A Time For Board Action

Ferling should assess American Flag’s strengths and formalize a multi-pronged plan.

After energizing the Board, Ferling should assess American Flag’s strengths and formalize a plan that includes forming a transition team committee, contactingthe examiner, contacting external partners, finding CEO transition experts, and outlining tasks for the near, intermediate, and distant future.

Normally, Board governance is a review and approve process of oversight. The one time the Board must act is in filling the CEO position. So the first challengefor Alan as Chair will be to change the Board’s traditional meeting habit to a proactive mindset.

Multiple Uncertainties

The case outlines multiple uncertainties at all levels from the strategic tothe tactical:

  • Should American Flag CU consider merging?
  • How will the local economy affect sponsors’ and members’ financial well-being?
  • Are the key financial trends stable — ROA, delinquency, net worth, and lower dividends plus higher loan rates to slowor reverse growth?
  • What is the willingness of the remaining management and staff to work together?
  • What is the future role of American Flag CU in the community now that it has pulled back to its original base?
  • Can American Flag CU present a credible plan to examiners so it can retain its freedom of action?

Focusing on the Right Assets

In a crisis, the tendency of leaders is to focus on problems and weaknesses. But in doing so, they often overlook the very strengths that compose the foundations for moving forward. Alan needsto inventory and lead with a positive message as he creates a consensus for action.

Although these are not stated in the case, one can infer the following strengths:

  • A strong brand
  • Long-term community presence and reputation
  • A respected credit union leader, as demonstrated by the four mergers and willingness to add new Board members
  • Initial concrete steps in changing the financial structure, namely via expense reductions, efforts to increase margins, and holding at least $27 million in capital after reserves
  • An experienced Board, as well as in Alan a leader aware of the need to develop a way forward

In addition, American Flag CU appears well-positioned to continue to serve members and the community as they adjust to broader economic events. Staying in the game when timesare tough is why credit unions exist. The credit union is still able to make a difference for members.

Elements of a Plan

  1. Mobilize the Board for responding to the CEO vacancy. If no executive committee exists, have the full Board empower an ad hoc group of directorsto prepare a Transition Plan. Be prepared to lead the Board to a different level of activity during this leadership search.
  2. Have the new committee meet with the departing CEO to get her assessment of the situation, priorities, and thoughts about temporary or permanent candidates. Have the whole Board meet with senior management to learn its sense of operational prioritiesfor the next six months. Have the Board outline how it wants staff to communicate with the Board and participate in Board meetings.
  3. Have the executive team evaluate options to fill the leadership vacancy temporarily. The main options are:
    1. Appointing an interim from staff or the Board while a formal search is undertaken
    2. Find an interim from outside the credit union, such as a recently retired CEO (Bucky Sebastian, Gordan Dames, or Bill Connors) who can hold the reins for the next three to six months and provide objective counsel to the Board
  4. Validate and confirm the financial situation with staff. Then contact the lead examiner and outline the plan for leadership succession. Send the latest financials to the examiner and offer to keep the examiner informed as the critical steps unfold.
  5. If there are key external partners such as major employers with which the CEO worked closely, consider meeting with those organizations to outline the succession plan. Such external partners might be larger credit unions in the area, the league, oreven firms Board members represent.
  6. Talk to experts in CEO transitions for their advice. Firms that specialize in CEO searches will first do an analysis of the credit union andprovide an assessment of the pros and cons of the CEO position. Their advice can be valuable, but be careful to keep options open when asking for counsel. Perhaps offer a consulting fee, so that there is no rush to sign up for the search.
  7. From discussions with all parties, build a detailed list of actions sequenced by timelines.
    1. Now: Outline the Board’s heightened role, install an interim CEO, and confirm the key financial trends and operating activities;
    2. Near: Begin the CEO selection process and affirm the credit union’s key strategic objectives, such as remaining independent.
    3. Far: With the new CEO on board, start an explicit assessment of American Flag CU’s longer-term strategic goals.

A New Situation and a New Response

CEO transitions are rare events in a Board’s tenure. Most Boards work by consensus built on long-standing relationshipsthat is the strength of volunteers. The challenge is tochange their traditional mode of reacting to management’s plans. Now, the Board must initiate. That will be the essential first step for Ferling to take.

RETURN TO Searching for New Leadership.

June 4, 2014

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