Orcas live in matriarchal pods, led by the oldest female. Older members of the pod pass down behaviors and knowledge to the younger members, including hunting and survival strategies, migration routes, and unique vocalizations and calls. This cultural learning helps orca pods to thrive. In a similar vein, ensuring that your community financial institution (CFI) has the right leadership team with the right skill sets — along with a proactive succession plan — is crucial to securing its long-term health. The Rising Succession Planning ImperativeMany CFIs are, or might soon be, facing significant talent-related challenges, particularly with notable numbers of C-suite members and senior management teams approaching retirement age. To quantify the issue:
- The average bank CEO is 58 years old.
- One-quarter of banking C-suite executives are 65 or older.
- About 73% of employers in the financial services industry say it’s difficult to find skilled talent.
- Nearly 82% of financial institutions don't have a formal succession plan in place for their CEO.
Fortunately, prioritizing robust and long-term succession planning can help CFIs to counteract these challenges. When done right, succession planning can support employee development and ensure smooth leadership transitions. It can also help to mitigate risk by maintaining business continuity, reducing uncertainty, and preserving institutional knowledge and culture.Obstacles to an Effective TransitionSuccession planning can be difficult, but it’s also very important to choose the right people and put them in the right positions to lead your organization forward. Failure to choose an appropriate successor, especially for multiple leadership positions, can result in financial, operational, and cultural challenges. In extreme cases, poor choice of future leaders (or lack thereof) could even lead to business failure. Here are a few reasons this could happen:
- Limited depth of talent and resources. Smaller CFIs may have limited in-house talent available for key leadership positions, making it difficult to fill these roles. In addition, CFIs often face strong competition, particularly from larger banks, when recruiting and retaining experienced staff.
- Shifting workforce dynamics and demographics. Financial institutions are increasingly finding it difficult to attract younger generations into the industry.
- Focusing on other strategic priorities. In the fast-changing economic environment, succession planning can easily fall down the list of board and management priorities.
- Lack of leadership development. The key skills that senior leadership needs are evolving, but institutions might not recognize this or have the necessary training programs in place to develop in-house talent.
- Resistance to change. It can sometimes be difficult for long-tenured employees to adapt to new technologies and procedures, which can result in pushback.
By developing and communicating a well-crafted succession plan, CFIs can address these challenges and ensure a smooth leadership transition, retain key employees, and preserve organizational culture. Seven Ways To Ensure an Effective Leadership Transition
- Employ proactive and continuous planning. Succession planning should be an ongoing process, clearly linked with the CFI’s vision and strategy. It should also accommodate changing market conditions and organizational needs, such as expansion and new leadership positions.
- Identify and map required skill sets and competencies. Those responsible for transitions should regularly assess and review the institution’s key roles and associated skills, knowledge, and competencies to ensure that they align with its objectives, vision, and strategy. These requirements should also be mapped against existing internal talent to flag potential gaps.
- Invest in leadership development. CFIs can cultivate a strong internal talent pipeline by providing leadership development programs for employees at various levels. It’s important to identify high-potential individuals early in their careers and support their development. This development should include mentorship and providing exposure to other departments, the board, and the C-suite. Prioritize offering professional growth opportunities to prepare these individuals for future leadership roles. Development programs should go hand-in-hand with good incentive packages to retain top talent.
- Create a formal succession plan. It’s important to develop and maintain a formal, documented plan with clear timelines that account for various scenarios — emergency situations as well as longer-term planned transitions. It should be carefully aligned with the CFI’s strategic plan, while also promoting flexibility and agility. Thoughtfully assigning roles, responsibilities, and accountability within the management team, and engaging in open and consistent communication with all stakeholders is important to ensure transparency and buy-in.
- Engage the board. The board needs to be actively involved in the process to ensure success. Regularly reviewing the succession plan and holding leadership discussions should be integral to the board’s duties.
- Involve outgoing individuals in the transition. Outgoing leaders’ insights and knowledge can be a significant asset during any transition. Involving them in the succession planning and transition process can ensure a smoother transition and maintain organizational stability.
- Implement a strong onboarding and induction process. Providing the right support for appointees will help to embed them in their new roles smoothly and quickly. Mentorship, coaching, and opportunities to shadow other leaders are key. Opportunities to work on special or designated projects can support their integration and help to further refine their skills and demonstrate their capabilities.
By proactively addressing succession planning and leadership development, CFIs can avoid the risks associated with leadership transition and ensure a seamless handover to the next generation. A well-executed succession plan can strengthen institutional culture and foster long-term success.
