3 Questions to Answer Before Recruiting a New CEO

American Flag has no qualified internal candidate, so postponing the hiring of a permanent CEO might be the best move.
John Redding & Richard Kamm

To most people, the obvious first step for a Board facing the unexpected departure of a CEO is to appoint an acting CEO (the CFO seems the best shot in this case), definethe search criteria for an ideal CEO, and initiate a search process to find a replacement officer (namely, this involves contracting with a top-notch executive search firm).

But in this case, starting with that CEO recruiting process is likely premature. Until American Flag CU determines its viability and direction, it cannot understand who its best leader might be. Therefore, it shouldconsider hiring an interim CEO for one year while it resolves key strategic issues and ensures Board effectiveness. At tonight’s meeting, we encourage Alan Ferlingto ask the Board three tough questions.

1) Have we fully explored merger opportunities?

Before initiating the search, the Board needs to make sure it has performed due diligence in exploring available merger options. The need to recruit a CEO,or the type of person who would be recruited, could change based on the answer to this question.

2) Are we sure this is a competitively viable credit union for the next 10 to 20 years?

Specifically, Ferlingshould probe the Board on the following topics:

  • Does American Flag CU’s diverse, multi-state FOM make sense, and does it provide a foundation for future success?
  • What are the potential risks arising from the fact that American Flag CU’s primary SEGs (those accounting for 60% of members) are in struggling industries? Lay-offs? Shutdowns?
  • Are the recent performance problems solely the result of the recession or are they also indicative of some underlying American Flag CU problems?

These are the types of issues that are typically resolved by strategic planning. If these critical issues remain unresolved, American Flag CU should complete a strategic planning process focused on dealing with them before beginning the hiring process.

3) Is the Board currently able to function effectively and exercise effective governance?

Board leadership is just as importantas CEO leadership. Ferling needs to challenge the Board to take an honest look at itself. If the Board is such a dysfunctional salad bowl of contention that it might scare CEO candidates away, as Ferling believes, its ability to provideclear direction and make effective decisions is questionable.

The Board likely should postpone recruiting a new CEO for approximately six months. Allowing then another six months for the recruiting process,the CU should prepare itself for a year without a permanent CEO.

In this period, it should consider merger decisions, clarify the credit union’s long-term direction through a strategic planning process, and strengthenthe Board’s functioning. We also recommend that an interim CEO be hired for one year. Ideally, this would be a person with a proven track record in helping credit unions facing similar financial challenges.

Some Board members will likely object to the possibility of a full year without a permanent CEO. Yet there may be fundamental issues threatening the future of American Flag CU that no CEO can resolve no matter how effective he or she is.Moreover, without dealing with these issues now, the Board may realize years from now that it made a poor CEO hiring decision or did not act in the best interest of its members.

A year from now, we are confident that the Board will concludethat postponing the search process was well worth it if:

  • American Flag CU is well-positioned for long-term viability and has the ability to meet future member needs;
  • The Board is executing its governance and leadership functions in a highly effective, professional manner, representing the best interests of its members while exercising its fiduciary responsibilities; and
  • A CEO is in place (whether a merger has occurred or not) capable of steadying American Flag CU’s shaky financial performance, restoring member and staff confidence, and assuredly leading American Flag into the future.

To achieve such results, the three-faceted process must be well-planned and executed. Third-party consulting help would be needed. Since these three issues could be handled together in a single, integrated process, it would be great if this help couldbe provided by a single firm with a track record in all three areas.

Here’s a timeline that might emerge out of tonight’s Board meeting:
Month 1:Interview consulting firms and identify potential interim CEOs.
Month 2: Contract with a consulting firm and appoint an interim CEO.
Month 3: Investigate merger alternatives and prepare fora strategic planning session. Begin consultant work with Board on governance issues.
Month 4: Conduct strategic planning retreat with Board and senior managementteam.
Month 5: Finalize key decisions on mergers.
Month 6: Initiate CEO search process (if appropriate) or begin merger process.

Under such a timeline, a new CEO (unless a merger precludes the need) should be in place in less than a year.

RETURN TO Searching for New Leadership.

June 4, 2014

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