Credit Union Exam Solutions Presents With Flying Colors

Samantha: Evergreen Insights: 10
Reasons Why N C U A Should Not

Regulate Succession Planning.

Since the agency recently reintroduced
an new proposal on Succession

Planning, what better time than
now to look back on our historical

take on why this is not necessary.

Also in the the near future
watch for another episode on this

proposed rule and our comment
letter to N C U A on this topic.

You can also watch for more
Evergreen Insights which are

past episode that are timeless.

This episode is called evergreen insights.

10 reasons why.

Should not regulate succession planning.

Since the agency recently reintroduced
a new proposal on succession planning.

What better time than now to
look back on our historical take

on why this is not necessary.

Also in the near future watch for
another episode on this proposed rule

and our potential comment letter to NCUA.

On this topic.

You can also watch for more evergreen
insights in the future, which are

past episodes on timeless topics.

Samantha: Do you want to
maximize your success with NCUA?

Join Mark Treichel as he shares with
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your exam with Flying Colors.

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If you would like to work directly
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your results with NCUA so you save time

and money, visit us at marktreichel.

com.

Hey,

Mark Treichel here.

Thanks for joining me for another
episode of With Flying Colors.

Today, I've got a quick take on
succession planning or the proposed NCOA

succession planning rule, and I'm going
to provide 10 reasons why a succession

planning regulation is a bad idea.

So in January of 2022, at its NCOA
board meeting, the board voted to

approve a proposed rule on succession
planning by a vote of two to one

with three Board member, Rodney
Hood voting against the proposal.

Now, according to NCOA succession
planning is the process through

which an organization identifies,
develops, and retains key personnel

to ensure its viability and
continued effective performance.

NCOA goes on to say that succession
planning also allows an organization to

prepare for the unexpected, therefore
minimizing service disruptions

during management transitions.

Now, as an editorial comment on
that, in 33 years at NCUA, I don't

recall a lot of service disruptions
related to succession planning.

Matter of fact, I can't think of any.

Anyway, so, one of the biggest
proponents of this proposed rule,

of course, is succession planning.

Chairman Todd Harper, who issued
a statement on it after the board

meeting, which included what
I'm about to share with you.

So Todd said, moreover, succession
planning is recognized as vital

to the long term succession of any
institution, including credit unions.

A board's failure to plan for the
transition of its management could

potentially come with high costs,
including the potential for the

Unanticipated merger of the credit union
upon the departure of key personnel.

Put another way, Todd said, succession
planning helps to safeguard credit union

members choice of financial institution.

So what does the proposed rule require?

You might ask.

So the board of directors of the credit
union or an appropriate committee picked

by the board of directors would be
required to review and approve a written

succession plan regarding the specified
federal credit unions and officials.

Now, notice I said federal credit
union, this proposed rule does

not apply to state charters.

The succession plan must at a minimum
identify the credit union's key positions,

necessary competencies and skill sets
for those positions and strategies to

identify alternatives to fill vacancies.

The board also must review the
succession plan in accordance with

the schedule established by the
board, but no less than annually.

Also, in addition, the
proposed rule would amend 701.

4b3, which sets forth certain educational
requirements for federal credit union

directors and require that directors
have a working familiarity with the

federal credit union succession plan.

Now, relative to succession planning
efforts, this proposed rule is intended

to strengthen current succession
planning efforts at credit unions

and to require others that do not
yet have such planning to commence

their succession planning processes.

The proposed rule is also consistent
with the guidance issued by other banking

agencies to address succession planning.

Notice I said guidance at other agencies,
not regulations at other agencies.

All right, so.

My top 10 reasons why NCUA does not
need a succession planning rule.

Number one, I did a poll
of this on LinkedIn.

There's a book that I'm going to do a
story on called the wisdom of crowds.

Well, I sought out the opinions
of crowds and the crowds clearly

favored guidance over regulation.

72 percent of the many voters
on my poll indicated they

prefer guidance over regulation.

Regulation now, 22 percent said
no regulation, no guidance.

Let's have neither.

And quite frankly, that's
where I think NCUA should be.

Although I'm sure they'll either
land on regulation or guidance.

And lastly, only 6 percent of those who
voted felt that there was a regulation

required for succession planning.

So number two.

I mentioned that the rule says
that other agencies have guidance.

So that's number two, other
banking agencies do not have a

regulation on succession planning.

