“Who shall lead” is a key merger question

The viability of a credit union merger frequently hinges on the question of leadership. A strong CEO is vital to the success of the post-merger organization, but so, too, is a senior management team that has the talent, expertise, and experience to carry out the strategic directives that will drive the credit union forward.

Will the CEO of the merging credit union be part of that team? Oftentimes, the answer is no because the main reason the merger came about in the first place was because of the CEO’s pending retirement. In many cases, it’s a long-tenured CEO who was the backbone of the credit union for decades. Upon the announcement of that CEO’s retirement, the board and senior management may come to the realization that this is the perfect time to seek a merger, especially if there is no clear line of internal succession and seeking an outside candidate would be cost-prohibitive.

A Retirement Surge

There will be a need for strong credit union leadership during what many predict will be a rising surge in CEO retirements. During the early months of the COVID-19 pandemic, there was a lull in CEO retirements—which at least in part contributed to a lull in mergers. Some in the industry attributed the dip in retirements to a reluctance on the part of the chief executives to depart during such a tumultuous and uncertain time.

“What I saw in the Great Recession, and what I believe [we were] seeing during this pandemic, is a slowdown in CEO retirements,” says Bill Birnie, President/CEO of $1.09 billion, Frontwave Credit Union, Oceanside, California, one of several credit union leaders to address the topic of succession in “More for Members: Credit Union Leaders Plan Post-Pandemic Merger & Acquisition Strategies,” a three-part DDJ Myers white paper. “My perception is that leaders typically don’t want to announce their retirement during an external crisis like a pandemic or recession. They want to stick it out and help their organization get through it.” 

Even CEOs who had not been planning to retire in their pre-pandemic days may now be considering it because of the strains of the past year. “There’s certainly a ‘wear factor’ that’s starting to hit business leaders,” says Matt McCombs, President/CEO of $970 million Vibrant Credit Union, Moline, Illinois. “I think there’s going to be a large number of CEOs, over the course of the next year, who are going to be ready to exit the workforce.”

Post-pandemic, Birnie says he believes merger activity will heat up again as CEOs who postponed retirement head for the door. With this void of leadership at the top, many credit unions are likely to step up their search for a viable merger partner.

Integrating Leadership and Management

Determining who shall be part of the leadership and management teams is a critical decision that should be decided early on in the merger process. How the plan unfolds will vary in complexity based on the status of current leaders. Often the best solution is to integrate the top talent from both organizations to create an overall more effective team.

Let’s say the CEO of the merging credit union is not retiring and instead is seeking a trajectory to new opportunities. If that’s the case, it’s important to identify if and how that person can offer value, says Bob Burrow, President/CEO of $572 billion Bayer Heritage Federal Credit Union, Proctor, West Virginia. One option is to create a time-limited advisory position.

“If you have a CEO who says, ‘Hey, I still have some gas in the tank,’ I recommend that you look at it seriously,” Burrow says. “They say a new broom sweeps clean, but that shouldn’t necessarily be the case. It would be inadvisable to walk away from someone who’s solid and has good experience.”

In fact, seeking out merger partners with talented staff within their ranks is a great way to add value to the continuing credit union and bolster its succession plan. “High-performing executives in a merging credit union will have the opportunity to demonstrate their value and position themselves for consideration as a future senior executive or CEO of the continuing credit union,” Birnie remarks.

At the executive level, retention packages that reflect the current compensation market can be a key tool in holding on to leaders identified as strong players in moving the organization forward in existing and new business units, notes Jeff Disterhoft, President/CEO of $7.1 billion GreenState Credit Union, North Liberty, Iowa. Working with a trusted third party knowledgeable about the market to structure these arrangements can be invaluable. 

Mergers of like-size financial institutions present opportunities to develop new positions and specialties, such as a risk department or a chief accounting officer, chief administrative officer, or chief culture officer, suggests President/CEO David L. Tuyo II, President/CEO of $1 billion University Credit Union, Los Angeles. Creating a dedicated chief of diversity, equity, and inclusion position would recognize the growing importance of developing and implementing a DEI strategy.

Assessing the Talent

Board Chair Simon Walton of $2 billion USALLIANCE Federal Credit Union, Rye, New York, observes that determining leadership in the post-merger period will require a careful assessment of the current management talent across the organization in lending, technology, treasury, accounting, branch service, contact centers, and marketing—and what the future talent needs of a growing organization will be. 

“What does the organization need to be successful, and do you build that talent, borrow it, or buy it? In other words, do you commit to develop and train, hire consultants for a medium term, and/or hire from outside?” Walton notes. “Those questions help develop a talent strategy.

It’s not going to happen by accident. You have to put time and effort into it and recognize that not every investment will pay off.” 

Some executives and managers joining a credit union through a merger, especially if they are taking on new roles, “may look for the door pretty quickly,” Walton adds. “Be ready for it, have a plan, manage through it, and don’t take it personally.” 

Click the link to download the three-part white paper, “More for Members: Credit Union Leaders Plan Post-Pandemic Merger & Acquisition Strategies.”