American Flag Credit Union is facing three serious challenges that if taken individually would be enough to test the ability of any Board. First, American Flag is facing a declining financial condition during a time of national recession. Second, it must find a new leader during turbulent times due to the lack of an in-house candidate. Third, the Board does not appear to function as an effective unit. Of course, these challenges are related, and success or failure in any area will have significant impact on the overall stability of the credit union.
In addition, there are also several second-tier challenges requiring individual attention and resources such as employee morale, marketplace competition, and the NCUA. The biggest problem is lack of time. It is easy to picture the perfect storm of this situation becoming unmanageable quickly.
Of the three major issues, the most serious is the Board's ability to fulfill its responsibilities. Ferling did not mention a strategic or succession plan. If these plans do exist, they are not part of the basic functioning of the credit union. There was no reference to any plan that provides a guideline when outlining problems. As for succession, the Board hoped the CFO would be ready. A planning culture is an essential tool for managing a crisis; the lack of one will make the work far more difficult. Ferling's description of the Board as salad bowl, the lack of consensus, and two contentious Board members will make the decisive action steps necessary to solve the credit union's problems much more difficult.
1. What are the first steps the Board should take to address this situation?
The Board of Directors will need strong leadership, and Ferling must provide it. Building an effective team is a long-term process, and American Flag does not have that time. A short-term tool that would fill the gap would be a specific action plan approved through a binding Board agreement developed at a Board retreat with the following agenda:
Discussion and agreement that the action plan developed will be the document the Board of Directors will use as the road map to address its situation. It is critical that all Board members agree that once the plan is approved all members will support it.
Identify, define, and rank—from most to least critical—the challenges facing the credit union. Consensus on the ranking is important for efficient Board governance and so that all Board members are in agreement for resource allocation.
Develop the action steps needed to address these issues. Many issues must be considered such as merger options, the best long-term solution for a CEO and a financial plan to rebuild capital. Each of these requires significant research, operational analysis, and lengthy discussion to prepare the Board for making a final decision. However, developing action steps will provide an organized approach to keep the credit union moving forward.
Develop a timeline for the action steps. The timeline is essential for measuring progress and for maintaining Board consensus – milestones that are missed or non-existent are an invitation to question the plan.
The question of CEO succession is a key element of the plan. See Question 2 for a solution.
Most organizations would have a difficult time managing this type of meeting in-house. A facilitator would be appropriate, see Question 4.
2. How should the Board address the leadership gap during the CEO search/transition process?
Time is the key driver for this action. The credit union needs a leader quickly in order to address the weakening financial condition, work with NCUA, restore employee morale, and protect the credit union's market share. The process outlined in Question 1 will need significant support from management. The classic CEO search process is and should be a careful, deliberative, and time-consuming process. To provide the necessary time, the Board of Directors should hire an experienced interim CEO with a 6 to 12 month contract, which clearly states that the person will be leaving at the contract’s end. This arrangement has several advantages:
1) The short-term nature can minimize the inherent politics that accompany a classic CEO search
2) Generally, the type of person interested in this arrangement is seasoned and highly-experienced in handling problematic situations
3) The credit union would get someone who can begin addressing critical operational and financial issues immediately. To quickly identify candidates, Ferling and the Board can choose from several sources, including the NCUA, trade associations, and various credit union consulting companies.
3. Should the Board reach out to other credit unions to see if merging might be an option?
Certainly. A merger is a viable option, and discussion about a merger should be in the action plan. However, the credit union needs a solid sense of what is best for American Flag CU before reaching out to other credit unions. Defining what is best is a fundamental part of the planning process defined in Question 1. The credit union cannot merge, be the surviving credit union in a merger, or be merged into a larger credit union. Each has pros and cons, and all options should be considered.
4. What, if any, external resources should the credit union utilize in this process?
The credit union will need help with two projects that may or may not be performed by the same entity. The Board retreat mentioned in response to Question 1 will require 100% participation. Having one of the Board members facilitate the meeting will limit that member’s participation. An experienced outside facilitator will significantly improve the final results.
A CEO search may be the most important thing a Board of Directors does, and yet very few Boards have the expertise to do it alone. It is a time-consuming and deliberative process that requires total commitment. The Board should develop a Request for Proposal that outlines their expectations, interview several firms, and select a firm based on experience, demonstrated understanding of credit unions, approach, and references. This is NOT the place for the low bid provider.
RETURN TO Searching for New Leadership.