Executives Making The Rounds

What’s the secret to rotating executives to different positions successfully? Weekly meetings, low turnover, and trust.

Internet startups have a reputation for iconoclastic approaches to company hierarchy that other businesses can only marvel at. Security app provider CloudFare famously abandoned titles to create a corporate culture where the quality of ideas, not a person’s rank, is what matters. Valve Software, which makes popular computer games, went one step further by nixing bosses altogether. Instead, its more than 300 employees are encouraged to work together to guide the company.

With members to answer to and millions or even billions of dollars in assets to manage, credit unions can’t afford to experiment with organizational structure by abandoning titles or eliminating bosses. But one credit union’s daringpractice of rotating executives to different positions suggests that cooperatives can benefit from adopting a more fluid structure. Remarkably, the credit union behind this bold strategy is a veritable behemoth and nothing like those nimble Internetstartups that can afford to break new ground because of their small size and lack of history.


Pentagon Federal Credit Union
data as of 12.31.14

  • HQ: Alexandria, VA
  • ASSETS: $17.6B
  • MEMBERS: 1,295,220
  • EMPLOYEES: 1,366
  • 12-MO SHARE GROWTH: 12.9%
  • 12-MO LOAN GROWTH: 11.3%
  • ROI: 0.47%

This institution, Pentagon Federal Credit Union ($17.6B, Alexandria, VA), is one of the five largest U.S. credit unions by assets, with 1,366 employees and morethan a million members. Yet, every two or three years, PenFed executives trade places as the new heads of several divisions, including finance, marketing, operations, credit cards, collections, and lending.

How does PenFed make this practice work? And, more importantly, why do it at all?

CEOs In Training

The answer to that second question became evident recently when former CEO Frank Pollack decided to retire. Pollack had introduced the rotating leadership program in 2001, the same year that James Schenck joined the credit union’s executive team.

In the ensuing 13 years, Schenck served as chief administration officer, head of credit and collections, chief operating officer, head of the credit union’s real estate and title company PenFed Group, and president of the PenFed Foundation.

When Pollack wanted to retire, the board of directors essentially had six eligible CEOs-in-waiting to choose from. And although each of those executives had led multiple facets of PenFed’s business, the board selected Schenck, who became the creditunion’s new CEO April 1.

From Frank’s perspective, this policy allowed him to create a slate of executives that could have become CEO, Schenck says. He gave his board of directors a choice of CEOs who have all run operations, collections, credit cards, mortgages,and different facilities.

The program, though, is more than just a tool for ensuring a smooth succession. By rotating executives, every PenFed division also benefits from a new leader’s perspective and renewed energy.

No matter how good you are or how energetic, after two or three years of looking at the same process, taking on something new will help reinvigorate the organization, Schenck says.

The Rotating Executive Team

  • Senior Executive Vice President
  • General Counsel
  • Chief Financial Officer
  • Chief Operations Officer
  • Chief Administrative Officer
  • President of Affiliated Business (who oversees real estate company and title companies)
  • Chief Information Officer
  • A New position: Executive Vice President For Member Experience (who will oversee marketing and technology)

The rotation program also acts as a selling point for exactly the kind of executives PenFed wants adaptable leaders who thrive by taking on new responsibilities and challenges.

Most good hires have experience running different divisions, Schenck says. If you want to be a CFO forever, we’re probably not the right firm.

The Tuesday Meeting

PenFed’s rotational system would never work without the Tuesday meeting, a weekly daylong affair where all eight executives share information about their divisions. As a result, the executives have a chance to brainstorm new strategies while keepingeach other informed about the divisions they may one day lead.

We live one day a week as a team, 52 weeks a year, without fail, Schenck says. We schedule travel across the team so as not to miss that Tuesday meeting. It’s going to happen, sure, but you rarely ever miss two Tuesdays in a rowat PenFed.

The weekly discussions allow for smooth transitions because when the chief operations officer takes over for the chief administrative officer, that incoming executive is already familiar with their new division’s goals and challenges.

You’re involved in decision making, the thought process, the design of new products, and budgeting; so even though you’re in charge, everybody else on the team has a say each Tuesday on the direction of your division, Schenck says.

Keeping everyone informed is also critical for the division employees who will eventually report to a new person. For example, if a marketing specialist had to suffer onboarding a new boss every two or three years, it would make for a pretty miserabletenure, not to mention being wildly inefficient. But PenFed avoids that grinding catching-up period by ensuring that executives switch positions seamlessly.

Executives In For The Long Haul

Schenck staggers rotations so that only three or four executives take on new roles at a time. This way, the entire institution is not in flux every time executives rotate positions.

But there’s no question that the rotation program does work wonders in terms of increasing employee morale. In fact, since the program started, not a single rotating executive has left.

A few positions have been added during that time though, including the chief information officer and the president of affiliated business, and Schenck plans to add an executive vice president for member experience to the rotation as well.

This new person may be either an internal or external hire and will oversee marketing and technology before eventually rotating to a new division. If the candidate does comes from outside the credit union, PenFed will make participation in the rotation program a condition of accepting the job.

Reassurance For The Lower Ranks

Trust is the final component for making the rotation program work. Senior executives not only have to trust one another, but PenFed’s employees also must have faith that executives won’t clean house when they lead a new division.

If employees feared for their jobs every time a new executive took the helm, the credit union wouldn’t be able to retain junior talent or cultivate new managers from the lower ranks. Although Schenck says employees have always reacted positively toa new division leader, PenFed does offer a way out for employees who want to learn new things or feel more comfortable working in another department.

The program known as Save Pay offers all employees retraining and lateral movement across divisions, which helps assure lower level employees that the credit union will always have a place for them.

Employees feel their job is safe, no matter which executive is working with them, Schenk says, and since the program began, PenFed hasn’t laid off any of its employees.

September 24, 2014

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