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Not the Chosen One

May 2014 – Vol: 37 No. 5
by Diane Franklin

Managing execs not selected for an open CEO slot.

Hand holds a gold starThere’s a reasonable likelihood that your credit union—like many others—will be looking for a new CEO within the next decade. Who will get the job? The current COO, CFO or EVP? Someone from outside?

Regardless of who gets hired, several key executives may have thrown their hats into the ring. Only one could possibly be the successful candidate.

For those in-house candidates who vied for the open CEO slot but were ultimately unsuccessful, a decision looms. Will they continue in their present job or will they decide to look to be CEO elsewhere?

“It depends on the individual candidate and their situation,” says Charles Shanley, executive vice president of JMFA, a CUES Supplier member in Baytown, Texas.

“If someone’s getting close to retirement, they’re not very likely to leave,” Shanley says. “On the other hand, if that person is primed, ready, and their dream is to become a CEO, there’s often not much you can do to make them stay. Having a contract or SERP (supplemental executive retirement plan) in place can sometimes help.”

A factor that may influence the unsuccessful candidate’s decision to leave or stay is the perception of how fairly the CEO search was conducted. If the candidate feels he or she was unjustly passed over, there might be a stronger impetus to leave.

“You need to make it clear why the person chosen was the better candidate based upon the criteria for the job,” says William Stevenson, senior associate for the ProCon Group Ltd., Madison, Wis.

“From the very outset—before the hiring process even begins—it’s important for credit unions to define the expectations and credentials they are looking for in their CEO candidates,” he says.

Hiring an outside firm to conduct the search can bring a sense of impartiality to the process. JMFA, CUES’ strategic provider for recruitment services, conducts CEO searches with no preconceptions about who should get the job.

“We’re completely objective,” Shanley says. “The internal candidate goes through the same process as anybody else. They have the same number of interviews. They do the same projects. They do the videoconferencing and personality testing. They’re fully vetted throughout the process. It doesn’t matter to us if the person who ultimately gets the job is an internal or external candidate. We want what’s best for that institution.”

Even in the case of the best-conducted CEO searches, there are no guarantees that unsuccessful candidates will stay. Stevenson notes that a salary hike can be a way to retain a key executive who otherwise might be motivated to leave. “If you have a great VP of marketing you want to keep as your VP of marketing, perhaps a pay increase will convince him to stay.”

However, Stevenson cautions against compensating the individual in a way that creates internal inequities. “Its effect may well be short-lived and can provide inordinate leverage for the person favored with that treatment.”

For many individuals, the challenges of the job are just as important—or even more important—than monetary considerations. “You may want to consider giving this individual additional responsibilities to convince him to stay,” Stevenson suggests. “Perhaps even move him into another position to become more well-rounded and valuable to the organization.”

Assessing the Aftermath

The aftermath of a CEO search can be problematic for some organizations. Sometimes tensions arise when an internal candidate doesn’t get the job, and will now have to work closely with the new CEO.

“When the top internal candidate is not selected, you need to think about if that person is still a good fit for the organization as well as for the new CEO,” advises Richard “Buck” Rhyme, president of RR Consulting Group, Madison, Wis. “The new CEO’s perspective is an important part of the equation.”

Rhyme acknowledges that the dynamics of the situation become even more complex if the new CEO is selected from among several internal candidates who vied for the job.

“If I compete against someone who is basically my peer and he gets the job and I don’t, that’s going to be more difficult to accept vs. a situation where the credit union hired someone from the outside with previous CEO experience.”

In either circumstance, the unsuccessful CEO candidates may need to do some soul-searching after the selection process is over. “If they don’t get the job, they’re likely to come out of the process with a sense of failure. They put themselves out there, so very likely they’ll be extremely disappointed,” Rhyme says. “The individual needs to have a candid conversation with him- or herself: ‘What are my options here? Can I continue to be effective at this credit union? Can I work with the new CEO?’”

The newly installed CEO, along with the rest of the executive team, will be looking for signs that the employee is still committed to the credit union. “If those signs are there and you see value in retaining this employee, then that needs to be conveyed early and clearly,” Rhyme advises. “It’s important to give the employee a strong vote of confidence, coupled with a challenging assignment, to convey just how valuable he or she continues to be to the organization.”

