June 11, 2025 • 36 mins
Are you ready to grapple with the new NCUA requirement that every credit union have an up to date succession plan that covers both senior executives and board members?
The good news: you’re not required to have a written plan until January 1, 2026.
The bad news: if you don’t have a plan by then, or if your plan falls far short of NCUA’s expectations, the credit union can be written up by an examiner.
On the show is Jeff Paille, partner in The Bonadio Group’s Assurance Division, who offers a primer on what every credit union needs to know about this NCUA requirement.
And he also talks about what will happen if you simply tell the examiner you haven’t gotten a plan together.
Incidentally, although the NCUA explicitly flagged mergers triggered by a lack of a succession plan as a prompt for this new requirement, Paille says that a common succession plan at many credit unions is in fact merger.
Listen up.
Like what you are hearing? Find out how you can help sponsor this podcast here. Very affordable sponsorship packages are available. Email rjmcgarvey@gmail.com
And like this podcast on whatever service you use to stream it. That matters.
Find out more about CU2.0 and the digital transformation of credit unions here. It's a journey every credit union needs to take. Pronto
Mark as Played
Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
SPEAKER_02 (00:00):
Welcome to the CU2.0 podcast.
SPEAKER_00 (00:05):
Hi, and welcome to the CU2.0 podcast with big new
ideas about credit unions andconversations about innovative
technology with credit union andfintech leaders.
This podcast is brought to youby Quillo, the real-time loan
syndication network for creditunions, and by your host,
longtime credit union andfinancial technology journalist,
(00:27):
Robert McGarvey.
And now, the CU 2.0 podcast withRobert McGarvey.
SPEAKER_02 (00:33):
Are you ready to grapple with the new NCUA
requirement that every creditunion have an up-to-date
succession plan that covers bothsenior executives and board
members?
The good news, you're notrequired to have a written plan
until January 1, 2026.
The bad news, if you don't havea plan by then, or if your plan
falls far short of NCUA'sexpectations, the credit union
(00:56):
can be written up by anexaminer.
On the show is Jeff Paley,partner in the Monadio Group's
Assurance Division, who offers aprimer on what every credit
union needs to know about theNCUA requirement.
He also talks about what willhappen if you simply tell the
examiner, hey man, I forgot toget a plan together.
(01:16):
Incidentally, although the NCUAexplicitly flagged mergers
triggered by a lack of asuccession plan as a prompt for
this new requirement, Paley saysthat a common succession plan
among many credit unions is infact merger.
Go figure.
Listen up.
The NCUA succession rule, whichtakes effect, I believe January
(01:40):
1st, 2026.
So a little bit over a year fromnow.
And, uh, As you're probablyfollowing, it's very possible
there'll be significant staffreductions at NCUA.
Unless you have a burning desireto discuss that, I'd rather just
let that lie since it's all upin the air, really.
And I see no reason to thinkthey're not going to go forward
(02:03):
with the succession planning.
SPEAKER_01 (02:05):
Yeah, I mean, the staffing level at the NCUA and
other federal entities is verymuch in question.
Obviously, there's beenreductions in some places,
but...
I am not in the business oftrying to predict how that's all
going to play out.
So from what I know, thissuccession rule is on the books.
It's a rule, and it's effective1-1-26.
(02:26):
Unless something officiallychanges that, then I think we're
talking about it as though it'sa rule that people have to think
about.
SPEAKER_02 (02:32):
Yeah, that's the only rational way to proceed
right now.
We're in an irrational world, solet's be rational about little
things.
Now, I was looking through thetemplate for small credit units.
I'm picturing a small creditunion, say 100 million in asset.
And I'm picturing the boardchairman pulling his or her hair
(02:54):
out.
I have to make a succession planfor 20 positions.
This is crazy.
I can't even count to 20.
SPEAKER_01 (03:07):
Well, and a lot of times the credit union doesn't
even, these smaller creditunions don't even have 20
people.
Exactly.
SPEAKER_02 (03:13):
I
SPEAKER_01 (03:13):
talked
SPEAKER_02 (03:13):
to many that have, four paid staff people.
SPEAKER_01 (03:18):
Well, you have an individual person who's wearing
a lot of hats.
So most of those roles exist insome form within even a small
credit union, most of them.
But you have the same personwho's doing six or seven of
those or more even sometimes.
So, I mean, our conversationsthat we're having so far with
(03:40):
those smaller credit unions likethat are saying, identify that
person and you don't have to doa full update of that person's
job description, but you can atleast describe in writing the
different roles that they playin the context of those 20 plus
positions that are named there.
You obviously don't need asuccession plan for 20 different
(04:01):
people if you only have four,but you may have a different in
the plan if that person'swearing six or eight hats, maybe
there's a plan for four or fiveof those hats that's one plan
and a plan for three of theother roles that's different.
That's possible.
So entertaining the possibilityof your plan being perhaps not
as clear cut or as traditionalas what the NCUA is laying out
(04:23):
in that template, I think has tobe entertained.
SPEAKER_02 (04:26):
Now, in your conversations with credit
unions, what's the level ofanxiety?
Is there a difference betweensmall credit unions and big
credit unions?
I imagine maybe federal hassuccession plans up the wazoo
already in file cabinets.
I'm just guessing here.
I haven't talked with Navy, butthey're military trained.
(04:46):
There's a succession plan theresomeplace.
SPEAKER_01 (04:49):
Yeah, I would guess you're right.
I don't have a relationship withthe leadership at Navy
personally, myself either.
However, we have definitelynoticed that larger credit
unions have a different kind ofreaction to this.
There's really three reactionsthat come out when we ask credit
unions how they're doing.
One is typically from largercredit unions, but also from
other credit unions where we askthem, like, what's your plan for
(05:11):
this?
And they say, oh, We are totallyunder control.
We have our plan in place.
Everything's great.
We're done.
Before the rule even came out,we had it totally covered.
It's interesting, though, evenwith larger credit unions, if I
ask a follow-up question, can Isee the plan?
Sometimes there's a little bitof silence there for a minute,
(05:35):
and they have to think aboutthat for a minute.
And often it comes down to theidea that they don't really have
a plan written down anywhere.
They just have a plan thatthey've kind of come to
understand in a less formal way.
And in those cases, we're stilltalking to them about doing a
little work to just articulatethis in writing.
Because if an NCUA examiner asksyou for something and you say,
(05:58):
oh, yeah, we have that.
And they say, oh, can I see it?
And you say, oh, well, we don'thave anything in writing.
That's usually not.
going to go very well for you.
You're going to get written upon that.
So yes, I think to yourquestion, larger credit unions
generally are in better shape onthis, but there still is work to
do from what we're seeing toarticulate it in writing in a
(06:18):
way that will be responsive tothis new rule.
SPEAKER_02 (06:22):
Why is this rule, why was it promulgated?
Why does it exist?
SPEAKER_01 (06:28):
Yeah, the NCUA gave two reasons in the sort of
introductory materials to therule.
The first one was that there'sjust more baby boomers retiring.
Now, I don't think that's newexactly, but they cited that as
a reason for this rule.
The other reason, which is themore interesting one to me, is
that they see that a lack of asuccession plan is a factor in
(06:52):
credit union mergers oftenenough that they wanna address
this succession planningexposure, the risk here in the
hopes that they can perhapsreduce the number of credit
union mergers where this is oneof the causes.
So that's an interestingintroductory comment from the
NCUA to say, we think that alack of succession planning is
(07:15):
part of the reason there's somany credit union mergers.
And so we want credit unions toplan for this so we can avoid
mergers.
SPEAKER_02 (07:23):
I have no doubt that succession issues motivate a lot
of mergers of credit unions.
SPEAKER_01 (07:29):
Oh, they absolutely do.
And that That gets into, like Isaid, there's three responses
that we're getting from creditunions when we talk about this.
The first one I talked about isthat we have it totally under
control.
One of the other ones is that,yeah, we have a succession plan.
And this is mostly from smallercredit unions.
And they'll say, yeah, we have asuccession plan.
It's that we're going to merge.
