A lack of succession planning might be driving more mergers than even the National Credit Union Administration realizes.

The NCUA in July approved a rule that would require federally-insured credit unions to establish succession planning for key positions in their organizations.

Part of the impetus for the rule was that an NCUA analysis found a lack of succession planning was either a primary or secondary cause for almost a third of consolidations.

But some credit union leaders told Tyfone they think that number is much higher.

“Many CEOs of smaller institutions plan to merge as part of their retirement and get a payout,” one Ohio CEO said. “I would estimate at least 60% of the older CEOs of credit unions under $500 million (of assets) plan to merge as part of their retirement strategy.”

At the NCUA board’s July 18 meeting, Chairman Todd Harper said the regulator has found that 25% of credit unions either lacked any plan or had an inadequate plan.

Another CEO, this one based in Texas, said he wonders if some of the larger credit unions that “do things right” don’t want the smaller institutions to have succession plans “because they are easy pickings without one.”

But many executives believe that one area the rule could help in is forcing reluctant board members to step down.

An Arizona CEO told Tyfone it is incredibly difficult to make some of the older, long-time board members talk about when they plan to relinquish their seat let alone discuss who is going to replace them or have the board as a whole plan for their departure.

“I had a board member who was 83 with heart problems who, when asked when she was going to step down, had no plans to do so and stated they will have to wheel her out on a stretcher,” the CEO said. “And no other board members spoke up to address the problem she presented. I believe at least 50% of credit unions have a board member like this.”

What is it about those board positions that make directors so unwilling to step down?

“There is something about volunteer, non-profit boards that attracts people on power trips,” the Ohio CEO said. “They are there for a monthly free meal and the trip to Orlando for their league annual meeting. And many folks don’t think the credit union can run without them.”

Aaron Goff, president and CEO of $608 million-asset Embold Credit Union in Milwaukie, Oregon, told Tyfone the credit union has a detailed succession policy and plan document that it updates regularly and that he discusses with the board semi-annually.

“We also have a Board Emeritus and associate board member program — which I highly recommend to any credit union — that functionally goes a long way toward board succession, as we always have one or two folks in the hopper ready to go,” Goff said.

So what are the challenges that come with the NCUA rule?

Goff said there are many.

For one, upper-level staff tend to be people that have been around the credit union for a long time, and as the organization grows, sometimes the complexity outpaces the skillset on the executive team.

“Best intentions notwithstanding, maintaining adequate training for the executive and mid-level management team so they are in the best position to succeed their predecessor when the time comes can be a challenge, especially at smaller CUs,” Goff said.

Many commenters on the rule agreed with the regulator that succession planning is vital to the long-term success of a credit union but believe the NCUA should address the issue through guidance and letters rather than with rulemaking that could add to an already growing regulatory burden.

That was especially true for the tiny institutions.

“We believe NCUA is underestimating the true amount of time credit unions will spend on compliance with this rule,” wrote Terri Cone, manager of $6 million-asset Skel-Tex Credit Union in Skellytown, Texas. “The NCUA estimates it will be about 10 hours per credit union per year, but that dramatically underestimates the burden this rule will place on our credit union.”

Matt Selke, president and CEO of Georgia Heritage Federal Credit Union in Savannah, Georgia, told Tyfone the number one thing the credit union requested during his interview was for him to help get a succession plan in place as a handful of senior executives are within a few years of retirement.

Selke in August replaced CEO Dale Taratuta, who retired after leading the credit union for 14 years.

“I think the proposed rule is actually a good idea,” Selke said. “In some credit unions it will force a conversation that some may not want to address or discuss. I will be curious to see how detailed the final regulation is and how the regulators will interpret and enforce it, though.”

“Politics can get in the way, causing rifts among staff and board that may lead to mass departures that completely upend the best laid plans. So succession planning has to be constantly reviewed and updated.”

 – Aaron Goff
President and CEO
Embold Credit Union