Succession is Strategy with Dr. Amy Hillman

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Episode Transcript

Host: Welcome back to The Filene Fill-In, where we focus on the questions credit union leaders are actively grappling with, even when the answers aren’t fully clear yet.

In our last episode with Mark Meyer and Christie Kimbell, we talked about what it means for credit unions to be remarkable. This episode is for board members, CEOs, and executive leaders who are thinking seriously about what it takes to execute strategy over time, not just set it.

We’re building directly on that conversation by starting right at the top. Today’s question is, how do you make sure that the right leadership is in place to actually deliver on that ambition, now and into the future?

To help explore that, we’re joined by Dr. Amy Hillman, Filene Fellow for Leadership, Strategy, and Governance, and a professor at Arizona State University’s W. P. Carey School of Business. She’ll reframe succession planning as a core part of strategic execution and walk us through how boards and CEOs can think more intentionally about leadership readiness, governance, and long-term impact.

With that, let’s hear from Amy.

Amy Hillman: Well, it’s wonderful to be here to talk with you all about such an important topic.

In the Center for Leadership, Strategy & Governance, I try to bring together the leadership of credit unions, which includes, of course, the CEO, the executive team, and boards of directors, with strategy, and try to make the connection between why governance facilitates both.

And so, strategic execution is really a big part of what we do when we focus on the combination of leadership, strategy and governance. And in particular today, what I want to focus on is succession planning. Succession planning both for the CEO and for the board.

This is a critically important issue because if you think about where your credit union strategy wants to take the credit union in the future, you have to have the right leadership skills. That includes the CEO, his or her executive team, and the board, in the place that can best inform that strategy and to best make sure that we execute on it. So when we think about succession, it’s a critically important time, because you can think of the credit union’s trajectory towards achieving a strategy, towards enhancing member value, towards growing, towards whatever your strategic goals are. And when there is a succession event, it’s a critically important pivot. We have a new CEO, or we have new directors coming into place, and it can really either help and enhance that strategy execution, or it can hinder it.

Now, this is really important right now in particular, because the National Credit Union Administration (NCUA), the regulatory body that examines credit unions, has added a new part of their examination for credit unions, and that is around succession planning. It took place in January of 2026, so very timely. Any credit union that is about to experience an NCUA exam is going to be asked about succession planning. It’s not that we’re going to focus on it today so much because the regulators say it’s important. It’s just important, period. And that’s probably why the regulators are asking about it.

So when we think about succession planning, we have to think about it in a more continuous fashion. It’s not just that pivot point, even though I mentioned how critical those pivot points are. It’s not just a point in time that we say we focus on succession planning and then we can ignore it. We’ve got to constantly be thinking about the skills and talents that are on the board of directors and in the executive suite for the credit union as a way to get to that strategic execution.

So let’s talk about what I mean by strategic planning versus strategic execution in more detail.

When you think about creating the strategy for the credit union, that’s not the role of the board. That’s the role of the top management team and the executives who live the member experience day to day within the organization and deal with the challenges and the threats within the industry overall. The board is really critical to strategy, but they don’t create it. They ratify the strategy. So when we think about strategic planning retreats, we often think about days away where the top management team goes and tries to look at the changes in the external environment, look at the changes within the credit union, look at all the data they can around member value, et cetera, and make suggestions about either staying the course in the strategy that they have been pursuing, or deviating from that incrementally, or sometimes even radically.

They might be trying to adopt a new technology, trying to move into a new member segment, maybe even thinking about a charter change. And so the top management team will go and spend time thinking about what the strategy should be going forward, and then they bring it to the board. And the board also is engaged in more of these strategic planning retreats, and they’re really a sounding board for that strategy.

If you think about what a board of directors is, it’s a portfolio of resources that embody the skills and experiences and the lives of all of those directors. So you’ve got eight to ten people, some of whom are CPAs or CFOs, some of whom are leaders of nonprofits, some of whom have deep regulatory experience, some of whom have digital experience. And what they do in these strategic planning retreats is that they are the test bed for this new strategy. Where should we go? Well, have you thought about this?

The role of the board is to really test assumptions that are underlying the strategy, add their experiences to it, and then importantly, ratify it. The board says, this is where we’re going. They don’t create it, but they are additive to it.