(07:51):
That's our plan.
Now, when the NCUA says we'reestablishing this rule to avoid
mergers...
I don't think going to theexaminer and saying, yeah, we
have a plan, we're going tomerge, is really in the spirit
of what they're looking for.
I don't speak for the NCUA, ofcourse, but I think if that's
the plan, and we know there arecredit unions where that is the
(08:12):
plan, that may need someadditional thinking, because I
don't think the NCUA is lookingfor that as part of your plan
with this rule.
SPEAKER_02 (08:21):
Yeah, I agree.
I'm thinking as you talk, Iremember a guy who was pretty
well CEO of a small creditunion, maybe 150 million in
assets.
And when he retired, at thenormal retirement age, nothing
sudden, that credit union mergedout of existence because they
(08:42):
couldn't find anyone who wouldtake the damn job at the salary
they were paying this guy who'dbeen in that job for like 30
years.
And he was getting paid bupkis.
And on Saturdays, if the tellerwas sick, he went to the teller
line.
He emptied the trash cans if theguy or the janitor was sick.
He did everything.
And they're talking with peopleand you pay me$75,000 and I got
(09:04):
to do the trash
SPEAKER_01 (09:06):
cans.
No, no, no.
Well, yeah.
And we actually have a lot ofthese folks who say their plan
is to merge.
They're not just doing thatbecause they're lazy and they
don't want to establish asuccession plan.
They have a thought out processwhere they say, look, we do not
believe we can hire for thisposition because it's not a very
(09:28):
glamorous position.
And the people who would bequalified to run this small
credit union typically are alsoqualified to be some sort of
like a VP level person at alarger institution.
And at that larger institution,there's going to be a better pay
scale.
There's going to be betterresources.
There's going to beopportunities for advancement.
(09:50):
As a small credit union, theyjust can't compete with all
that.
So the chances of successfullyrecruiting a successor is really
low.
Sometimes you might have aninternal candidate who would be
willing to step up to that job.
But to do a national search andhire for that position when
there's, frankly, easier ormaybe more palatable positions
(10:13):
at larger institutions is reallya challenge.
And some credit unions have justdecided it's not something they
can do.
And so they're just going tomerge.
SPEAKER_02 (10:22):
I also know at least two guys who were CEOs of small
credit unions who quit to takeVP jobs at much larger credit
unions.
Oh, so there you go.
I think they were paid moremoney, too.
But they were also looking forfurther advancement in the large
credit union universe.
Exactly.
Becoming CEO of big creditunions.
(10:43):
And somehow it dawned on themthat being CEO of a little
credit union didn't position youto be CEO of a really big credit
union.
SPEAKER_01 (10:51):
Right.
So it takes a special person towant the job of, let's say, a$40
or$50 million credit union whereyou only have a staff of four or
five people or 10 people or asmall number of people and
you're wearing a lot of hats.
That's not the most appealingjob in the marketplace right
now.
And so it's really hard torecruit for.
SPEAKER_02 (11:09):
So I'm a client of yours.
I want to talk about this.
And one of my first questionswould be, imagine I'm a small
credit union.
How long is it going to take meto come up with this plan?
I'm a kid writing a term paper.
How long should I put intowriting this term paper?
SPEAKER_01 (11:26):
Well, I think that to do it right, I think you have
to have a discussion at theboard level with the CEO or the
chief executive and maybe someother folks in the leadership
team to just...
talk about people's intentionsbecause some of the, some of the
sticky points here are thatthey, they kind of want you to
have a date, a timeline for eachof these positions.
(11:49):
They don't mandate that you havea specific date of when the
position is going to turn over,but they do have a lot of words
in there that talk about how theplan is going to be a lot more
meaningful if you do have atimeline.
So a lot of times it's, nearlyimpossible because of the egos
of the people in the room andthese smaller credit unions and
(12:12):
the relationships to nailsomeone down to a date that
says, you know, I'm going toretire on this date kind of
thing.
And that means that the rest ofthe plan is a little bit softer
because if you don't have adate, there's a lot of ifs in
the other parts of the plan interms of when you would start
looking for someone or what kindof development work are you
(12:33):
going to do with that number twoperson who might be the
successor?
So the biggest thing is justscoping out.
I think if you're writing thatterm paper, the first thing you
have to do is just sort of sitdown with the other folks who
are in decision-making positionson the board and just think
about what might this look likebefore you start trying to
(12:55):
articulate it on a piece ofpaper.
And if you can come to anagreement on what this might
look like, the writing it out, Idon't think is necessarily going
to take that long.
The hard part is, getting aroundsome of the personality and ego
issues that can come up in thesescenarios about the timeline and
(13:15):
the plan.
SPEAKER_02 (13:16):
Now, who's responsible for preparing this
document?
SPEAKER_01 (13:22):
Ultimately, management should be
responsible, but the rule alsohas provisions that say the
board has to be involved andthey have to understand what the
plan is.
So I think we're gonna see atsome credit unions where the
board is taking the lead onthis.
In fact, we already are seeingwhere the board is taking the
lead on the conversation.
There are other credit unionswhere management's gonna put
(13:44):
most of this together and theboard might only deal with the
CEO.
I think this is more prevalentat larger credit unions.
The board has to be involvedwith the CEO transition or
succession plan, but for otherpositions, VP level types, The
board has to understand what'sgoing on, but they don't
necessarily have to do it.
It's going to be mostly themanagement folks who are putting
(14:06):
it together is my anticipation.
SPEAKER_02 (14:08):
Oh, I read that document.
My memory's right.
NCUA said a new board member hasto be conversing with the
succession plan within sixmonths of appointment.
SPEAKER_01 (14:18):
Yes, and that's the expectation that the board's
going to understand.
Now, that new board member maynot have anything to do with
actually putting the plantogether, but they do have to
understand that what it is.
And I think theoretically, atleast, they have to be able to
evaluate whether it's adequateor whether it's weak.
(14:39):
And if it's weak, they have aresponsibility to say something.
So it does put responsibility onthe board to understand what the
plan is.
And if it seems like it's goingto be a viable, workable plan
that's adequate for the creditunion's needs.
SPEAKER_02 (14:55):
Now, in a Big credit union, a lot of succession
planning involves interlockingpieces.
So let's switch into the Fortune500 world.
In many cases, who's thesuccessor to the CEO?
It's the CFO.
I mean, that's what you'd say inthe succession plan most of the
time.
Who's the successor to the CFO?
(15:17):
It's his number one, is thesuccessor to that guy.
And Wall Street's heard the CFObefore.
They're comfortable when he'snamed as the CEO most of the
time.
And if they're not going to becomfortable, they've already
communicated they're not goingto be comfortable.
So he's never named CEO.
But things aren't that clear-cutin the credit union world.
(15:37):
In many institutions, the CFOdoesn't have a person who's
necessarily capable ofsucceeding him or her.
They're just a different levelof talent.
That's all.
It's not putting anybody down.
SPEAKER_01 (15:50):
Part of the reason for this rule, based on what the
NCUA put in the introductorycommentary, is thinking about
these kind of things.
If that number two person whoneeds to be part of the plan
isn't really there yet or theirskills aren't there, part of the
plan should be to develop thatperson's skills if you believe
(16:11):
that person is the person.
If you don't think that personcan get there because they're
just not of that talent, they'renot cut out for being the CFO,
Then you have to think about,well, what's my plan to find
somebody from the outside?
That is all part of what thisrule is about.
So I think, especially at largercredit unions where they have
enough resources to think aboutthe different roles, they're
(16:35):
going to have to think about, dowe have internal candidates?
If we do have internalcandidates, but we have some
reservations, is it something wecan do to develop those people
to...
alleviate those reservations bydeveloping their skill set or
getting them involved in otherthings?
Or do we have to look outside?
If you're doing it right, ifyou're doing it in a way where
(16:56):
you want it to be meaningful forthe credit union, these kind of
discussions are going to come upand really you should try to
deal with them as effectively asyou can.
