Credit unions and banks have their differences structurally and philosophically — and, as it turns out, there are some stark contrasts when it comes to CEO terminations, too.
Chason Hecht, president of Retensa Employee Retention Experts, a New York-based retention and consulting firm, pointed out some of the differences between the duties and responsibilities of a banking CEO versus a credit union chief: the bank boss has to answer not only to a board of directors, but also to shareholders who demand ever-rising stock prices. Indeed, it's not at all unusual for stockholders to sue a public company if their quarterly earnings report fails to impress.
On the other hand, credit union CEOs are beholden to the board, but they generally have a longer time-frame to turn things around and enjoy the luxury of not dealing with irate shareholders (since credit unions are member-owned). This underlines a key difference between the two types of institutions.
"They [credit unions] have a reputation of community service," said Jo Ellen Whitney, senior shareholder and chair of the Des Moines-based Employment and Labor Relations Department at Davis Brown Law Firm. "Many credit unions have a very strong community presence and communities are always paying attention to what goes on [there]."
Another issue to consider is stability — the termination of a chief executive raises questions not only about the ability of the CEO but also of the institution itself. Even worse, credit unions that repeatedly fire CEOs in succession run the risk of generating a very poor public image for themselves.
"It's different for banks since they're not as reliant on their image and their ties to the local community," Hecht said. "But for credit unions, the executives must maintain good ties to the community and uphold a good public perception."
Indeed, firings and layoffs are more the purview of profit-based companies rather than community-oriented credit unions.
Structural Issues
Steve Winninger, the head of Steve Winninger & Associates, a consulting firm that works on credit union governance issues, evaluation systems and strategic planning, said that while most boards at credit unions are highly competent, there are some structural issues that can make it difficult to efficiently hire or fire CEOs.
"It's not their fault, but they are stuck in a bad system," he said. "The financial services industry, including credit unions, is becoming very sophisticated and complex and increasingly difficult to manage. And in some cases, the boards are not equipped to do the job of finding the best talent for their top jobs."
Winninger himself was a credit union executive for 27 years, including serving as the CEO at Lake Trust Credit Union, which is now a $1.75 billion institution based in Brighton, Mich.
While the board of directors is tasked with firing an under-performing CEO, sometimes such an unpleasant fate may be compromised by long-standing, friendly relations between the two parties. This means that over the years credit union CEOs can become very comfortable — some might argue too comfortable — with one another, leading to a scenario where friendships develop and firings become either awkward or undesirable.
Tom Glatt, founder of Glatt Consulting, a credit union consulting firm based in Wilmington, N.C., noted that when boards and CEOs become too close and friendly, you "basically end up with a rubber-stamp board blessing the CEO's strategies and plans without [any] real discussion and debate. In these cases hopefully the CEO is a good one."
Whitney pointed out that CEOs and their boards generally have to get along to work effectively, especially at smaller institutions and in rural areas.
"[In small credit unions and rural areas], you are friendly with board members on the credit union, the local bank, the grocery store, the water cooperative and all the other boards that make an area run," she said. "That is the nature of running a business in rural Iowa [for instance]. Regardless of size, all boards and managers need to abide by good financial procedures as well [and have] consistent checks and balance requirements in place."
Past the Sell-By Date?
Related to this issue is the perception that some credit union CEOs enjoy unusually long tenures on the job — indeed, some have held onto the same job for decade after decade, through a plethora of economic crises and financial ups and downs.
However, Whitney countered that CEOs staying in their jobs for extended periods of time may not necessarily be a bad thing.
"Are we talking about small rural banks, large banks, [or] large credit unions?," she asked "I do not think we could say what an 'unusually long' tenure would be for any specific institution — each entity varies in its community, size, and business priorities."
For example, Whitney asserted that in smaller and rural entities, the firms have a "strong consistency" in employment at all levels of the organization. "This allows them to get to know their clients and members and to provide personal and targeted service," she explained.
Contracts
In some credit unions, a newly hired CEO signs an employment contract, which may establish a timetable for the institution's proposed financial targets, the CEO's salary and benefits, as well as terms related to his or her possible termination. But, again, the nature of such contracts can vary widely.
"Contracts do not prevent termination but may spell out specific situations where termination will occur, as well as severance in other circumstances like if an employee is terminated 'without cause,'" Whitney indicated.
Glatt posited that the majority of credit unions still function without management contracts.
"Management contracts offer certain protections to the CEO for termination, such as severance, but the better contracts incorporate performance concerns allowing for termination if the credit union does not meet clear and mutually agreed upon performance goals," he said.
