The number of credit unions in the United States (U.S.) stood at 6,795 in 2013. Less than a decade later, 4,853 federally insured credit unions are operating in the country, representing a precipitous drop.
According to the National Credit Union Administration (NCUA), inadequate succession planning was a driving factor behind 32 percent of credit union consolidations. The NCUA Board deemed succession planning to be “”one of the most critical”” challenges that CUs face, becoming increasingly relevant as the baby boomer generation moves into retirement. In response to the declining numbers of credit unions across the country, the NCUA in 2022 announced a proposed rule aiming to impose a succession planning requirement on many of these institutions.
If adopted, the rule would require Federal Credit Unions (FCUs) to develop succession plans to ensure the continuity of operations should key positions be vacated.
What is Succession Planning?
Succession planning works to develop a “pipeline” of potential successors for executives, leadership, or other essential employees leaving their roles. This talent pool should allow any company to maintain the continuity of operations when inevitable staff changes occur.
Succession planning is relevant to all companies of all sizes across industries and sectors. As credit unions tend to be smaller and more locally focused than larger banks, they may be more vulnerable to knowledge loss when a vital staff member leaves their position.
Which Credit Unions Would be Subject to the Succession Planning Rule?
The final rule, if adopted, would apply to all FCUs, regardless of asset size. There are two notable exemptions to this rule: federally-insured state-chartered credit unions (FISCUs) and corporate credit unions, which are already required to create succession plans under Part 704 of the NCUA regulations. The proposed rule would require the board of directors to establish and adhere to a succession plan for specific positions, including “officers of the board, management officials, executive committee members, supervisory committee members, and members of the credit committee if provided for in the bylaws.”
The written succession plan must, at a minimum, identify the FCU’s key positions, the “necessary general competencies and skills for those positions,” and strategies for identifying replacements for those positions when vacancies occur. For FCUs with existing succession plans, the rule would provide guidance to utilize already existing information in preparing or revising their plans. (Source: NCUA.gov)
Additional provisions of the proposed succession planning rule include:
- Directors, at the time of their appointment or within six months, will be required to gain a “working familiarity” with the credit union’s balance sheet and income statements.
- Directors will be required to develop a “working familiarity” with the FCU’s succession plan. Each credit union will be responsible for developing and delivering an adequate training program to accomplish the requirement.
- The Board of Directors must create a schedule to review the succession plan at least once yearly.
While the NCUA will have the right to confirm the existence of ongoing training and attention to these guidelines, they will leave the format and substance of the planning up to each credit union.
A Knowledge Enablement Platform Can Help
If you are tasked with creating a succession planning strategy at your credit union, there are digital tools that can help your institution achieve its goals.
The methodologies developed by KLONE provide strategic tools to minimize disruptions during management transitions, ensure organizational viability, provide on-demand continuing education and training, clarify employee growth and development paths, and keep employees engaged and motivated.
These goals are accomplished by aggregating, organizing, and efficiently disseminating the FCU’s Standard Operating Procedures, Best Practices, and Policies to all relevant parties – those currently in leadership and those preparing to be. KLONE enables you to quickly and efficiently review, and revise succession plans and procedures to keep aligned with annual audit requirements.
Finally, KLONE’s capability to document the operating and job-specific knowledge for new hire onboarding and refresher training ensures time to productivity is shortened, and your teams are prepared for any new training requirements. In this way, even through organizational change and turnover, you can ensure that all jobs are consistently performed, and the necessary knowledge is passed along to the successors.
If you are seeking a dynamic and innovative way to meet the new NCUA regulations confidently, call today to learn more about KLONE.