As a crisis of credit union management, it doesn’t get worse than this scenario: Executives work against each other in the interests of their individual departments instead of for the credit union as a whole. Eventually, departments develop into isolated groups that don’t speak to each other, let alone work together harmoniously.
This picture of fractured leadership and stagnant communication is something that Frank Pollack, CEO of Pentagon Federal Credit Union ($15.5B, Alexandria, VA), has observed at other organizations. “Most executive teams become silos over time,” he says. To prevent exactly that kind of dysfunction, Pollack shook up PenFed’s management structure by introducing a leadership program in 2001, a few years after he was promoted to CEO.
Some would consider Pollack’s strategy wildly unconventional, even unduly risky, considering it was implemented at one of the country’s largest credit unions. Instead of assigning an executive with a specialized focus to manage a single department, Pollack had PenFed executives routinely switch the departments they managed every two or three years. All seven or eight managers, who are executive vice presidents of equal rank, rotate the responsibility of different divisions, which include finance, marketing, operations, credit cards, collections, lending, and member service. Except for the legal and IT divisions, PenFed executives experience almost every facet of running a credit union. Twelve years later, the program is still going strong.
“What we were seeking to do was to create a more well-rounded and balanced executive team over a longer period of time,” Pollack says. “It was an issue of trying to manage holistically.” He wanted to imbue the executive team with a thorough understanding of how the credit union runs.
“You have an appreciation for all the pieces of the business,” says James Schenck, an executive vice president who currently runs PenFed Group, the credit union’s real estate and title company. “If you were running collections, you knew you’d get to originate loans three years later. If you were working on originating loans, you knew you’d have to collect them someday.” Before his current role, Schenck oversaw three other credit union departments: credit cards, collections, and member service. He expects to remain in charge of PenFed Group for another year or so before switching to a new division.
Of all the roles Schenck has held at the credit union, “the toughest experience was running collections during the downturn,” he says. “The most rewarding was business development, marketing, and e-commerce because you really get to innovate for the future.” Schenck credits the experience of running these different divisions with helping him and the entire management team develop as executives. “The opportunity to run different-size operations with different functions allows everybody to grow their skills and capabilities.”
Even so, Pollack says it’s always a bit stressful when the time comes to rotate departments. “As human beings we all like to be comfortable where we’re at and not move. People are always uncomfortable tackling something new, so in that sense, it’s definitely entertaining.”
That discomfort ultimately comes with benefits. Not only does the leadership program deepen everyone’s understanding of all the departments, it also encourages the executives to consider how any decisions they make will affect the credit union as a whole rather than just their own department.
“It’s not just the teamwork that has improved, which it has,” Pollack says. “It’s that the sensitivities of everyone to the roles that others play on the team and the pressures that they face have increased astronomically. I think that helps when somebody’s having a tough time or when we’re trying to tackle a difficult decision.”
In the long run, this awareness pays off with better-informed business decisions. “It makes us better managers of risk.” As a team, we are able to take chances whenever a good opportunity presents itself, he says.
Before coming to PenFed 35 years ago, Pollack worked for General Electric Credit Union, where he saw a similar leadership program successfully implemented, but he doesn’t advise introducing it at every credit union. This program wouldn’t work for credit unions with a high turnover in their executive ranks, he says.
Some credit unions, on the other hand, are natural candidates for a leadership program. “Honestly, at a smaller credit union, this should be mandatory,” Pollack says. “The job of running a small credit union is actually more difficult than my job. They have fewer resources, while the complexity of the job isn’t necessarily different. So if you’re trying to accomplish the same breadth of work with fewer players, then their abilities need to be broader.”
At PenFed, Pollack is implementing the same leadership program on a larger scale for the credit union’s 25 mid-level managers. Pollack believes it’s worth the effort, particularly for PenFed, which has little employee turnover. “If you were trying to do this on a short-term basis, I don’t think it’s functional,” he says. “But if you’re trying to build a team that will be in place for a long time, it’s a better way to run the business.”