SPEAKER_02 (17:07):
What happens if the NCOA examiner comes in And
eventually ask, so let me seethe succession plan.
I say, I don't have one.
Didn't get around to that.
What happens?
SPEAKER_01 (17:19):
The first thing that will happen, it'll be written up
in your exam like any other.
I think it would come out moreor less like any other thing
where if you're supposed to havea policy about something and you
can't produce a policy aboutthat thing, you're going to get
written up for not having apolicy.
So I think that's probably thefirst thing that happens.
This gets into a question.
And this is actually, I saidearlier, there's three main
(17:41):
responses to this.
We talked about two of them, theidea that you might just have
your plan B to merge and theidea that you have it totally
under control.
The third one that comes up iswe're not going to worry about
this because we just think theNCUA is not going to enforce it.
Now, I don't personally believethat's the best way to go with
this, like we talked at thebeginning.
(18:03):
But I think if you're in thatsituation, you're going to get
written up in your exam.
Now, what level of severity theexaminers write you up on this?
is yet to be seen.
I certainly can't speak for theNCUA in terms of what they're
going to do with this.
There is precedent for saying inthe first year that a rule is
effective.
They're a little bit, I'll say,softer on advising rather than
(18:24):
just beating you up aboutthings.
But I think it's going to bewritten up in your exam.
SPEAKER_02 (18:29):
Well, even if it's written up, then what?
What penalty is imposed on me?
SPEAKER_01 (18:34):
The rule doesn't have financial penalties.
What it could do is in yourCAMELS rating, it could
reduce...
the management rating from whatit would have otherwise been.
So they do have the ability todowngrade you on your CAMELS.
Now, what that meansspecifically, because CAMELS
ratings are pretty securely heldclose to the vest, I don't know
(18:57):
that that has practical costother than you're going to have
to answer to it again at yournext exam when they come back
and see how you follow up
SPEAKER_02 (19:05):
on that.
But it's not like I'm going tohave to pay more money for my
overnight loans.
my interest rate is not going togo up.
There's no tangible club beingswung at me.
SPEAKER_01 (19:18):
That is correct.
The rule does not have financialpenalties in there.
Now, obviously, if your CAMELrating gets lowered, the NCUA
can respond to that in differentways, following up more often
with you instead of going on an18-month cycle.
There's other things they can dothat would inflict a little bit
(19:38):
of pain, sort of around theedges, but a direct financial
cost is not laid out in therule.
SPEAKER_02 (19:44):
My guess from what you're saying is quite a few
credit unions will be, let'ssay, less than 100% on board
with putting together a planthis year.
I
SPEAKER_01 (19:57):
think we're going to see slow adoption for a couple
of reasons.
One is that, like you said, thehammer is not there.
So a lot of credit unions,especially on the smaller side,
if they're already sort ofstretched thin in terms of
resources, this is not going tobe priority number one this
year.
And also, I think if there's nofear of enforcement or the fear
(20:20):
of enforcement is relativelymuted, yes, I agree.
A lot of credit unions wouldrather not deal with this.
And the smaller credit unionswhere they're going to struggle
with this have more of an impactin terms of the personalities
and egos of the individualsOften there are people who've
been in those positions for longperiods of time.
They're used to sort of a levelof respect, I guess, and that
(20:44):
will be challenged by this.
If you're telling that person,yes, we totally respect you, but
we do need you to tell us whenyou're going to retire.
And that's not the kind ofquestion they want to answer.
This can become a challengingthing in terms of the
interpersonal relationships andthose smaller credit unions.
Putting this off is going to beawful tempting because the pain
(21:04):
is of dealing with thoseinterpersonal relationships
often might be perceived asgreater than the pain of telling
the examiners that you didn't doanything.
SPEAKER_02 (21:15):
Yeah, as you say that, you remind me.
15 or 20 years ago, the NCUAimposed a requirement on board
members that they have to pass afinancial literacy test.
And small credit unions, thatcaused a firestorm, man.
There were people who quit.
There was so much anger aboutthat.
Personally, I thought, well,it's passing like a ninth grade
(21:39):
class in finance.
It's not really that hard, butapparently it was viewed as an
imposition and an insult by manyboard members in small credit
unions.
SPEAKER_01 (21:50):
Yes, and that kind of thing is still a thing.
So how that plays out with thisrule, I'm not exactly sure.
It's still early days here.
But I think those kind of thingsare going to pop up with this
rule.
especially with smaller creditunions.
SPEAKER_02 (22:06):
Now, go back to the Fortune 500 land.
Job one of the board, the singlemost important job of that board
is the CEO.
Hiring the CEO, monitoring theCEO's performance, firing the
CEO if necessary, andsuccession.
(22:26):
I mean, that's really job oneand job two and job three for
board of directors.
I agree.
Is that true in credit unionland?
SPEAKER_01 (22:34):
Not in the same kind of way.
You don't have the publicscrutiny because things like the
CEO's compensation is notpublicly disclosed, typically,
like it is in a public company.
There are some exceptions tothat, like in a merger
situation.
Sometimes you have to disclosecompensation information about
senior management.
(22:54):
But typically, because there'snot as much public scrutiny, the
board member's often think ofthemselves as representatives of
the members, which they are, butthe prioritization is
understanding the memberexperience usually more than
adjudicating or administratingCEO compensation questions or
(23:19):
CEO evaluation questions.
They do that.
The board does those things, butit's often, and I'm speaking in
generalities here, it's oftenmore about what has that CEO's
effect been on the memberexperience, as well as the
financial performance and thestrength of the credit union?
SPEAKER_02 (23:40):
Now, the credit union board get involved in
other senior positions at thecredit union, which would be a
little unusual in a Fortune 100company.
I mean, the CEO would say, whatthe hell are you doing?
I decide who's the CIO.
You don't.
Go away.
SPEAKER_01 (23:59):
Yeah, we've actually had conversations just in the
last couple of months since thisrule came out about that very
question in terms of boardmembers asking, do they have to
understand the compensationpackages and performance
evaluations of all the people onthis list or just the CEO, which
(24:19):
is the more traditional way thata board would look at things?
I think some boards are thinkingabout this differently.
They may be expanding themeaning of the rule beyond
what's actually written there.
Because it doesn't talk aboutthe board understanding the
performance appraisal andcompensation of all those
people.
It just talks about the boardunderstanding the plan for
(24:42):
succession of those roles ifthere is turnover in those roles
or when there is turnover inthose roles.
So you don't necessarily have tounderstand the compensation, but
where this gets sort of fuzzy isthat a lot of times A succession
plan will include some sort ofdeferred compensation
arrangement, whether that's arelatively simple one or whether
(25:06):
it's something more complicatedlike a split dollar plan or
something like that.
And the board typically is goingto approve those kind of plans
for all the senior managementbecause it involves an
allocation of capital andthere's some risk associated
with some of these thingsdepending on what they're
invested in.
So now you have the boardlooking at part of the person's
compensation or at least thedeferred part of their
(25:27):
compensation because it doesrelate to the succession plan
when the board doesn't reallyknow the base compensation of
that person on a year-to-yearbasis.
So some of those questions arebeing asked and I hesitate to
say how this is going to playout because I think at some
credit unions, the board isgoing to get more involved in
that information and thatprocess.
In other credit unions, I thinkthey're going to maintain more
(25:49):
of a traditional, really justfocused on the CEO and letting
the CEO handle all the otherpositions.
SPEAKER_02 (25:56):
So, I mean, yeah, this opens a can of worms.
It's not just a succession plan.
Also, it's power dynamics insidea credit union.
SPEAKER_01 (26:05):
Absolutely, and that's why I talk about the
personalities and the egos.
I mean, I think we've all seencredit unions where there's a
personality, whether that's theboard chair or the CEO or
somebody else in the mix who hasan outsized presence in the
discussion and in thedecision-making and often sort
(26:27):
of drives the conversation,that's going to be hard to cut
through if that is the personwho we need to have a succession
plan for.
And how do you fully replacethat role?
Or do you want to, I guess?
SPEAKER_02 (26:44):
Well, there are also some...