And two admits this in their proposed
regulation by stating quote, the

proposed rule is also consistent with
the guidance issued by other banking

agencies to address succession planning.

So Bank of America doesn't need a, doesn't
have a regulation that requires this.

Now, do they have a policy?

I would bet that they do.

But if it's not required of big
banks, why are you requiring it?

Of small credit unions?

They have enough regulatory
burden going on and don't need

another regulation from NCA.

Number three, the proposed regulation
is a solution in search of a problem.

It's flawed to think that a
succession planning regulation,

guidance, or policy will have a
material impact on slowing mergers.

That's just not reality.

It's easy to say in a proposed regulation,
and it's, in my opinion, flawed logic.

Number four, if NCUA does not
have enterprise risk management

regulation, it doesn't need a
succession planning regulation.

Think about it.

That's a far more appropriate,
uh, Topic to regulate.

And quite frankly, maybe you don't
need either, but a succession planning

regulation to me is inappropriate,
especially if there's other things that

you could regulate before regulating
succession planning, by the way, I'm

going to have a podcast on enterprise risk
management coming up with a special guest.

So watch for that soon.

Number five, lack of a written succession
planning is not unsafe and unsound.

NCUA, focus your regulations on
things that create unsafe and

unsound conditions in credit unions.

In my opinion, there's nothing
unsafe and unsound about not having a

succession planning policy in place.

Number six, benefits of succession
planning can be achieved by guidance.

If it's good enough for the banks to have
guidance, I think credit unions can handle

this issue, if you will, with guidance.

And NCOA issues a plethora of letters
to credit unions each year, most of

which, many of which are still active.

You can find them on NCOA's And quite
frankly, again, why not guidance?

I would push for guidance.

And if, if I was one of the three board
members or one of the two voted, yes, I

might change, I would be changing my vote
to, to now and pushing this with guidance.

Now guidance is nimble and
can be achieved more easily.

Then having a vote of the NCUA board, the
NCUA board chairman controls guidance.

They have the ability to issue
that guidance on their own.

They can seek the input of staff.

They can seek the input of credit unions.

They can seek the input of other board
members, but they can do it without

having to have a formal board vote.

And it's more nimble that way it
can be changed more frequently.

So if you put guidance out and then
want to tweak it the next year,

it's easier and takes less time and
burden from NCUA and quite frankly,

creates less of a regulatory burden.

Number eight, the proposed rule lacks
clarity regarding key positions in a

credit union succession plan, which
Positions are required to be part of it.

Where do you draw the line?

And so it gives no
guidance relative to that.

And if there's going to be a regulation
or guidance, I think there should

be more information relative to
which positions should be included.

Number nine, if it's not required
for state chartered credit

unions, don't require it for
federal chartered credit unions.

State charters already have a competitive
advantage relative to fill a membership.

Why create a regulation that only
applies to federal credit unions?

It just doesn't make sense to me.

If you can't apply it to everybody,
then don't apply it to anybody.

Number 10.

Studies show that flawed succession
planning can be a demotivator.

For example, if your position is not
defined as a key position or if you do not

get accepted to enjoy the benefits of a
succession planning program, it can create

morale problems at your, at lower levels.

So I indicated that NCOA does
not say who needs to be included.

So let's say you have a policy
and you include all vice

presidents, but not all managers.

Well, guess what?

Your managers May not feel that
they should have been excluded

from participating in this program.

So you think you can come up with a policy
that's going to help in this regard.

If it's not done right and carefully,
you're going to find that it creates

more problems than it solves.

And again, I don't think a regulation
in this arena makes any sense at all.

So NCUA sought comment on this regulation,
the comment period closed in April.

It'll be interesting to
see what happens with this.

My bet is that.

It will not get finalized as a regulation.

I have a belief that maybe the two
Republican board members will join forces

and lead to this being issued as guidance.

By the way, CUNA and NAFCU both wrote
letters to NCOA saying that they believed

it would be better to have guidance and.

The things that I've referenced here,
like the CUNA letter, the NAFQ letter,

the proposed regulation, Chairman Harper's
statement on this, and my blog post on

LinkedIn about the top 10 reasons why
NCWA does not need succession planning

rule, I will include in my show notes.

All right, that's it for this
With Flying Colors quick take.

I appreciate your time today
and I hope to see you next time.

Have you here listening again soon.

Thank you.

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