The National Credit Union Administration (NCUA) issued a final rule to require federally insured credit union boards of directors to establish processes for succession planning for key positions.
Background:
The depository institution system continues to experience a long-running trend of consolidation which has led to a decline in the number of credit unions. Data suggests that smaller federally insured credit unions (FICUs) are more likely to merge. The NCUA highlighted that in recent years around 32 percent of mergers were due to a lack of adequate succession planning.
NCUA Final Rule: Succession Planning
Summary
The final rulerequiresFICUs to establish written succession plans approved by their boards.
Applicability
The final ruleapplies to both federally chartered credit unions (FCUs) and federally insured state-chartered credit unions (FISCUs).
Key Provisions of NCUA Final Rule:
The final rule updates the requirements for the board of a credit union to have a working familiarity with the credit union’s succession plan.
Succession plan requirements
Credit unions must establish a written succession plan which will be approved by the credit union’s board of directors.
The succession plan must cover key positions, including:
Members of the board of directors;
Management officials and assistance management officials; and
Any other personnel the board of directors deems critical given the credit union’s size, complexity, or risk of operations.
The succession plan, at a minimum, must contain:
The title of each covered position and expiration of the incumbent’s terms or other anticipated vacancy date;
The credit union’s plan for permanently filing vacancies for each position; and
The credit union’s strategy for recruiting candidates with the potential to assume each position. The strategy must 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 credit union.
The board of directors will be responsible for:
Approving the written succession plan; and
Reviewing, and updating as necessary, the succession plan in accordance with a schedule established by the board, but no less than every 24 months.
The final rule updates the share insurance provisions to require any FISCU to comply with the succession planning requirements in 701.4(b)(3).
Observations & Next Steps:
The success of a credit union is dependent upon placing the right people in appropriate positions at the right time. Succession plans are designed to ensure the continued effective performance of the credit union by planning for the ongoing development, placement, and replacement of key people.
Credit unions can turn to the CU PolicyPro model policy 1520: Succession Planning and model procedures 1520.10: Succession Plan to start building their plans.
The NCUA has also provided a succession plan template for smaller credit unions to leverage in developing succession plans.
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