As Prepared for Delivery on December 17, 2024
Succession planning is important for all credit unions. I appreciate the intent of this final rule to protect the memberships of smaller credit unions from unintended mergers. One thing I know is after a credit union merges, it’s almost certain there will never be another credit union just like it. That membership has lost its credit union forever. We should do everything we can to help individuals keep their own safe and sound credit union.
I want to be clear, that I am still somewhat skeptical that this rule will achieve that – especially for smaller credit unions. Most regulations are harder for smaller credit unions. I’m also generally averse to words like ‘mandatory,’ or to new edicts that tell other people what to do and how to do it.
This past July, I voted against the proposed rule on succession planning. Staff heard my concerns and took a less intrusive touch to the final rule before us today – I appreciate that very much.
A succession plan in large credit unions is difficult, but in smaller credit unions, a definitive succession plan is nearly unattainable. Those of us who have never worked in a credit union – which is nearly all of us – may be thinking, ‘It shouldn’t be that hard. Smaller credit unions have fewer positions to fill; the form is short. Filling it out could take just a few hours.’
Here are some of the reasons why this is so much harder for smaller credit unions:
- For management positions, there are fewer employees to draw from. A credit union with three employees cannot just draw talent from within. Even a credit union with twenty employees will not have the talent pool of qualified candidates to draw from the way a larger credit union does. My point is, grooming someone for a management position is a great thing to do, but at a small institution, it can create a cascade of open positions. This is a unique hardship for small credit unions.
- For board positions, the same is true. If the field of membership is smaller, then the talent pool is smaller. My educated guess is in smaller credit unions, finding someone willing to volunteer for monthly meetings, usually in the evenings, plus mandated training on compliance, personal risk as a fiduciary duty, no pay, and all the challenges that go with being a board member are already difficult. At a credit union with a limited pool of candidates, it becomes nearly impossible.
- Smaller credit unions are more isolated, so soliciting talent from other credit unions is harder. Often, they do not have the human or financial resources to regularly network with other credit unions. The CEO is a working manager and must fill in for other staff. When you’re filling in for a teller, even breaking away for a Zoom meeting is a challenge.
- Smaller credit unions cannot pay as well as larger ones, so the jobs are less attractive to candidates with experience. When they cannot promote from within and are cut off from a natural source of candidates in the credit union world, then salary is one of the few tools available to them.
This is all to say that a succession plan for a smaller credit union is significantly more difficult – but not impossible if we give them the latitude to be flexible. No matter what a small credit union puts in their plan, when the time comes to implement it, the options available will have changed.
If NCUA wants to preserve smaller credit unions, the best way to do that is to make running a small credit union less burdensome. If we can make that a more attractive job, then a lot of problems go away and Americans are more likely to have the choice to join a small credit union.
If we cannot give them flexibility – without the additional work of documentation and approval – then the only definitive option for a succession plan is to merge. That’s exactly what we are hoping to avoid.
I deeply appreciate that we were able to get rid of language that required a credit union to document, and get approval for, deviations from their written plan. It wouldn’t be a good use of anyone’s time for NCUA examiners to talk to a credit union about the lack of documentation for deviating from a document that NCUA required in the first place. Especially if that credit union has managed the succession process quite well.
When considering any rule, I worry about ineffective burdens placed on already strained credit unions. Succession planning – even if it is difficult – remains a key responsibility of management. The cooperative business model gives individual members a larger choice regarding their credit union’s direction. My skepticism is solely about whether NCUA creating new paperwork for over 4,000 credit unions will actually yield a tangible result that exceeds the rule’s costs.
And make no mistake, this rule has a very explicit goal. The Chairman has been clear from the start that the rule is to avoid unnecessary mergers whereby a field of membership loses their unique credit union. The Chairman used the example of a credit union in the Pacific Northwest that focused on the logging industry and is now gone, due, in theory, because the NCUA didn’t have a succession-planning rule.
For that reason, I am grateful we have included language to reapprove the rule three years after its effective date. This gives future Boards the opportunity to review its effectiveness as well as its cost of compliance to the credit unions and the agency.
I’d like to add that there is nothing inherently wrong with mergers – even as part of a succession plan. However, mergers should be deliberate, intentional, and supported by the membership. I’m aware that we don’t have a parallel universe that shows us what it would be like without this rule. That said, in three years there should be clear, identifiable benefits to this rule. If not, the rule shouldn’t be re-approved.