I don't know if you've dealtwith any of them.
I'm sure you're aware of theirexistence.
Very small, typicallyfaith-based credit unions where
it's one person who's doingeverything.
And who knows what that person'smany titles are.
It might just be one title, butthey're doing literally
everything.
SPEAKER_01 (27:05):
Yeah, we've seen, I have a credit union that's doing
a merger right now.
And the credit union that'sbeing merged in is a small, it's
literally$8 million creditunion.
very small they have one and ahalf employees and the one
full-time person is doingliterally everything that they
do you know that person isinvolved in everything so that
(27:27):
presents a challenge when thatperson has a personality that
isn't necessarily inclined toplay along or to communicate
their intentions related toretirement and other things And
in this case, that credit unionis merging out of existence
because that person is retiringand they never set a plan before
that retirement event happened.
(27:47):
And so then now they're mergingout of existence.
So that's pretty much exactlywhat the NCOA is trying to avoid
with this rule.
SPEAKER_02 (27:54):
Well, the converse of that is that quite a few
mergers, and I've done a lot ofresearch about mergers, quite a
few fall apart before they'reconsummated because board
members resist them.
SPEAKER_01 (28:07):
Absolutely.
The ego element to me, and I'man accountant and an auditor,
but when I think about risk andI talk to credit unions who are
trying to do collaborativearrangements with other
institutions or they're tryingto get into a merger discussion
with somebody, the ego elementis the biggest risk, in my
(28:28):
opinion.
I think for mergersspecifically, but I think also
for things like successionplanning in terms of When you
get board members who have avery strong idea about what
should be happening, and thenthe reality is playing out a
little differently, it can causesome tension and there can be
(28:48):
some static that can sort ofreduce the progress that you're
making on whatever it is you'retrying to do.
SPEAKER_02 (28:54):
I know a couple of cases, and you probably know
some too, where a person,everybody thought this person
was going to retire at 65.
And he pretty much agreed thatthat was true 10 years earlier.
65 comes in, ah, you know, I'mfeeling good health.
It's 70.
70 is the new 65.
(29:16):
Now, everybody else in theinstitution has been assuming
that this was it.
He was going to leave that year.
SPEAKER_01 (29:22):
There's situations where the successor has already
been identified and everyoneknows that that person is going
to ascend to the CEO role.
But now they're being told theyhave to wait five more years.
That is literally just blowingup the whole plan because is
that person going to sit therefor five more years?
Sometimes they're not going tobe willing to do that.
So they're going to jump shipand go somewhere else.
(29:44):
That is definitely a thing.
And it's definitely a challengebecause in some cases it would
be better in that situation.
If the board just said, I'msorry, but you're done.
Like we all had this plan laidout.
We honor your, role here and werespect you but we have to like
(30:05):
stick with the plan that we havebecause that's what we've all
agreed to and that is where theego thing comes in and causes
problems because if nobody onthe board has the gumption to
have that conversation with thatperson things can kind of fall
apart and now you have to startall over because the plan that
you had set up is no longervalid
SPEAKER_02 (30:27):
well yeah I'm thinking of another guy who
retired at 65.
He didn't really want to retireat 65, but he did.
But then he actually, for atleast five years thereafter, he
did fill in temporary CEO jobsat small credit unions.
Six months here, nine monthsthere.
(30:48):
And everybody accepted itbecause he didn't want the job
permanent.
He was just holding down thefort while the board's job was
to get a new CEO.
So there aren't people willingto do that temporary sort of
gig.
And that should be figured intoat least some succession plans
as an option.
I don't know if NCUA would bepleased with that.
SPEAKER_01 (31:11):
You made a good point.
And I've actually talked to somefolks about this idea of an
interim person who would be thatsort of seat filler while you're
doing your search for thelong-term solution.
I think that's a valid path.
And I don't know, obviously,what the NCUA would think of
this.
But I think if you articulated aplan where you say, instead of
merging out of existence, we'regoing to find a recently retired
(31:34):
credit union executive who canbe our interim person, whether
it's six months or nine months,whatever.
And during that time, while thatperson is sort of keeping the
trains running here at thecredit union, we're going to
look for our next real leader.
And that's our plan.
I think that is a plan.
Is it the best plan for everycredit union?
(31:55):
Probably not.
But is it a plan that is legitand has a chance of success?
Yes, I think it is.
So that interim idea is valid,in my opinion.
SPEAKER_02 (32:06):
Is that a good plan for a Navy federal?
No, I don't think so.
But is that a good plan for a$200 million credit union?
Very well could be.
SPEAKER_01 (32:14):
I totally agree.
As long as you agree up frontwhat the terms and duration of
this arrangement is with thatperson and that they're not like
a temp to perm kind of thing,then yes, that can be.
And speaking of that, I think ifyou want to change gears, you
could be that person for somecredit union someplace.
Don't you think?
SPEAKER_02 (32:35):
No.
No?
My patience isn't that good.
Now, our credit unions, thiswill be my last question, our
credit unions being like highschool kids saying, oh, that
term paper is not due untilDecember.
So I think I'll get around todoing some research.
Don't you worry about that.
(32:56):
But right now it's a littleearly.
Is that what you'reencountering?
SPEAKER_01 (33:00):
There's definitely some of that.
I mean, the first excuse,because this rule came out in
December.
So a lot of credit unions werelike, okay, I'll deal with that
after I do my year-end close andall my year-end stuff.
And now that year-end closes areunder control, the call reports
are in for 1231, all that stuff.
Some of them are circling backand a lot of them now are
saying, well, yeah, I know I gotto do this, but I kind of want
(33:22):
to wait and see what othercredit unions do first.
But no one's going
SPEAKER_02 (33:25):
to show you their succession plan, I don't think,
unless you have a really greatbuddy at another institution.
SPEAKER_01 (33:33):
Right, exactly.
It expressly says you do nothave to share this with anyone.
That idea of sharing it, though,it has come up multiple times in
the context of like a mergerdiscussion.
If you're in those really earlystages of discussion, might the
other credit union ask you foryour succession plan since they
know you're supposed to haveone?
(33:53):
they could ask for it.
If you have this non-disclosureagreement of a merger due
diligence process, which youtypically would have in that
scenario, would you share thiswith somebody?
And I think the answer is itwould be hard not to because
everyone knows you're supposedto have one.
So you can't just tell them Idon't have one because you have
to have one.
Again, I don't think those aresupposed to be, well, I know
(34:16):
they're not supposed to bepublic information, but once
everyone knows you have one, Ifeel like People are going to
potentially ask for it.
You can always say no, but Ithink it's going to be a thing
that gets asked for sometimes.
SPEAKER_02 (34:29):
It's a good point you're making.
That's a new way to make amerger not happen.
SPEAKER_01 (34:35):
Well, I can even see it.
I can even see it when you'redoing your search and you're
looking at candidates.
I could envision a time when acandidate would ask, please show
me your succession plan becausethey want to understand, is
there a plan for the rest of theteam?
or what the board and the seniormanagement team is thinking
(34:55):
about succession before you eventake the job.
I could see candidates askingfor this as part of their
consideration of taking the job.
Whether that plays out again, Idon't know.
But it's the kind of thing thatto me, if I was applying for a
CEO job at a credit union, Iwould be interested in how the
board's thinking.
Where's their mind at aroundleadership and succession
(35:17):
planning?
SPEAKER_02 (35:20):
Before we go, think hard about how you can help
support this podcast so we cando more interviews with more
thoughtful leaders in the creditunion world.
What we're trying to figure outhere in these podcasts is what's
next for credit unions.
What can they do to really,really, really make a difference
in the financial scene?
Can't all be mega banks, can it?
(35:42):
It's my hope it won't all bemega banks.
It'll always be a place forcredit unions.
That's what we're discussinghere.
So figure out how you can help.
Get in touch with me.
This is rjmcgarvey at gmail.com.
Robert McGarvey again.
That's rjmcgarvey at gmail.com.
Get in touch.
We'll figure out a way that youcan help.
We need your support.
(36:03):
We want your support.