Now is the tricky part. We’ve got this strategy formulated, and now we’ve got to execute upon that strategy. And so when we think about executing upon that strategy, we think about talent. We think about, are the right people in the right seats to get that done. And so perhaps if you’re pursuing a new direction in your strategy, or an important new initiative in that strategy that emphasizes a need for technology skills, the board should be asking the CEO, do we have the right chief information talent? Do we have the right security staff? Do we have the right digital technology? Do we have enough experts in AI, and in cyber, and in crypto, any of those places? And so we’re guiding succession planning in a way by saying, do we have the right talent in the right seats? And that is pretty obvious.

Now, when there is a CEO succession event, that’s even more critical. You have a CEO that has a retirement upcoming, or the board has decided that there needs to be a change. Then you’re looking for very specific leadership skills and expertise that’s going to help in that strategy execution. And the board usually does a good job of asking those kinds of questions. Do we have the right talent for that strategy execution?

Where they sometimes break down is they don’t ask the same questions of themselves. So one of the most unique factors about boards of directors is they govern the credit union, but they also govern themselves. It’s not that the CEO comes in and says, do we have the right people on our board? Are we going to achieve what we need to achieve? It’s the board that has to ask that question.

So even when they’re talking about, do we have the right talent within the credit union to execute upon this strategy, they should be saying, do we have the right talent on the board to advise upon that execution? Again, it’s not that the board is out there executing the strategy. They’re not working in the branches. They’re not doing any of the day-to-day work. But they are tracking it every single board meeting. There are key performance indicators that are saying, are we making progress toward our strategy? We’re getting more data. So a board should be saying, how are other credit unions handling this? How are other financial institutions handling this? They should be asking questions along the way, and they have to have a knowledge and experience base so that they can judge the answers to those questions.

A big part of board work is trusting but verifying. You trust that the people you have delegated the strategy and the management and leadership of the credit union to know what they’re doing and that the right talent is there. When you are talking about succession planning, you’re talking about whether the talent is there.But verifying on the part of the board also comes from the skills and experiences on the board.

So you don’t want to have a situation where you’re proceeding down an important strategic path and there isn’t the right talent on the board to say, does this seem right? One of the things that we talk about a lot, and you’ll hear it from lots of people who engage with boards of directors, is this rule of thumb that boards need to have eyes, nose, and ears in, and fingers out. It doesn’t matter how many times you hear that. Sometimes it can be tempting when you’re a director to try to get your fingers in and try to do the strategy.

So you always have to keep that boundary between what is my role in strategic execution as a director. And that role is making sure that you’re proceeding down a good path. You’re trusting, but verifying.

And you really have to ask yourself then, do we have the right people on the board, which brings up board succession planning, to trust and verify and make sure that we’re headed down the right path for strategy execution.

One of the best ways that you can keep that in check when you’re on a board, whether you’re trying to put your fingers in or whether you’re appropriately just putting eyes, nose, and ears in, is to have very clear boundaries between what is the role of management and what is the role of the board.

One of my favorite tools is a RACI matrix, and you’ll see this in some of the research that we’re about to publish from Filene. It’s a joint task where you sit together with the executives and you say, okay, who’s responsible for this specific action, who’s accountable, who needs to be informed, and who needs to be consulted? And so this is often a really good way, if you’re a director, to take a step back and say, is this really my job? Am I responsible for this in the organization? And if the answer is no, and am I held accountable for this? And the answer is no, that’s typically the role of management. So it’s a good way to make sure that you keep your fingers out.

The other thing that’s really important about boards is your group. Other directors and the chair can say, oh, that’s really not something that we feel like is a good use of your time. And that happens a lot in boards, because we’re excited about things. As directors, we have certain things that we really love.

So let’s think about an example. I have a board that I work with, and one of the directors is a marketing expert, a multicultural marketing expert. You think, what a great experience to have on the board, right, because we have so many different kinds of members. But that director is there to provide insight into what they’re seeing other places, test the assumptions behind the strategy, track the strategy execution. They really shouldn’t be saying, I want to come to focus groups with members. I want to design the questions. I want to do a survey. Their fingers are in when that starts to happen. And hopefully fellow board members will say, we know how excited you are about that, but that’s not your job. Or the chair will step in. Or you can go back to that RACI matrix and say, this really isn’t my job.

So let’s think then a little bit further.

