COMMENT CALL: The NCUA has proposed a rule that would require the boards of directors at all federally insured credit unions (FICUs) to establish and follow a succession plan.
This rule would apply to all Wisconsin credit unions, regardless of size.
The NCUA has found that 25% of credit unions either lack any plan or have an inadequate plan, according to NCUA Board Chairman Todd Harper. And an NCUA analysis found that a lack of succession planning was either a primary or secondary cause for almost a third of consolidations. Mergers and “baby boomer” retirements top the list of factors that the NCUA said increase the relevance of succession planning today.
This new proposed rule modifies a 2022 proposal, which would have applied only to federal credit unions, not state-chartered FICUs. Based on the public comments received and upon further consideration of the issues, the NCUA has now issued a revised proposal that expands on its 2022 plans.
Key elements of the proposal
The proposed rule would require an FICU’s board of directors to establish a written succession plan that addresses at least these positions:
- Members of the board of directors;
- Members of the supervisory committee;
- Members of the credit committee, where the FICU’s bylaws provide for such a committee, and it is involved daily in the review of loans;
- Loan officers, where provided for in the FICU’s bylaws in lieu of a credit committee and the loan officers are involved daily in the review of loans;
- Management officials and assistant management officials, if the FICU has provided for such positions in its bylaws; and
- The FICU’s “senior executive officers” and any other personnel the board of directors deems critical given the FICU’s size, complexity, or risk of operations.
The succession plan would have to address the FICU’s strategy for recruiting candidates with the potential to assume each of the covered positions. The strategy would need to consider how the selection and diversity among the employees covered by the succession plan collectively and individually promotes the safe and sound operation of the FICU.
The proposal would require an FICU’s board to review the succession plan under a schedule it establishes, but at least annually.
Different plans for different FICU sizes
All credit unions, regardless of asset size, would have to develop a succession plan to fill key positions and ensure continuity of their operations. But a plan’s level of detail could vary, depending on the size and sophistication of the FICU. The NCUA wrote:
The expectation is for a FICU to develop a succession plan that is consistent with its size and complexity. Therefore, smaller FICUs are more likely to have a simple succession plan that only addresses a few key leadership positions. Larger and more sophisticated FICUs are expected to have more detailed plans. For example, smaller FICUs may have fewer board members, or have fewer staff that would qualify for the positions listed in the proposed rule for inclusion in the succession plan. Likewise, smaller FICUs are likely to have less expansive employee recruitment, development, and retention strategies. In evaluating whether a succession plan meets the requirements of the rule, the NCUA will consider the size of the FICU, as well as the complexity and risk of its operations.
The proposed rule includes a succession plan template that may be appropriate for smaller credit unions.
Make your voice heard
The League will write to the NCUA about this proposal. Can you please share your thoughts? What do you like, or dislike, about it?
Please share you views with The League’s SVP & General Counsel, Paul Guttormsson, by Sept. 16, 2024, so that our letter (which is due Sept. 23) will reflect the concerns of Wisconsin credit unions.
Feel free to address any aspects of the proposal, but the NCUA said it would like comments on these issues in particular:
- The inclusion of FISCUs (not just FCUs) within the scope of the proposal.
- How the NCUA can support the efforts of Minority Depository Institutions (MDIs) to develop a succession plan that maintains the board and senior leadership composition to maintain MDI eligibility, and to address any unique barriers MDIs may face when developing succession plans.
- The proposed board responsibilities in the development of succession plans.
- Whether the succession planning process would be better served by restricting or prohibiting deviations from the succession plan in between the mandated regular review period.
- How the NCUA can provide better support to credit unions in developing succession plans and attracting new talent to the credit union system.
- The timetable for regular review of the plans and whether the final rule should provide for a different timeframe or grant boards additional flexibility in establishing the review period.
- The inclusion of credit committee members and loan officers in the list of positions that a succession plan would have to address.
- Comments from smaller credit unions on the proposed template, as well as other suggestions, to improve succession planning and reduce any burden under the proposal.
- The impact of this federal proposal on state and local interests (because the rule would apply to state-chartered FICUs) and ways to eliminate, or at least minimize, potential conflicts in “the relationship between the national government and the states, or on the distribution of power and responsibilities among the various levels of government.”
Resources
Training and other resources are available to help credit unions develop their succession plans. For example:
- The League’s “Planning Resources” page offers links to abbreviated and extended versions of sample succession plans.
- The League’s Leadership Institute is designed to help emerging and mid-level managers build their leadership skills to more effectively prepare for succession planning and promotion.
- Josh Roberts, The League’s VP of System Collaboration & Development, hosts a new video on “Credit Union Development 101” (which is #6 in our “Lessons on The League” video series). It covers strategic planning and succession planning.
- The NCUA has posted a video series on succession planning.
Other suggestions
The NCUA proposal included other suggestions FICUs may want to consider, related to succession planning:
- A 2019 NCUA rule on FCU bylaws promoted succession planning by providing guidance on associate director positions. The NCUA wrote, “these positions may be thought of as apprenticeships in which the incumbent receives training and knowledge about the business of the board, with the expectation that the experience will prepare the individual to serve as a director if elected for such a position by the membership or appointed on an interim basis in an exigent circumstance. FISCUs may wish to provide for similar positions if consistent with applicable state law and regulation, and applicable credit union bylaws.”
- FICUs with a low-income designation may be able to apply for technical assistance grants to support succession planning or offset training costs through the Community Development Revolving Loan Fund, the NCUA wrote. This NCUA video explains how to apply.
- The NCUA said it encourages FICUs to use existing information in preparing their plans. For example, NCUA guidelines encourage all FICUs to develop a program to prepare for a catastrophic act. Those guidelines suggest that the program should address several elements that are also relevant to succession planning. These suggested elements include a “business impact analysis to evaluate potential threats,” the determination of “critical systems and necessary resources,” and the identification of the “[p]ersons with authority to enact the plan.”