We thank you for your support.
The CU 2.0 Podcast.
Welcome to the CU2.0 podcast.
SPEAKER_00 (00:05):
Hi, and welcome to the CU2.0 podcast with big new
ideas about credit unions andconversations about innovative
technology with credit union andfintech leaders.
This podcast is brought to youby Quillo, the real-time loan
syndication network for creditunions, and by your host,
longtime credit union andfinancial technology journalist,
(00:27):
Robert McGarvey.
And now, the CU 2.0 podcast withRobert McGarvey.
SPEAKER_02 (00:33):
Are you ready to grapple with the new NCUA
requirement that every creditunion have an up-to-date
succession plan that covers bothsenior executives and board
members?
The good news, you're notrequired to have a written plan
until January 1, 2026.
The bad news, if you don't havea plan by then, or if your plan
falls far short of NCUA'sexpectations, the credit union
(00:56):
can be written up by anexaminer.
On the show is Jeff Paley,partner in the Monadio Group's
Assurance Division, who offers aprimer on what every credit
union needs to know about theNCUA requirement.
He also talks about what willhappen if you simply tell the
examiner, hey man, I forgot toget a plan together.
(01:16):
Incidentally, although the NCUAexplicitly flagged mergers
triggered by a lack of asuccession plan as a prompt for
this new requirement, Paley saysthat a common succession plan
among many credit unions is infact merger.
Go figure.
Listen up.
The NCUA succession rule, whichtakes effect, I believe January
(01:40):
1st, 2026.
So a little bit over a year fromnow.
And, uh, As you're probablyfollowing, it's very possible
there'll be significant staffreductions at NCUA.
Unless you have a burning desireto discuss that, I'd rather just
let that lie since it's all upin the air, really.
And I see no reason to thinkthey're not going to go forward
(02:03):
with the succession planning.
SPEAKER_01 (02:05):
Yeah, I mean, the staffing level at the NCUA and
other federal entities is verymuch in question.
Obviously, there's beenreductions in some places,
but...
I am not in the business oftrying to predict how that's all
going to play out.
So from what I know, thissuccession rule is on the books.
It's a rule, and it's effective1-1-26.
(02:26):
Unless something officiallychanges that, then I think we're
talking about it as though it'sa rule that people have to think
about.
SPEAKER_02 (02:32):
Yeah, that's the only rational way to proceed
right now.
We're in an irrational world, solet's be rational about little
things.
Now, I was looking through thetemplate for small credit units.
I'm picturing a small creditunion, say 100 million in asset.
And I'm picturing the boardchairman pulling his or her hair
(02:54):
out.
I have to make a succession planfor 20 positions.
This is crazy.
I can't even count to 20.
SPEAKER_01 (03:07):
Well, and a lot of times the credit union doesn't
even, these smaller creditunions don't even have 20
people.
Exactly.
SPEAKER_02 (03:13):
I
SPEAKER_01 (03:13):
talked
SPEAKER_02 (03:13):
to many that have, four paid staff people.
SPEAKER_01 (03:18):
Well, you have an individual person who's wearing
a lot of hats.
So most of those roles exist insome form within even a small
credit union, most of them.
But you have the same personwho's doing six or seven of
those or more even sometimes.
So, I mean, our conversationsthat we're having so far with
(03:40):
those smaller credit unions likethat are saying, identify that
person and you don't have to doa full update of that person's
job description, but you can atleast describe in writing the
different roles that they playin the context of those 20 plus
positions that are named there.
You obviously don't need asuccession plan for 20 different
(04:01):
people if you only have four,but you may have a different in
the plan if that person'swearing six or eight hats, maybe
there's a plan for four or fiveof those hats that's one plan
and a plan for three of theother roles that's different.
That's possible.
So entertaining the possibilityof your plan being perhaps not
as clear cut or as traditionalas what the NCUA is laying out
(04:23):
in that template, I think has tobe entertained.
SPEAKER_02 (04:26):
Now, in your conversations with credit
unions, what's the level ofanxiety?
Is there a difference betweensmall credit unions and big
credit unions?
I imagine maybe federal hassuccession plans up the wazoo
already in file cabinets.
I'm just guessing here.
I haven't talked with Navy, butthey're military trained.
(04:46):
There's a succession plan theresomeplace.
SPEAKER_01 (04:49):
Yeah, I would guess you're right.
I don't have a relationship withthe leadership at Navy
personally, myself either.
However, we have definitelynoticed that larger credit
unions have a different kind ofreaction to this.
There's really three reactionsthat come out when we ask credit
unions how they're doing.
One is typically from largercredit unions, but also from
other credit unions where we askthem, like, what's your plan for
(05:11):
this?
And they say, oh, We are totallyunder control.
We have our plan in place.
Everything's great.
We're done.
Before the rule even came out,we had it totally covered.
It's interesting, though, evenwith larger credit unions, if I
ask a follow-up question, can Isee the plan?
Sometimes there's a little bitof silence there for a minute,
(05:35):
and they have to think aboutthat for a minute.
And often it comes down to theidea that they don't really have
a plan written down anywhere.
They just have a plan thatthey've kind of come to
understand in a less formal way.
And in those cases, we're stilltalking to them about doing a
little work to just articulatethis in writing.
Because if an NCUA examiner asksyou for something and you say,
(05:58):
oh, yeah, we have that.
And they say, oh, can I see it?
And you say, oh, well, we don'thave anything in writing.
That's usually not.
going to go very well for you.
You're going to get written upon that.
So yes, I think to yourquestion, larger credit unions
generally are in better shape onthis, but there still is work to
do from what we're seeing toarticulate it in writing in a
(06:18):
way that will be responsive tothis new rule.
SPEAKER_02 (06:22):
Why is this rule, why was it promulgated?
Why does it exist?
SPEAKER_01 (06:28):
Yeah, the NCUA gave two reasons in the sort of
introductory materials to therule.
The first one was that there'sjust more baby boomers retiring.
Now, I don't think that's newexactly, but they cited that as
a reason for this rule.
The other reason, which is themore interesting one to me, is
that they see that a lack of asuccession plan is a factor in
(06:52):
credit union mergers oftenenough that they wanna address
this succession planningexposure, the risk here in the
hopes that they can perhapsreduce the number of credit
union mergers where this is oneof the causes.
So that's an interestingintroductory comment from the
NCUA to say, we think that alack of succession planning is
(07:15):
part of the reason there's somany credit union mergers.
And so we want credit unions toplan for this so we can avoid
mergers.
SPEAKER_02 (07:23):
I have no doubt that succession issues motivate a lot
of mergers of credit unions.
SPEAKER_01 (07:29):
Oh, they absolutely do.
And that That gets into, like Isaid, there's three responses
that we're getting from creditunions when we talk about this.
The first one I talked about isthat we have it totally under
control.
One of the other ones is that,yeah, we have a succession plan.
And this is mostly from smallercredit unions.
And they'll say, yeah, we have asuccession plan.
It's that we're going to merge.
(07:51):
That's our plan.
Now, when the NCUA says we'reestablishing this rule to avoid
mergers...
I don't think going to theexaminer and saying, yeah, we
have a plan, we're going tomerge, is really in the spirit
of what they're looking for.
I don't speak for the NCUA, ofcourse, but I think if that's
the plan, and we know there arecredit unions where that is the
(08:12):
plan, that may need someadditional thinking, because I
don't think the NCUA is lookingfor that as part of your plan
with this rule.
SPEAKER_02 (08:21):
Yeah, I agree.
I'm thinking as you talk, Iremember a guy who was pretty
well CEO of a small creditunion, maybe 150 million in
assets.
And when he retired, at thenormal retirement age, nothing
sudden, that credit union mergedout of existence because they
(08:42):
couldn't find anyone who wouldtake the damn job at the salary
they were paying this guy who'dbeen in that job for like 30
years.
And he was getting paid bupkis.
And on Saturdays, if the tellerwas sick, he went to the teller
line.
He emptied the trash cans if theguy or the janitor was sick.
He did everything.