We’ve already talked about what boards should be asking about themselves. It’s much more common, as I said, that boards think about the talent in the organization than they think about their own talent. And so what boards really should be doing in succession planning is asking themselves the basic question, do we have the skills and experiences on the board today to guide where we’re trying to get tomorrow in the credit union?

So one of the most important things to think about with board succession planning is, I’m going to think about this as a toolkit. And one of them is creating an attribute matrix of what are the important skills that we need on the board to trust but verify and to make sure that we are able to successfully advance upon the strategy that we have ratified for the credit union. And so let’s use an example from today.

You know, a lot of directors of credit unions are asking themselves some critical questions around either digital currencies or perhaps cyber digital security issues, issues. And they’re saying, do we even know if we have people on the board that have artificial intelligence or stable coin experience, et cetera? You can’t have all experiences that matter on a board of eight to ten people. But in this attribute matrix, what the board should be doing, along with executive management, is saying, what are the seven to ten most critical skills for us to have?

It’s always going to include business leadership experience. It’s always going to include board experience. It’s always going to include financial acumen and experience, because we are talking about credit unions. It’s always going to include regulatory, et cetera. But then, depending on where the credit union is going, there might be very specific skills, like stable coin, like digital currency, like AI, that you want to invest more in.

Now, how do we do that?

Once we’ve identified that we want those skills, we ask individual directors to assess themselves. How much do you know about this? If you don’t know much about the topic, could we bring experts into our board? Could we send our board to courses? Could we send them to conferences to learn about those? And then, of course, at the other end, it would be, do we need to add someone to the board? And you can’t just infinitely continue to add people to the board, because boards of directors are effective at a size around eight to twelve. You get any bigger than twelve, and you’re going to have a hard group to manage to get to decision making.

So if you feel like you need to add people to the board, someone has to leave. And we have to have a real honest conversation about where the skills are needed for the future and how we are going to make room for that. In some boards, they rely on term limits. In some boards, they rely upon retirement ages. In others, they rely upon this attribute matrix and assessment to say, after I’ve assessed all my skills personally, we have others who can cover those areas, but we don’t have anyone in this one area and we need a new director. Therefore, we’re going to ask you at the end of your term to step off.

That’s a very hard thing to do.

Okay. So with this understanding of how important it is for the board to ask themselves about board succession planning, and the toolkit that a board can use to do so, let’s pivot now and talk about CEO succession.

In my research with credit unions, most credit unions have an emergency succession plan, and that’s the proverbial, our CEO gets hit by a bus. Who’s going to step in as interim CEO? That is a minimum requirement for us as fiduciaries on boards. But particularly if you have a relatively new CEO, a young CEO, things are going really well, it doesn’t mean that you don’t have a responsibility to think about longer-term succession planning. And in particular, who’s coming up underneath that CEO.

So this is an area that sometimes boards hesitate to dive into, but it’s absolutely as critical an element of our fiduciary responsibility to members as CEO succession, to say, how are we developing executives underneath the CEO?

So I’ll give you an example.

Most boards that I know ask at least annually for a review from the CEO of all of his or her direct reports. Now, I’ll use an example from the boards that I like to use, and that’s a nine-box. A nine-box is just a matrix that basically looks at performance and potential.

So you’re ranking one of your direct reports along, how solid is their performance? Is there variation in it? Are they consistently one of the strongest performers? And then you’re looking at potential. How could they develop? Could they develop into the next CEO?

And so every year, what a lot of boards will do is they’ll ask a CEO for a nine-box, or there are plenty of other tools. You don’t have to go out and try to figure out what this tool is. But just imagine the tool. And so the CEO is saying, okay, here is my CHRO. Here’s my CFO. Here’s my CIO. Here’s my CMO. You know, they’re bringing out all the Cs, and they’re saying, okay, who has strong performance and who has potential? And it is their job as the CEO to develop the bench strength of the people on their team, just the way it is the job of the board to develop their own bench strength.

So we should be thinking about succession planning as a leadership team. We should be thinking about leadership readiness. You know, we talk a lot about talent and where talent comes from in credit unions. It should be a real badge of honor if a CEO loses their best management team to be CEOs of other companies, other credit unions, because that means they’ve developed their potential and their strong performers.

So if you have a relatively young CEO who’s not nearing retirement, you might feel like, oh, I shouldn’t ask. But you have to ask. It doesn’t matter if a CEO is in their first year or in their thirtieth year. They should always be talking about who they’re developing behind them, and having that critical feedback from the board about where their team is developing.

