As wave after wave of credit union CEOs retire, new issues are being raised about best practices for succession planning – among them, should a credit union hire a new CEO and still retain the previous boss in some capacity?
Many observers would likely reply that such an arrangement would not be ideal, yet it does sometimes happen. Among the most recent examples was Brooklyn, N.Y.-based Bay Ridge Federal Credit Union, which hired Anthony Grigos as its new CEO while incumbent CEO Gene Brody remained on the board of directors.
Bay Ridge officials declined to comment for this article, but the topic engendered plenty of other responses.
“I don’t believe it’s good or proper for a retiring CEO to become a board or supervisory committee member of their credit union upon retirement,” Robert Taylor, president and CEO of Pocatello, Idaho-based Idaho State University CU told Credit Union Journal in a letter to the editor. "The inability of a retiring CEO to hang up his or her hat is a disservice to the incoming CEO, employees, and the membership."
New CEOs, Taylor added, “even if they are well known by the board and were promoted from within the credit union, need time on their own, without interference and oversight from their predecessor, to develop as the new chief executive of the credit union.”
In the case of Bay Ridge CU, Grigos was an in-house hire, having served as its executive vice president for four years prior to his promotion to the top job. Moreover, Brody himself recommended Grigos as his successor.
But even in this rather benevolent scenario, many said, problems can arise.
Michael G. Daigneault, chief executive officer & co-founder of Quantum Governance of Vienna, Va., emphatically told Credit Union Journal that if he were offered a job as CEO of a credit union (or any non-profit or company) under the proviso that his predecessor would remain with the firm, he would not take the position.
“This kind of arrangement can cause real problems,” he said. “It’s not all that common for obvious reasons, but it does happen.”
Jim Burson, senior director at Cornerstone Advisors and a specialist in strategic and delivery channel planning, said, generally speaking, this state of affairs can create some awkward situations and discomfort for both parties – but it largely depends upon the ”culture dynamics” of the organization and just how long this period of “overlap” lasts.
“When it does happen, the former CEO may stay on anywhere from one month to six months,” Burson said. “From the point of view of the incoming CEO, he may feel like someone is always looking over his shoulders, especially if the new boss wants to implement some strategic changes.”
Even if the new CEO was handpicked and mentored by his predecessor, problems can still arise, particularly if the incumbent insists on keeping things stable and unchanged, Daigneault observed. If the credit union has been financially successful, there would be no incentive to change anything (hence strengthening the hand of the prior CEO). On the other hand, he noted, if the change at the top job was prompted by a failing credit union, the former CEO (who was probably fired) wouldn’t be kept on anyway.
No reason to hang around?
Jim Blaine, himself a former CEO of the now $37 billion State Employees Credit Union of Raleigh, N.C., commented that at the time of a CEO transition, a credit union is either “strong” or “weak.” Regardless of the financial health of the credit union, he sees little reason to keep the former boss on the premises.
“If the credit union is ‘strong,’ there is clearly no reason for the departing leader to keep ‘hanging around,’” he said. “If the credit union is ‘weak,’ a shove out the door [of the former CEO] is obviously in order.”
Blaine indicated that since he retired from SECU last year, he has had no involvement with the credit union at all, adding that SECU continues to “grow and prosper.”
“Good organizations of any size are never about just one leader,” Blaine added.
Yvonne Evers, the CEO and founder of SUCCESSIONapp LLC, a Madison, Wis.-based company that specializes in succession planning, said some boards and CEOs feel it is advantageous to have the prior chief executive available for the new leader when he or she starts at the credit union – but that’s not a strategy she generally recommends.
Evers said that it can be advantageous in some cases where the new CEO was promoted from within and doesn’t have prior CEO experience.
“The prior CEO can mentor them for a period of time,” she said. “I believe that this time should be no longer than six months. Although the length of time will vary a little depending upon whether the prior CEO had done a good job developing his/her potential internal successors or not prior to the transition.”
Dr. Anna N. Danielova, Associate Professor, Finance and Business Economics DeGroote School of Business McMaster University in Hamilton, Ontario, said keeping the prior CEO could be “logical” in some cases and could “facilitate a smooth transition.”
But Danielova, an expert on corporate governance, warned that there is a danger that such a scenario may signal that the board does not have “enough confidence” in the new CEO.
From the outside
Of course, if a new CEO is hired from the outside, the incumbent’s guidance is necessary to insure a smooth transition of power. But even then, Daigneault cautioned, the duration of such a change-over should not be more than a month or so, depending on the size and complexity of the organization.
In such a scenario, Cornerstone’s Burson said that new chief “will need some time to acclimate himself to the job, and who better to help him than the person he replaced?” Burson added that “this is very important for a smooth transition, transference of power and a graceful exit by the former CEO.”
When an external candidate is chosen, Evers cautions, a number of issues may crop up if the other CEO stays on for a period of time:
- There may be confusion among staff on who to go to for answers to questions or which direction to follow
- Staff may still go to the prior CEO with issues because they feel more comfortable with him or her, which can delay the team-building activities of the new CEO
- The new CEO may delay taking important actions because they don’t want to “hurt” the prior CEO’s feelings
From the perspective of the ex-CEO, Burson said, he or she may question any proposed “changes in course” at the credit union, particularly if there is already a strong culture in place at the institution.
Daigneault said this scenario is hard for both the outgoing CEO and his successor. “The former CEO has a vested interest in maintaining the status quo at the credit union, especially if he has been successful during his tenure,” he stated. “And he would likely resent any efforts by the new CEO to make any changes in the company’s culture or structure. It’s very difficult to let go.”
Interim issues
One additional wrinkle arises when a credit union names an interim CEO and then hires a different full-time boss, passing over the temporary incumbent and potentially stepping on toes and hurting feelings.
”That can also create some awkward situations,” Burson said. “The key to mitigating all these problems is to communicate clearly and concisely what everyone’s duties and responsibilities are. If someone is hired as a boss for only the interim then that should be made crystal clear.”
Evers noted that some credit unions will avoid this issue entirely by making the temporary CEO someone who is not interested in the more permanent position. “Otherwise, it is important for the board to make it clear to the person in the acting or interim role that that is exactly what they are, and that they will be considered for the CEO role with other internal and/or external candidates,” she said.
Ultimately, all real power rests in the hands of the board of directors (where the former CEO may be seated, but has just one vote) and it is their mandate to make sure any transitions take place with a minimum of friction.
“But it is a delicate balance,” Burson conceded. “They have to give some latitude to all parties involved.”