And they're talking with peopleand you pay me$75,000 and I got
(09:04):
to do the trash
SPEAKER_01 (09:06):
cans.
No, no, no.
Well, yeah.
And we actually have a lot ofthese folks who say their plan
is to merge.
They're not just doing thatbecause they're lazy and they
don't want to establish asuccession plan.
They have a thought out processwhere they say, look, we do not
believe we can hire for thisposition because it's not a very
(09:28):
glamorous position.
And the people who would bequalified to run this small
credit union typically are alsoqualified to be some sort of
like a VP level person at alarger institution.
And at that larger institution,there's going to be a better pay
scale.
There's going to be betterresources.
There's going to beopportunities for advancement.
(09:50):
As a small credit union, theyjust can't compete with all
that.
So the chances of successfullyrecruiting a successor is really
low.
Sometimes you might have aninternal candidate who would be
willing to step up to that job.
But to do a national search andhire for that position when
there's, frankly, easier ormaybe more palatable positions
(10:13):
at larger institutions is reallya challenge.
And some credit unions have justdecided it's not something they
can do.
And so they're just going tomerge.
SPEAKER_02 (10:22):
I also know at least two guys who were CEOs of small
credit unions who quit to takeVP jobs at much larger credit
unions.
Oh, so there you go.
I think they were paid moremoney, too.
But they were also looking forfurther advancement in the large
credit union universe.
Exactly.
Becoming CEO of big creditunions.
(10:43):
And somehow it dawned on themthat being CEO of a little
credit union didn't position youto be CEO of a really big credit
union.
SPEAKER_01 (10:51):
Right.
So it takes a special person towant the job of, let's say, a$40
or$50 million credit union whereyou only have a staff of four or
five people or 10 people or asmall number of people and
you're wearing a lot of hats.
That's not the most appealingjob in the marketplace right
now.
And so it's really hard torecruit for.
SPEAKER_02 (11:09):
So I'm a client of yours.
I want to talk about this.
And one of my first questionswould be, imagine I'm a small
credit union.
How long is it going to take meto come up with this plan?
I'm a kid writing a term paper.
How long should I put intowriting this term paper?
SPEAKER_01 (11:26):
Well, I think that to do it right, I think you have
to have a discussion at theboard level with the CEO or the
chief executive and maybe someother folks in the leadership
team to just...
talk about people's intentionsbecause some of the, some of the
sticky points here are thatthey, they kind of want you to
have a date, a timeline for eachof these positions.
(11:49):
They don't mandate that you havea specific date of when the
position is going to turn over,but they do have a lot of words
in there that talk about how theplan is going to be a lot more
meaningful if you do have atimeline.
So a lot of times it's, nearlyimpossible because of the egos
of the people in the room andthese smaller credit unions and
(12:12):
the relationships to nailsomeone down to a date that
says, you know, I'm going toretire on this date kind of
thing.
And that means that the rest ofthe plan is a little bit softer
because if you don't have adate, there's a lot of ifs in
the other parts of the plan interms of when you would start
looking for someone or what kindof development work are you
(12:33):
going to do with that number twoperson who might be the
successor?
So the biggest thing is justscoping out.
I think if you're writing thatterm paper, the first thing you
have to do is just sort of sitdown with the other folks who
are in decision-making positionson the board and just think
about what might this look likebefore you start trying to
(12:55):
articulate it on a piece ofpaper.
And if you can come to anagreement on what this might
look like, the writing it out, Idon't think is necessarily going
to take that long.
The hard part is, getting aroundsome of the personality and ego
issues that can come up in thesescenarios about the timeline and
(13:15):
the plan.
SPEAKER_02 (13:16):
Now, who's responsible for preparing this
document?
SPEAKER_01 (13:22):
Ultimately, management should be
responsible, but the rule alsohas provisions that say the
board has to be involved andthey have to understand what the
plan is.
So I think we're gonna see atsome credit unions where the
board is taking the lead onthis.
In fact, we already are seeingwhere the board is taking the
lead on the conversation.
There are other credit unionswhere management's gonna put
(13:44):
most of this together and theboard might only deal with the
CEO.
I think this is more prevalentat larger credit unions.
The board has to be involvedwith the CEO transition or
succession plan, but for otherpositions, VP level types, The
board has to understand what'sgoing on, but they don't
necessarily have to do it.
It's going to be mostly themanagement folks who are putting
(14:06):
it together is my anticipation.
SPEAKER_02 (14:08):
Oh, I read that document.
My memory's right.
NCUA said a new board member hasto be conversing with the
succession plan within sixmonths of appointment.
SPEAKER_01 (14:18):
Yes, and that's the expectation that the board's
going to understand.
Now, that new board member maynot have anything to do with
actually putting the plantogether, but they do have to
understand that what it is.
And I think theoretically, atleast, they have to be able to
evaluate whether it's adequateor whether it's weak.
(14:39):
And if it's weak, they have aresponsibility to say something.
So it does put responsibility onthe board to understand what the
plan is.
And if it seems like it's goingto be a viable, workable plan
that's adequate for the creditunion's needs.
SPEAKER_02 (14:55):
Now, in a Big credit union, a lot of succession
planning involves interlockingpieces.
So let's switch into the Fortune500 world.
In many cases, who's thesuccessor to the CEO?
It's the CFO.
I mean, that's what you'd say inthe succession plan most of the
time.
Who's the successor to the CFO?
(15:17):
It's his number one, is thesuccessor to that guy.
And Wall Street's heard the CFObefore.
They're comfortable when he'snamed as the CEO most of the
time.
And if they're not going to becomfortable, they've already
communicated they're not goingto be comfortable.
So he's never named CEO.
But things aren't that clear-cutin the credit union world.
(15:37):
In many institutions, the CFOdoesn't have a person who's
necessarily capable ofsucceeding him or her.
They're just a different levelof talent.
That's all.
It's not putting anybody down.
SPEAKER_01 (15:50):
Part of the reason for this rule, based on what the
NCUA put in the introductorycommentary, is thinking about
these kind of things.
If that number two person whoneeds to be part of the plan
isn't really there yet or theirskills aren't there, part of the
plan should be to develop thatperson's skills if you believe
(16:11):
that person is the person.
If you don't think that personcan get there because they're
just not of that talent, they'renot cut out for being the CFO,
Then you have to think about,well, what's my plan to find
somebody from the outside?
That is all part of what thisrule is about.
So I think, especially at largercredit unions where they have
enough resources to think aboutthe different roles, they're
(16:35):
going to have to think about, dowe have internal candidates?
If we do have internalcandidates, but we have some
reservations, is it something wecan do to develop those people
to...
alleviate those reservations bydeveloping their skill set or
getting them involved in otherthings?
Or do we have to look outside?
If you're doing it right, ifyou're doing it in a way where
(16:56):
you want it to be meaningful forthe credit union, these kind of
discussions are going to come upand really you should try to
deal with them as effectively asyou can.
SPEAKER_02 (17:07):
What happens if the NCOA examiner comes in And
eventually ask, so let me seethe succession plan.
I say, I don't have one.
Didn't get around to that.
What happens?
SPEAKER_01 (17:19):
The first thing that will happen, it'll be written up
in your exam like any other.
I think it would come out moreor less like any other thing
where if you're supposed to havea policy about something and you
can't produce a policy aboutthat thing, you're going to get
written up for not having apolicy.
So I think that's probably thefirst thing that happens.
This gets into a question.
And this is actually, I saidearlier, there's three main
(17:41):
responses to this.
We talked about two of them, theidea that you might just have
your plan B to merge and theidea that you have it totally
under control.
The third one that comes up iswe're not going to worry about
this because we just think theNCUA is not going to enforce it.
Now, I don't personally believethat's the best way to go with
this, like we talked at thebeginning.
(18:03):
But I think if you're in thatsituation, you're going to get
written up in your exam.
Now, what level of severity theexaminers write you up on this?
is yet to be seen.
I certainly can't speak for theNCUA in terms of what they're
going to do with this.
There is precedent for saying inthe first year that a rule is
effective.