Now, let’s not forget that boards see the executives. It’s not like the CEO is the only person who comes into a boardroom. So you’ll also get good judgment and feedback from the board. But remember, you don’t work with these people day to day. So you, again, fingers out, eyes, ears, and noses in.

You can gain a lot from seeing these other executive teams in the boardroom, but you’re not going to be an expert in who should step into the long-term role. So when we think about evaluating the talent that’s being developed under the CEO, it’s really hard to know performance and potential when someone hasn’t already been a CEO. You have to really judge potential in the way that we think about development.

So let’s say that you’ve got a performer on the team that is really solid. Their performance is undeniably strong and consistent. But they perhaps are very good at their functional area, but don’t have the leadership skills yet that would make a board comfortable to say they might be ready to step into the CEO’s role. Well, that’s when you get them a coach. That’s when you start investing in their leadership development, sending them to the right classes.

Again, this isn’t the board who’s selecting these engagements. It really should be a part of what the board is asking the CEO to do.

Ultimately, when the time comes for succession, the board is going to have to decide, is there someone inside that’s ready to take the role? Or do we need to go outside? The job of the board and the current CEO is to develop the people under the CEO so that there are lots of viable choices inside. Doesn’t mean that the board is going to say, yes, this is the next CEO from the inside, but it is their job to do that. And the board has to hold the CEO’s feet to the fire, whether they’re a brand new CEO or a long-term CEO, so that they have that long-term succession planning.

So I hope I’ve convinced you all that succession planning, both on the part of the board and on the CEO, are critically important.

Here’s what I would suggest you do in your boards. When you think about your annual cadence of meetings, you have to have this on the agenda. You need to have board succession planning on the agenda. You need to have CEO succession planning on the agenda.

And CEO succession planning needs to be both that short-term emergency situation and the long term, with the development goals, with the nine-box or whatever tool you’re using. You have to make sure that you have allocated time to both on your agenda. The latter is often easier for boards. The former, asking for their own succession planning, is tougher. Now, it doesn’t need to come from an outside person coming in and looking at your governance tools. You can use tools that are out there. Filene’s got a great governance risk assessment tool that a director can go in and answer a number of questions that also includes indicators of board succession planning, to make sure that a board is doing governance right.

Again, boards are the only people that can govern themselves. So making sure that it is an annual item on your board meeting agendas to talk about governance. Are we advancing governance? Governance is a journey, not a destination. Every company, every board can do better.

So make sure that it’s a part of your agenda. If you don’t have succession planning tools like an attribute matrix that is tied to self-assessment, that is tied to educational investments to advance the skills of current directors, you need it. You more likely have ideas around what kinds of new directors you want. But that attribute matrix should be paired with retirement ages or with term limits so that you know what kind of director you’re out there seeking, and it’s very, very purposeful.

So in closing, one of the things that I think is critically important is to go back to strategy.

Succession planning is about strategic execution. Strategic execution is influenced by the leadership of the credit union and the leadership that sits on the board. So we need to intentionally be focused on it in our boardrooms.

The NCUA is going to ask, but you already should be focused on these elements. And even boards that already have the tools in place, they’re already doing a rigorous CEO succession and direct-report talent review. Those boards that already have forced refreshment, like term limits or retirement ages and attribute matrices, can always be doing more. They can find better conferences to go to, better educational opportunities to advance the skills of their directors. And they can be really intentional and rigorous in selecting new directors.

So, I think what we want to stay focused on for our succession planning is it’s not a separate event from strategy execution. These two things go hand in hand. Leadership, strategy, and governance aren’t three separate silos. So anytime we are focused on how we can be the most strategic board, or advance the strategy of our credit union, we’ve got to be thinking about rigor in succession planning.

Host:

Today’s conversation reinforces a core idea. Succession planning isn’t about having perfect answers. It’s about asking the right questions early and often, and for true strategic success, you can’t leave your board or your CEO out.

As Amy mentioned, the start of the year is a great time to take those steps, and she also mentioned some of the tools to help you do it. To quickly check the health of your governance practices right now, check out Filene’s Credit Union Governance Risk Assessment Tool, or look for her upcoming report, Optimizing Credit Union Governance for Strategic Advantage, releasing later this spring.

You’ll find links for everything in the show notes, and we’ll see you next time on The Filene Fill-In.