member is eligible to run, Vancity has a committee of two directors and four members at large who interview candidates. They look for the particular skills that the board has identified that it is seeking and recommend five candidates for the three vacancies. “As do all boards, we look very closely at what the needs of the organization are and what the needs of our membership are and try to ensure that we have the right representation around the table.”

Five of Vancity’s nine directors are women and the board has a range of different ages. It does limit directors to four consecutive terms, which leaves former directors free to seek election again after a break in service.

Hofmann says she has been particularly impressed by how the board strives to take itself to a higher level, where strategic thinking is practiced all year round.

“Our board has been really strong in saying we need to be having these strategic conversations all the time to ensure that we set objectives every year,” she says. “We always want to be pushing to the next path to achieve the vision we need for our membership.” ◊