They're a little bit, I'll say,softer on advising rather than
(18:24):
just beating you up aboutthings.
But I think it's going to bewritten up in your exam.
SPEAKER_02 (18:29):
Well, even if it's written up, then what?
What penalty is imposed on me?
SPEAKER_01 (18:34):
The rule doesn't have financial penalties.
What it could do is in yourCAMELS rating, it could
reduce...
the management rating from whatit would have otherwise been.
So they do have the ability todowngrade you on your CAMELS.
Now, what that meansspecifically, because CAMELS
ratings are pretty securely heldclose to the vest, I don't know
(18:57):
that that has practical costother than you're going to have
to answer to it again at yournext exam when they come back
and see how you follow up
SPEAKER_02 (19:05):
on that.
But it's not like I'm going tohave to pay more money for my
overnight loans.
my interest rate is not going togo up.
There's no tangible club beingswung at me.
SPEAKER_01 (19:18):
That is correct.
The rule does not have financialpenalties in there.
Now, obviously, if your CAMELrating gets lowered, the NCUA
can respond to that in differentways, following up more often
with you instead of going on an18-month cycle.
There's other things they can dothat would inflict a little bit
(19:38):
of pain, sort of around theedges, but a direct financial
cost is not laid out in therule.
SPEAKER_02 (19:44):
My guess from what you're saying is quite a few
credit unions will be, let'ssay, less than 100% on board
with putting together a planthis year.
I
SPEAKER_01 (19:57):
think we're going to see slow adoption for a couple
of reasons.
One is that, like you said, thehammer is not there.
So a lot of credit unions,especially on the smaller side,
if they're already sort ofstretched thin in terms of
resources, this is not going tobe priority number one this
year.
And also, I think if there's nofear of enforcement or the fear
(20:20):
of enforcement is relativelymuted, yes, I agree.
A lot of credit unions wouldrather not deal with this.
And the smaller credit unionswhere they're going to struggle
with this have more of an impactin terms of the personalities
and egos of the individualsOften there are people who've
been in those positions for longperiods of time.
They're used to sort of a levelof respect, I guess, and that
(20:44):
will be challenged by this.
If you're telling that person,yes, we totally respect you, but
we do need you to tell us whenyou're going to retire.
And that's not the kind ofquestion they want to answer.
This can become a challengingthing in terms of the
interpersonal relationships andthose smaller credit unions.
Putting this off is going to beawful tempting because the pain
(21:04):
is of dealing with thoseinterpersonal relationships
often might be perceived asgreater than the pain of telling
the examiners that you didn't doanything.
SPEAKER_02 (21:15):
Yeah, as you say that, you remind me.
15 or 20 years ago, the NCUAimposed a requirement on board
members that they have to pass afinancial literacy test.
And small credit unions, thatcaused a firestorm, man.
There were people who quit.
There was so much anger aboutthat.
Personally, I thought, well,it's passing like a ninth grade
(21:39):
class in finance.
It's not really that hard, butapparently it was viewed as an
imposition and an insult by manyboard members in small credit
unions.
SPEAKER_01 (21:50):
Yes, and that kind of thing is still a thing.
So how that plays out with thisrule, I'm not exactly sure.
It's still early days here.
But I think those kind of thingsare going to pop up with this
rule.
especially with smaller creditunions.
SPEAKER_02 (22:06):
Now, go back to the Fortune 500 land.
Job one of the board, the singlemost important job of that board
is the CEO.
Hiring the CEO, monitoring theCEO's performance, firing the
CEO if necessary, andsuccession.
(22:26):
I mean, that's really job oneand job two and job three for
board of directors.
I agree.
Is that true in credit unionland?
SPEAKER_01 (22:34):
Not in the same kind of way.
You don't have the publicscrutiny because things like the
CEO's compensation is notpublicly disclosed, typically,
like it is in a public company.
There are some exceptions tothat, like in a merger
situation.
Sometimes you have to disclosecompensation information about
senior management.
(22:54):
But typically, because there'snot as much public scrutiny, the
board member's often think ofthemselves as representatives of
the members, which they are, butthe prioritization is
understanding the memberexperience usually more than
adjudicating or administratingCEO compensation questions or
(23:19):
CEO evaluation questions.
They do that.
The board does those things, butit's often, and I'm speaking in
generalities here, it's oftenmore about what has that CEO's
effect been on the memberexperience, as well as the
financial performance and thestrength of the credit union?
SPEAKER_02 (23:40):
Now, the credit union board get involved in
other senior positions at thecredit union, which would be a
little unusual in a Fortune 100company.
I mean, the CEO would say, whatthe hell are you doing?
I decide who's the CIO.
You don't.
Go away.
SPEAKER_01 (23:59):
Yeah, we've actually had conversations just in the
last couple of months since thisrule came out about that very
question in terms of boardmembers asking, do they have to
understand the compensationpackages and performance
evaluations of all the people onthis list or just the CEO, which
(24:19):
is the more traditional way thata board would look at things?
I think some boards are thinkingabout this differently.
They may be expanding themeaning of the rule beyond
what's actually written there.
Because it doesn't talk aboutthe board understanding the
performance appraisal andcompensation of all those
people.
It just talks about the boardunderstanding the plan for
(24:42):
succession of those roles ifthere is turnover in those roles
or when there is turnover inthose roles.
So you don't necessarily have tounderstand the compensation, but
where this gets sort of fuzzy isthat a lot of times A succession
plan will include some sort ofdeferred compensation
arrangement, whether that's arelatively simple one or whether
(25:06):
it's something more complicatedlike a split dollar plan or
something like that.
And the board typically is goingto approve those kind of plans
for all the senior managementbecause it involves an
allocation of capital andthere's some risk associated
with some of these thingsdepending on what they're
invested in.
So now you have the boardlooking at part of the person's
compensation or at least thedeferred part of their
(25:27):
compensation because it doesrelate to the succession plan
when the board doesn't reallyknow the base compensation of
that person on a year-to-yearbasis.
So some of those questions arebeing asked and I hesitate to
say how this is going to playout because I think at some
credit unions, the board isgoing to get more involved in
that information and thatprocess.
In other credit unions, I thinkthey're going to maintain more
(25:49):
of a traditional, really justfocused on the CEO and letting
the CEO handle all the otherpositions.
SPEAKER_02 (25:56):
So, I mean, yeah, this opens a can of worms.
It's not just a succession plan.
Also, it's power dynamics insidea credit union.
SPEAKER_01 (26:05):
Absolutely, and that's why I talk about the
personalities and the egos.
I mean, I think we've all seencredit unions where there's a
personality, whether that's theboard chair or the CEO or
somebody else in the mix who hasan outsized presence in the
discussion and in thedecision-making and often sort
(26:27):
of drives the conversation,that's going to be hard to cut
through if that is the personwho we need to have a succession
plan for.
And how do you fully replacethat role?
Or do you want to, I guess?
SPEAKER_02 (26:44):
Well, there are also some...
I don't know if you've dealtwith any of them.
I'm sure you're aware of theirexistence.
Very small, typicallyfaith-based credit unions where
it's one person who's doingeverything.
And who knows what that person'smany titles are.
It might just be one title, butthey're doing literally
everything.
SPEAKER_01 (27:05):
Yeah, we've seen, I have a credit union that's doing
a merger right now.
And the credit union that'sbeing merged in is a small, it's
literally$8 million creditunion.
very small they have one and ahalf employees and the one
full-time person is doingliterally everything that they
do you know that person isinvolved in everything so that
(27:27):
presents a challenge when thatperson has a personality that
isn't necessarily inclined toplay along or to communicate
their intentions related toretirement and other things And
in this case, that credit unionis merging out of existence
because that person is retiringand they never set a plan before
that retirement event happened.
(27:47):
And so then now they're mergingout of existence.
So that's pretty much exactlywhat the NCOA is trying to avoid
with this rule.
SPEAKER_02 (27:54):
Well, the converse of that is that quite a few
mergers, and I've done a lot ofresearch about mergers, quite a
few fall apart before they'reconsummated because board
members resist them.