If the organization believes the employee has future leadership potential, Rhyme suggests sitting down with this individual. “You can explain, ‘Here’s where we believe you fell short.’ Offer to assist with a professional development plan to address those shortcomings. This helps the candidate to see that ‘I may have fallen short this time, but they still care about me.’”

While the non-successful candidate may feel some resentment toward the individual who got the desired job, Stevenson has seen these scenarios play themselves out. In many cases, the tension dissipates and the two individuals are able to set their differences aside in the best interests of the organization.

Leadership Continuity

Credit unions can take steps toward retention by developing a leadership continuity plan. Scott Albraccio, sales manager/executive benefits for Madison, Wis.-based CUNA Mutual Group (www.cunamutual.com), a CUES Supplier member and strategic partner, says such planning is especially critical given the high rate of upcoming CEO retirements now being reported.

“It’s projected, according to the CUNA study (CUNA Total Compensation Report—CEO for Credit Unions with $100M+ in Assets, 2013-2014), that 17 percent of the credit union CEOs in the country are going to be retiring in the next five years and 50 percent of them will be gone in 10,” Albraccio reports.

“So let’s say that we’ve got a CEO who’s a couple years away from retirement. The credit union board needs to start thinking about implementing a leadership continuity plan now. Don’t wait until the year when your CEO is about to retire to put a plan in place.”

Albraccio explains that a leadership continuity plan will include incentives for key executives to stay on board and work with the new CEO during the transition.

“This is something that used to be referred to as ‘golden handcuffs.’ What it essentially says to these executives is, ‘You’re a valuable member of our leadership team, and we don’t want you to leave. So what we’re going to do is reward you. If you stay with us through this transition for another two years, three years’—and this is a variable determined by the credit union board—‘we will provide you with a monetary reward at the conclusion of that time.’”

The monetary considerations in such a leadership continuity plan can be funded as an employment liability offset under NCUA Regulation 701.19, which Albraccio notes will minimize the impact on the CU’s financial statement. The costs can be recouped if it leads to the executive management team staying intact and working with the new CEO to meet the credit union’s goals and objectives. In return, the covered executives receive some peace of mind in what can be a time of uncertainty.

“It gives them the reassurance that the new CEO is not going to come in and clean house,” Albraccio says. “Everyone understands that there is a plan in place requiring a monetary payoff in the event that the employee is terminated. The only exception is if the individual is terminated for cause.”

If there is friction between the new CEO and an existing senior executive, both parties need to weigh the consequences as outlined in the leadership continuity plan. As Albraccio observes, “The decision the employee needs to make is: ‘Am I willing to walk away from that monetary compensation by leaving the credit union?’ From the CU side, the consideration is: ‘If we let this employee go, are we willing to pay out the specified amount of money?’ After a period of time—once the golden handcuffs are paid up—they can make a determination whether this is working out for them or if they’re going to go in a different direction.”

Albraccio stresses the value of setting differences aside for the good of the organization. “The best way to do that is to maintain the team that is in place because they already know what the game plan is.”

Moving On

While credit unions may try to retain their unsuccessful CEO candidates, in some instances it is inevitable that these executives will explore employment options elsewhere.

“Sometimes internals do get the position, but when they don’t, there may be some bitterness or they may just feel they are ready to be a CEO and they may look into leaving,” Shanley reports.

While JMFA typically agrees not to recruit employees of its clients for jobs elsewhere, there are some instances—albeit infrequently—when a credit union will waive that clause.

“In some cases, you end up with the board saying, ‘We really want our executives to succeed, so feel free to help them move on in their career,’” Shanley reports.

Credit unions typically put a professional development plan in place to prepare employees for future leadership opportunities within the organization. Should credit unions be concerned that an employee with chief executive ambitions could use these newfound skills to seek a leadership opportunity elsewhere?

“I don’t think you need to necessarily look at this as pouring resources into someone who is likely to leave,” Rhyme states. “You always have an affirmative obligation to develop your employees and get them ready to succeed with future challenges. When organizations focus on developing new leaders, the credit union system as a whole is much better off.”

Diane Franklin is a freelance writer based in Missouri.

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