Succession Planning

NATIONAL CREDIT UNION ADMINISTRATION <CFR>12 CFR Parts 701 and 741</CFR> <DEPDOC>[NCUA-2024-0037]</DEPDOC> <RIN>RIN 3133-AF42</RIN> <SUBJECT>Succession Planning</SUBJECT> <HD SOURCE="HED">AGENCY:</HD> National Credit Union Administration (NCUA). <HD SOURCE="HED">ACTION:</HD> Proposed rule. <SUM> <HD SOURCE="HED">SUMMARY:</HD> On February 3, 2022, the NCUA Board (Board) published a proposed rule to require Federal credit union (FCU) boards of directors to establish processes for succession planning for key positions. Based on the public comments received in response to the proposal, and upon further consideration of the issues involved, the Board is publishing this second proposed rule addressing succession planning. The new proposal is based on the earlier proposed rule but includes several changes that the Board believes will further strengthen succession planning efforts for both consumer FCUs and consumer federally insured, State-chartered credit unions (FISCUs). </SUM> <EFFDATE> <HD SOURCE="HED">DATES:</HD> Comments must be received on or before September 23, 2024. </EFFDATE> <HD SOURCE="HED">ADDRESSES:</HD> You may submit written comments, identified by RIN 3133-AF42, by any of the following methods (Please send comments by one method only): • <E T="03">Federal eRulemaking Portal: https://www.regulations.gov</E> . The docket number for this proposed rule is NCUA-2024-0037. Follow the instructions for submitting comments. A plain language summary of the proposed rule is also available on the docket website. • <E T="03">Mail:</E> Address to Melane Conyers-Ausbrooks, Secretary of the Board, National Credit Union Administration, 1775 Duke Street, Alexandria, Virginia 22314-3428. • <E T="03">Hand Delivery/Courier:</E> Same as mailing address. • <E T="03">Public inspection:</E> You may view all public comments on the Federal eRulemaking Portal at <E T="03">https://www.regulations.gov,</E> as submitted, except for those we cannot post for technical reasons. The NCUA will not edit or remove any identifying or contact information from the public comments submitted. If you are unable to access public comments on the internet, you may contact the NCUA for alternative access by calling (703) 518-6540 or emailing <E T="03">OGCMail@ncua.gov</E> . <FURINF> <HD SOURCE="HED">FOR FURTHER INFORMATION CONTACT:</HD> <E T="03">Office of Examination and Insurance:</E> John Berry, Policy Officer, at (703) 664-3909 or at 1775 Duke Street, Alexandria, VA 22314. <E T="03">Office of General Counsel:</E> Ariel Pereira, Senior Attorney, Office of General Counsel, at (703) 548-2778 or at the above address. </FURINF> <SUPLINF> <HD SOURCE="HED">SUPPLEMENTARY INFORMATION:</HD> <EXTRACT> <HD SOURCE="HD1">Table of Contents</HD> <FP SOURCE="FP-2">I. Background</FP> <FP SOURCE="FP1-2">A. Succession Planning</FP> <FP SOURCE="FP1-2">B. Increased Relevance of Succession Planning</FP> <FP SOURCE="FP1-2">C. NCUA Efforts To Strengthen FICU Succession Planning Efforts</FP> <FP SOURCE="FP-2">II. The Board's February 3, 2022, Proposed Rule</FP> <FP SOURCE="FP-2">III. Legal Authority</FP> <FP SOURCE="FP-2">IV. This Proposed Rule</FP> <FP SOURCE="FP1-2">A. Applicability of Proposed Rule</FP> <FP SOURCE="FP1-2">B. Succession Plan Requirements</FP> <FP SOURCE="FP1-2">C. Available Resources</FP> <FP SOURCE="FP1-2">D. Small FICU Considerations</FP> <FP SOURCE="FP-2">V. Regulatory Procedures</FP> <FP SOURCE="FP1-2">A. Providing Accountability Through Transparency Act of 2023</FP> <FP SOURCE="FP1-2">B. Regulatory Flexibility Act</FP> <FP SOURCE="FP1-2">C. Paperwork Reduction Act</FP> <FP SOURCE="FP1-2">D. Executive Order 13132 on Federalism</FP> <FP SOURCE="FP1-2">E. Assessment of Federal Regulations and Policies on Families</FP> </EXTRACT> <HD SOURCE="HD1">I. Background</HD> <HD SOURCE="HD2">A. Succession Planning</HD> Board members play a key role in a federally insured credit union's (FICU) success. <SU>1</SU> <FTREF/> The Federal Credit Union Act (FCU Act) vests the general direction and control of an FCU in its board. <SU>2</SU> <FTREF/> The managerial structure for FISCUs is governed by State law; however, in general, the operational oversight of FISCUs is under a board of directors or comparable body. <SU>3</SU> <FTREF/> FICU boards are faced with a multitude of complicated challenges, such as meeting evolving member needs, fostering employee loyalty and trust, retaining, and developing necessary skills, and keeping pace with technological and industry changes. Among this list of issues, succession planning is one of the most critical. <FTNT> <SU>1</SU>  The term FICU encompasses both FCUs and FISCUs. </FTNT> <FTNT> <SU>2</SU>  12 U.S.C. 1761, 1761b; 12 CFR701.4, and Article VI, section 6 of the FCU Bylaws codified in appendix A of 12 CFR part 701. </FTNT> <FTNT> <SU>3</SU>  The FCU Act, at 12 U.S.C. 1790a reflects the general proposition that a board of directors governs a FICU (providing that an “insured credit union shall notify the Board of the