NCUA Vice Chairman Kyle S. Hauptman at a meeting of the NCUA Board.
As Prepared for Delivery on July 18, 2024
Succession planning is important and recognize that it is a real challenge for some credit unions, especially smaller ones. While I appreciate the intent to assist smaller credit unions, I am not convinced that this rulemaking is the best approach. In fact, I am concerned regulation in this area could make things more difficult.
In January 2022, I voted in favor of a proposed rule on succession planning, partly because I was genuinely interested in hearing from stakeholders. I appreciate the 26 commenters who shared their thoughts and ideas. Although the proposed rule we are discussing today is not the same one, stakeholder comments have been enlightening and helped shape my decision on this new proposed rule.
Today’s proposed rule is almost twice the size of the previous one. It now includes state-chartered, federally insured credit unions and requires credit unions to document their recruitment, training, and retention strategies. It also includes a comprehensive template intended to make things easier for the credit unions, but I fear it may appear daunting for many.
Additional data was included to justify the need for a rule, but as many commenters pointed out, the data on mergers went back ten years and lacked the rigor necessary to draw accurate conclusions. Succession planning was included in the 2023 Supervisory Priorities and in the 2022 CAMELS letter (22-CU-05), but I am not aware if we measured the results. Without measuring the impact, we cannot claim the guidance was ineffective, nor can we assume that new guidance would be more effective.
I’m inclined to agree with my former colleague Rodney Hood, who argued that guidance is a better way to address succession planning. I recall a small credit union CEO telling me that if we passed the succession planning rule, they would immediately look to merge with another credit union because they felt unable to satisfy the NCUA’s requirements.
We also heard from credit unions that have successfully managed leadership transitions but were still against the 2022 proposed rule. Their reasoning was two-fold: 1) the rule would be another burden during exams, and 2) their prior successions didn’t necessarily follow what they’d have written if the NCUA had instituted a succession-planning rule. They would feel pressured to follow their plan strictly or risk being penalized for not taking their plan seriously.
Examiners already have the authority to question the sufficiency of a federally insured credit union’s plans to manage vacancies in executive positions. This authority is valid in connection to safety and soundness and should be considered during exams. However, mandating a prescribed succession plan and process goes beyond safety and soundness.
I agree with commenters that regulatory authority should not substitute for sound board governance. It should not replace or infringe upon the fiduciary duty of the board of directors. Simply requiring a succession plan will not address the root causes of difficulties in finding qualified candidates.
Ultimately, succession planning is a key responsibility of management. Credit union leadership must address succession planning – even if it is difficult. The cooperative business model is meant to give individual members greater choice regarding their credit union’s direction. When members are forced to vote for a merger due to the lack of a CEO succession plan, they lose that choice and ultimately their native credit union.
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.
The FDIC and OCC have issued guidance on succession planning, with the OCC suggesting that it be a regular topic of discussion among the financial institution’s board of directors.
When considering any proposed rule, I am concerned about needless burdens it may place on already stressed credit unions. Today’s vote isn’t about whether succession planning is important, nor is today’s vote about whether some credit unions really ought to think more about succession planning. It’s about whether this rule, as written, would do more good than harm. I don’t think it passes that test.