SPEAKER_01 (28:07):
Absolutely.
The ego element to me, and I'man accountant and an auditor,
but when I think about risk andI talk to credit unions who are
trying to do collaborativearrangements with other
institutions or they're tryingto get into a merger discussion
with somebody, the ego elementis the biggest risk, in my
(28:28):
opinion.
I think for mergersspecifically, but I think also
for things like successionplanning in terms of When you
get board members who have avery strong idea about what
should be happening, and thenthe reality is playing out a
little differently, it can causesome tension and there can be
(28:48):
some static that can sort ofreduce the progress that you're
making on whatever it is you'retrying to do.
SPEAKER_02 (28:54):
I know a couple of cases, and you probably know
some too, where a person,everybody thought this person
was going to retire at 65.
And he pretty much agreed thatthat was true 10 years earlier.
65 comes in, ah, you know, I'mfeeling good health.
It's 70.
70 is the new 65.
(29:16):
Now, everybody else in theinstitution has been assuming
that this was it.
He was going to leave that year.
SPEAKER_01 (29:22):
There's situations where the successor has already
been identified and everyoneknows that that person is going
to ascend to the CEO role.
But now they're being told theyhave to wait five more years.
That is literally just blowingup the whole plan because is
that person going to sit therefor five more years?
Sometimes they're not going tobe willing to do that.
So they're going to jump shipand go somewhere else.
(29:44):
That is definitely a thing.
And it's definitely a challengebecause in some cases it would
be better in that situation.
If the board just said, I'msorry, but you're done.
Like we all had this plan laidout.
We honor your, role here and werespect you but we have to like
(30:05):
stick with the plan that we havebecause that's what we've all
agreed to and that is where theego thing comes in and causes
problems because if nobody onthe board has the gumption to
have that conversation with thatperson things can kind of fall
apart and now you have to startall over because the plan that
you had set up is no longervalid
SPEAKER_02 (30:27):
well yeah I'm thinking of another guy who
retired at 65.
He didn't really want to retireat 65, but he did.
But then he actually, for atleast five years thereafter, he
did fill in temporary CEO jobsat small credit unions.
Six months here, nine monthsthere.
(30:48):
And everybody accepted itbecause he didn't want the job
permanent.
He was just holding down thefort while the board's job was
to get a new CEO.
So there aren't people willingto do that temporary sort of
gig.
And that should be figured intoat least some succession plans
as an option.
I don't know if NCUA would bepleased with that.
SPEAKER_01 (31:11):
You made a good point.
And I've actually talked to somefolks about this idea of an
interim person who would be thatsort of seat filler while you're
doing your search for thelong-term solution.
I think that's a valid path.
And I don't know, obviously,what the NCUA would think of
this.
But I think if you articulated aplan where you say, instead of
merging out of existence, we'regoing to find a recently retired
(31:34):
credit union executive who canbe our interim person, whether
it's six months or nine months,whatever.
And during that time, while thatperson is sort of keeping the
trains running here at thecredit union, we're going to
look for our next real leader.
And that's our plan.
I think that is a plan.
Is it the best plan for everycredit union?
(31:55):
Probably not.
But is it a plan that is legitand has a chance of success?
Yes, I think it is.
So that interim idea is valid,in my opinion.
SPEAKER_02 (32:06):
Is that a good plan for a Navy federal?
No, I don't think so.
But is that a good plan for a$200 million credit union?
Very well could be.
SPEAKER_01 (32:14):
I totally agree.
As long as you agree up frontwhat the terms and duration of
this arrangement is with thatperson and that they're not like
a temp to perm kind of thing,then yes, that can be.
And speaking of that, I think ifyou want to change gears, you
could be that person for somecredit union someplace.
Don't you think?
SPEAKER_02 (32:35):
No.
No?
My patience isn't that good.
Now, our credit unions, thiswill be my last question, our
credit unions being like highschool kids saying, oh, that
term paper is not due untilDecember.
So I think I'll get around todoing some research.
Don't you worry about that.
(32:56):
But right now it's a littleearly.
Is that what you'reencountering?
SPEAKER_01 (33:00):
There's definitely some of that.
I mean, the first excuse,because this rule came out in
December.
So a lot of credit unions werelike, okay, I'll deal with that
after I do my year-end close andall my year-end stuff.
And now that year-end closes areunder control, the call reports
are in for 1231, all that stuff.
Some of them are circling backand a lot of them now are
saying, well, yeah, I know I gotto do this, but I kind of want
(33:22):
to wait and see what othercredit unions do first.
But no one's going
SPEAKER_02 (33:25):
to show you their succession plan, I don't think,
unless you have a really greatbuddy at another institution.
SPEAKER_01 (33:33):
Right, exactly.
It expressly says you do nothave to share this with anyone.
That idea of sharing it, though,it has come up multiple times in
the context of like a mergerdiscussion.
If you're in those really earlystages of discussion, might the
other credit union ask you foryour succession plan since they
know you're supposed to haveone?
(33:53):
they could ask for it.
If you have this non-disclosureagreement of a merger due
diligence process, which youtypically would have in that
scenario, would you share thiswith somebody?
And I think the answer is itwould be hard not to because
everyone knows you're supposedto have one.
So you can't just tell them Idon't have one because you have
to have one.
Again, I don't think those aresupposed to be, well, I know
(34:16):
they're not supposed to bepublic information, but once
everyone knows you have one, Ifeel like People are going to
potentially ask for it.
You can always say no, but Ithink it's going to be a thing
that gets asked for sometimes.
SPEAKER_02 (34:29):
It's a good point you're making.
That's a new way to make amerger not happen.
SPEAKER_01 (34:35):
Well, I can even see it.
I can even see it when you'redoing your search and you're
looking at candidates.
I could envision a time when acandidate would ask, please show
me your succession plan becausethey want to understand, is
there a plan for the rest of theteam?
or what the board and the seniormanagement team is thinking
(34:55):
about succession before you eventake the job.
I could see candidates askingfor this as part of their
consideration of taking the job.
Whether that plays out again, Idon't know.
But it's the kind of thing thatto me, if I was applying for a
CEO job at a credit union, Iwould be interested in how the
board's thinking.
Where's their mind at aroundleadership and succession
(35:17):
planning?
SPEAKER_02 (35:20):
Before we go, think hard about how you can help
support this podcast so we cando more interviews with more
thoughtful leaders in the creditunion world.
What we're trying to figure outhere in these podcasts is what's
next for credit unions.
What can they do to really,really, really make a difference
in the financial scene?
Can't all be mega banks, can it?
(35:42):
It's my hope it won't all bemega banks.
It'll always be a place forcredit unions.
That's what we're discussinghere.
So figure out how you can help.
Get in touch with me.
This is rjmcgarvey at gmail.com.
Robert McGarvey again.
That's rjmcgarvey at gmail.com.
Get in touch.
We'll figure out a way that youcan help.
We need your support.
(36:03):
We want your support.
We thank you for your support.
The CU 2.0 Podcast.
Popular Podcasts
Crime Junkie
Does hearing about a true crime case always leave you scouring the internet for the truth behind the story? Dive into your next mystery with Crime Junkie. Every Monday, join your host Ashley Flowers as she unravels all the details of infamous and underreported true crime cases with her best friend Brit Prawat. From cold cases to missing persons and heroes in our community who seek justice, Crime Junkie is your destination for theories and stories you won’t hear anywhere else. Whether you're a seasoned true crime enthusiast or new to the genre, you'll find yourself on the edge of your seat awaiting a new episode every Monday. If you can never get enough true crime... Congratulations, you’ve found your people. Follow to join a community of Crime Junkies! Crime Junkie is presented by audiochuck Media Company.
24/7 News: The Latest
The latest news in 4 minutes updated every hour, every day.
Stuff You Should Know
If you've ever wanted to know about champagne, satanism, the Stonewall Uprising, chaos theory, LSD, El Nino, true crime and Rosa Parks, then look no further. Josh and Chuck have you covered.