Board Succession Planning Doesn’t Have to Be Difficult

January 8, 2025

Regulatory bodies have become increasingly focused on succession planning, particularly in the financial industry. The runaway train of mergers and acquisitions is a major driver of the regulators’ concern, as a lack of strong leadership remains a leading cause of credit union and bank consolidations.

At least one of these bodies, the National Credit Union Administration (NCUA), has gone beyond the C-suite to also include board of directors in succession plan requirements. This has generated a collective nervousness among credit union leaders who know all too well the challenges of keeping a volunteer board fully staffed, let alone anticipating potential replacements. However, having a well-documented plan in place can minimize the potential impact of gaps created by a departing board member.

Whether or not the NCUA’s proposed rule is finalized, board succession planning is a best practice with great benefits. The potential for a new requirement gives credit union leaders a good reason to revisit (or develop) their plans and evaluate the effectiveness of their current processes and board of directors structure.

Although tactics for filling director seats with diverse, committed and effective leaders differ across the movement, a few simple, straightforward methods have emerged in recent years. What follows is a collection of three such practices, each of which can be easily implemented to support the soundness of credit union governance.

1. Align Board Terms with Strategic Objectives

It’s not uncommon for board members to have volunteered with the same credit union for decades. The historical perspective and tenured expertise of long-time board members can be an irreplaceable asset. At the same time, it can also set a credit union up for risks associated with ‘autopilot’ governance.

Particularly for cooperatives that are looking to disrupt the status quo and transform for the next generation of banking consumers, fresh perspectives on the board are just as valuable as institutional knowledge. As credit unions are reviewing their board succession strategy, they should consider whether current term limits are reflective of their plans for growth.

2. Think Expansively About Diversity

The ability of a diverse board of directors to overcome groupthink is widely recognized today. However, credit unions can get tripped up over the meaning of “diverse.” Beyond gender, age, race and socio-economic characteristics, diversity of industry expertise, skillsets and asset strata also can contribute to a board’s effectiveness in overseeing innovative, well-rounded strategies.

Highly effective board succession plans are explicit about the types of expertise they want involved in the cooperative’s governance. While ensuring the board is demographically representative of the credit union’s membership is a good start, credit unions should also articulate in their succession plans the kinds of knowledge they want to retain on the board.

For example, the digital revolution in banking has elevated the importance of technology and innovation expertise on credit union boards. Additionally, directors who hail from much larger credit unions can be tremendous assets for smaller cooperatives pursuing aggressive growth.

3. Lean on Technology for Accountability

When certain board seat(s) turnover, the board succession plan can get lost in the shuffle. This is especially true when boards lose the passionate architects of succession plans. Without that individual or group of individuals, even the basics—such as an annual review of the plan or nomination procedures—can become neglected.

Maintaining the succession plan in a centralized location, accessible to all board members, is one way to mitigate the risk of lost continuity and accountability. Many compliance-based platforms are built with exactly this kind of need in mind, providing features like task scheduling and assignment, visualization of to-do’s and project completions, matrices to track director responsibilities and knowledge areas, and even workflows and reports to manage corrective actions.

Governance is Too Important

No one would be blamed for feeling overwhelmed at the idea of mandated board succession plans. However, the spirit of the proposal is a good reminder that credit union governance is too important not to get the full attention of credit union leadership. The good news is board succession planning doesn’t have to be difficult. Instituting simple practices like those above, as well as others patterned after staff succession plans, effectively safeguards governance without adding unnecessary complexity or burdening staff with time-consuming processes.

Originally published in CUInsight on January 6, 2025.