proposed addition of any individual to the board of directors” and that an “insured credit union may not add any individual to the board of directors” under certain conditions.) This is also reflected in the NCUA regulations. For example, <E T="03">see</E> 12 CFR 701.14(a), which provides that 12 U.S.C. 1790a “sets forth conditions under which a credit union must notify NCUA in writing of any proposed changes in its board of directors.” <E T="03">See also,</E> 12 CFR 741.3(a)(2) (providing that a FISCU “board of directors may authorize” the designation of certain dividends on nonconforming investments as undivided earnings) and 12 CFR 747.2001(b) (referring to the service of credit union notices, directives, and decisions on appeal to “a dismissed director or officer thereof” of a FISCU). </FTNT> Succession planning is the process through which an organization helps identify, develop, and retain key personnel to ensure its viability and continued effective performance. It also allows an organization to prepare for the unexpected, including the sudden departure of key staff. Succession planning is recognized as vital to the success of any institution, including FICUs. One of the variables over which a FICU board has control is the hiring of the organization's senior management. Succession planning is a critical component of a FICU's overall strategic plan. It helps ensure that the appropriate personnel are available to execute the FICU's strategic plan and mission. There are two elements to a FICU board's succession planning strategy. First, the FICU's board should develop a pool of talented candidates to potentially stand for election to the board, to fill temporary board and committee vacancies by appointment, and to fill appointed positions, such as to the FICU's supervisory committee (or equivalent body under State law). The NCUA Board recognizes the importance of the election process in FICU governance and emphasizes that the proposed rule is meant to complement and not supplant the vital role member-owners play in FICU governance. Second, in furtherance of the board's responsibility to oversee the operations of the FICU, it must consider how best to fill vacancies in senior management positions held by employees, such as the chief executive officer and the chief financial officer. <SU>4</SU> <FTREF/> This includes establishing an order of succession among existing employees for temporarily filling senior management roles in the event of a vacancy, as well as the development of strategies to identify, develop, and retain employees capable of filling these senior positions. <FTNT> <SU>4</SU>  The NCUA regulation at 12 CFR 701.14 defines the term “senior executive officer” to include “the chief executive officer (typically this individual holds the title of president or treasurer/manager), any assistant chief executive officer ( <E T="03">e.g.,</E> any assistant president, any vice president or any assistant treasurer/manager) and the chief financial officer (controller).” </FTNT> A board's failure to plan for vacancies in elected and appointed positions, as well as the transition of its management, could come with high costs. The FICU runs the risk of creating a leadership vacuum, disrupting operations and potentially jeopardizing the FICU's ability to adequately manage liquidity risk, address cybersecurity threats, or ensure continued compliance with consumer protection, bank secrecy, and other critical responsibilities. The FICU may also incur higher costs or be unable to recruit and retain new leadership and top talent than would be the case if it had an established succession plan. Failure to plan for succession can also negatively impact the FICU's ability to maintain relationships with members and suppliers and to secure future business opportunities. Accordingly, the failure to adequately plan for changes in leadership can jeopardize the continued viability of a FICU, potentially resulting in the unplanned merger of the FICU or other disruptions to safe and sound operations upon the departure of key personnel. For the above reasons, the Board finds that a compelling safety and soundness case exists for rulemaking in this area. The failure of FICUs to adequately plan for succession poses a risk not only to individual FICUs and their member-owners, but to the credit union system as a whole and to the National Credit Share Insurance Fund (NCUSIF). The proposed regulatory changes are designed to mitigate this risk and are consistent with the Board's statutory duty to ensure a safe and sound system of cooperative credit for its member-owners. Board action is also consistent with the guidance issued by the other banking agencies to address succession planning. <SU>5</SU> <FTREF/> <FTNT> <SU>5</SU>   <E T="03">Se ━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━ Preview showing 10k of 61k characters. Full document text is stored and available for version comparison. ━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━