SEATTLE–It seems so simple: the credit union’s board supervises the CEO; the CEO supervises the staff, and if the board is unhappy with staff or CU performance, they should replace the CEO. And yet it seldom is so simple.
That’s when Steve Peltin finds himself becoming involved. Peltin is an attorney with the law firm Foster Pepper who has represented numerous boards, usually in cases where there is an issue with senior management or a CEO.
Peltin offered his insights during a day-long Symposium on Current Issues in Credit Union Board Governance that was organized by John Lass of Lass Advisory Services, along with former CU leader and regulator Parker Cann, and Foster Pepper itself, which does considerable work with credit unions.
The Symposium took place in Foster Pepper’s downtown Seattle offices, and Peltin’s remarks here are part of a week-long series in CUToday.info based on the Symposium.
Part I on "Failed Bank, Failed Board Governance,' can be found here. Part II on how "Governance Makes a Difference" can be found here. Part III on the ‘Benefits and Risks of Board Committees’ can be found here. Part IV on The Challenge to Board Diversity can be found here.
When it comes to hiring a new CEO, Peltin is a believer in using an outside recruiting firm, saying HR people and boards don’t have the network needed to attract a broad spectrum of candidates, and HR doesn’t want to dig too deeply into the person who may become their boss.
Perhaps most importantly, as Peltin reminded, “If all you do is pick the people you already know, you will have what you have always had.”
Here’s an overview of some of the board/management issues addressed by Peltin:
Once a new CEO is in place, it’s very difficult for the board to change the deal in a way that will disadvantage the CEO, said Peltin. Similarly, once the CEO has signed on, it’s difficult for him or her to say they want a new contract.
“All needs to be resolved upfront,” said Peltin. “The tone you set during these negotiations can be interesting. You don’t want the honeymoon to be over. If you get to fairly contentious negotiations, there is fear it can dampen the enthusiasm of the new CEO. On the other hand, you as a board member have a fiduciary responsibility to make sure you are taking care of your members. My advice is if it starts to get uncomfortable, you throw it to the lawyers.”
While it should be obvious, Peltin said an employment agreement needs to be finalized before the new CEO/exec starts on the job. “But I’ve had a number of situations where they are still talking about it after the person has started. I’ve also had situations where I’ve been brought in to terminate (the CEO/exec) and there still isn’t an employment agreement.”
Peltin said the length of the term of a contract isn’t as important as is the question of how to end a relationship. “The term becomes important when it comes time to renegotiate. But if a person can be let go or leave with a 30-day notice, then it’s not a three or five-year contract anyway.”
A feedback loop is the common duty of the board and the CEO to remain in open communication about management and governance issues, said Peltin.
“If there is one thing I can tell you it is that surprise is failure,” he said. “If the board or CEO are surprised by something the other party is doing, that’s a failure in communication.”
The CEO needs to understand the work he or she is doing and how it’s being reported to the board, Peltin stated. That may mean the CEO has to be coached by someone on the board. But feedback has to go the other way, too, Peltin said, so board members aren’t surprised, and that may mean the CEO may have to do some coaching, which he admitted “can be a little dicier.”
Who should be supervising the CEO? Not a committee, said Peltin. Instead, it should be the board chair.
Board Termination of CEO
Again, Peltin stressed there should be no surprises in this process, regardless of how unpleasant the experience can be. He said the entire board should vote on termination.
The implementation piece, according to Peltin, can be trickier, and is where he is often involved. Peltin recommended that at least two board members be involved, that the process be respectful, and that it protect the organization from the consequences. It should also be done in a way that respects dignity and preserves CEO’s opportunities with other credit unions.
The financial piece, he said, should already be in the employment agreement.
Other Issues Related to Boards
Other board issues in a CEO separation, according to Peltin:
- The board should not be hiring other candidates beyond the CEO, but may need to be involved with other execs as part of succession planning.
- The board should not be responding to employee complaints/reports. “This is a horrible idea, and all it does is undermine management, and bring all the nitty-gritty disputes up to the board level. But there are some complaints that should go to the board, and that is if the CEO is the problem.”
- The board should not be setting personnel policies. The employee handbook is not a board issue; it’s a management issue, said Peltin. “What should come to a board are notifications from the CEO that new personnel policies are being put in place.”
- Benefits plans. This issue cuts down the middle, said Peltin. It should be a management issue, but if it’s a substantial financial hit to the organization, then that should go before the board, he said.