S2 | E8: CRO Succession Planning: Consequences of Ineffective Planning & Lessons Learned

In this episode of the SRA Watchtower Risk Intel Podcast, we welcome back Michael Glotz to the show‍. Building upon our previous conversation on succession planning, we explore key considerations, best practices, and real-world examples to help organizations navigate the complexities of leadership transitions in risk management. Read below to learn the pros and cons of hiring from within VS externally, regulatory expectations and how to continuously monitor and develop your succession plan.

"Succession planning is not just a one time event, its a continuous process where you identify succession candidates and develop and access them on a quarterly basis to see if they are ready as a candidate today to step in the role or are they a future candidate." - Michael Glotz, CEO, SRA Consulting

‍Internal vs. External Succession

One of the fundamental decisions organizations face when planning for succession in risk management is whether to promote talent from within their ranks or seek external candidates. Michael provides insights into the advantages and challenges associated with each approach.

Advantages and Challenges of Promoting From Within

• Promoting from within offers several distinct advantages. Internal candidates are often already familiar with the organization's culture, processes, and risk landscape. They may have established relationships with key stakeholders and possess institutional knowledge that can facilitate a smoother transition into the CRO role. Furthermore, promoting internal talent can boost morale and retention rates by signaling opportunities for career advancement within the organization.
• Despite its benefits, internal succession is not without its challenges. Organizations must ensure that potential candidates possess the requisite skills, experience, and leadership capabilities to excel in the CRO role. Moreover, relying solely on internal talent may limit the diversity of perspectives and ideas brought to the leadership team. In some cases, internal candidates may also face resistance or skepticism from colleagues who perceive them as too closely aligned with existing leadership.

When to Hire Externally? Pros and Cons

• Pros: Recruiting external candidates can inject fresh perspectives and expertise into the organization's leadership team. External hires may bring valuable insights gleaned from their experiences in other organizations or industries, enriching the organization's risk management practices. Additionally, external candidates may possess specialized skills or qualifications that are not readily available internally, enhancing the organization's overall capabilities.
• Cons: While external succession offers the potential for innovation and diversity, it also presents unique challenges. Organizations must navigate the recruitment process diligently, ensuring alignment between the candidate's expertise and the organization's strategic priorities. Moreover, integrating an external hire into the organization's culture and operations requires careful planning and support to facilitate a seamless transition. Additionally, external hires may face skepticism or resistance from existing employees, necessitating proactive efforts to build trust and foster collaboration.

Transition Periods and Overlaps

A successful leadership transition hinges on careful orchestration and adequate overlap between outgoing and incoming CROs. Drawing from industry examples, such as the transition at Citizens Financial Group, Michael underscores the necessity of planning ahead and implementing a structured transition period.

‍"A well-structured transition period minimizes disruption and ensures continuity in risk management practices" - Michael Glotz, CEO, SRA Consulting

Michael shares a best practice example from Citizens Financial Group, who's CEO is retiring soon. Once it was known the CEO would be retiring, they started looking for a new CRO last year. They found an outside candidate well known in the industry, who has been working alongside the outgoing CEO to ensure he's fully up to speed on the specific risks and strategic plan of the bank.

Here are some additional tips for managing the transition periods and succession planning:

1. Comprehensive Handover Plans: A successful transition begins with a well-defined handover plan that outlines roles, responsibilities, and timelines for outgoing and incoming leaders. This plan should encompass knowledge transfer sessions, stakeholder engagements, and strategic alignment meetings to ensure a smooth transition of leadership.
2. Open Communication Channels: Transparent communication is paramount during the transition period to mitigate uncertainty and foster trust among stakeholders. Leaders should maintain open channels of communication with employees, clients, and other key stakeholders, providing regular updates on transition progress, milestones, and potential challenges.
3. Mentorship and Coaching: Mentorship and coaching play a crucial role in supporting incoming leaders during the transition phase. Experienced mentors can provide guidance, insights, and institutional knowledge to help new incumbents navigate challenges, build relationships, and adapt to their new roles more effectively. Some banks, especially above $10B in assets, should make it a practice to have a "Deputy Chief Risk Officer" role, so in case the current CRO leaves unexpectedly, there is already someone familiar with the bank that has been in training to take over the CRO mantel.
4. Continuous Evaluation and Feedback: Continuous evaluation and feedback mechanisms are essential for monitoring transition progress and addressing any emerging issues promptly. Regular check-ins, performance reviews, and feedback sessions enable leaders to identify areas for improvement, address concerns, and make necessary adjustments to the transition plan.
5. Cultural Integration: Cultural integration is vital for ensuring alignment with the organization's values, norms, and corporate culture. Incoming leaders should familiarize themselves with the organizational culture and actively engage with employees to foster a sense of belonging and cohesion during the transition period.

‍Regulatory Expectations

Regulators are increasingly scrutinizing the adequacy of succession planning in financial institutions, particularly for key roles like the Chief Risk Officer. We emphasize the regulatory imperative and advises organizations to proactively revisit and update succession plans. By demonstrating robust governance practices, organizations can enhance their resilience and mitigate regulatory scrutiny.

"Regulators expect organizations, particularly financial institutions, to have robust succession plans in place" - Michael Glotz, CEO, SRA Consulting

Depending on asset sizes, there may be a regulatory checklist to be aware of as well. For example banks above $50B have talent management program and succession planning for 3 vital roles: Chief Executive Officer, Chief Audit Executive, and Chief Risk Officer.

After Silicon Valley Bank (SVB), regulators are taking more frequent and more intense looks at the succession plan. It's no longer a "one-and-done" action plan. Banks need to be maintaining an up-to-date succession plan for critical leadership roles, citing regulatory requirements for talent management programs.

‍Continuous Monitoring and Development

Succession planning is an ongoing process that demands continuous candidate development and assessment. Michael highlights the importance of nurturing talent internally while remaining receptive to strategic external hires. By investing in talent development and fostering a culture of leadership readiness, organizations can future-proof their risk management capabilities. Proactive risk management not only enhances regulatory compliance, but also strengthens organizational resilience.

Conclusion

Navigating succession planning in risk management requires foresight, strategic thinking, and proactive measures. This insightful discussion offers valuable guidance for organizations seeking to strengthen their leadership pipelines and mitigate operational risks. By embracing best practices, organizations can ensure seamless transitions, bolster regulatory compliance, and safeguard their long-term success in an ever-evolving landscape.