A recent industry article posed a critical question for credit union boards: Is your CEO built for the next credit cycle? The author rightly pointed out that leadership capability shows up under stress, not in benign conditions. To determine if a CEO is ready for a tightening credit market, the article suggested looking at the decisions they made during the "easy years" of 2021 and 2022. Did they loosen underwriting standards to chase growth, or did they hold the line and build capital buffers?
It is a great question, but evaluating past loan-to-value ratios and net worth margins only tells you what happened. It is a lagging indicator. If you want to know if a CEO is truly equipped for the future, you have to look at why those decisions were made.
A credit union’s balance sheet is not just a financial document; it is a psychological artifact. It is the direct result of the CEO’s underlying risk disposition and emotional intelligence.
To predict how a leader will navigate the next economic shift, boards must move beyond spreadsheets and look at two crucial behavioral indicators.
1. The Risk Factor: Alignment vs. Ability It is tempting to label a CEO who aggressively pushed loans in 2021 as reckless, and one who built capital buffers as wise. But human behavior is more complex than that.
Using the Risk Type Compass framework, we know that every leader has a natural, neurological bias toward risk.
- The Adventurous CEO is wired to see opportunity. In a low-rate, high-growth environment, their natural disposition is highly rewarded. But when the environment shifts to a contraction, their natural impulse to keep accelerating becomes a liability.
- The Wary or Prudent CEO is wired to see the downside. In a booming economy, their caution might unnecessarily starve the credit union of growth. But in a tightening credit cycle, that same caution makes them look like an operational genius.
Success is not about having the "perfect" risk type. It is about alignment. A CEO succeeds when their natural risk disposition matches the current economic environment. The danger for a board isn't having an aggressive or cautious CEO; the danger is having a CEO who lacks the self-awareness to know when their natural bias no longer fits the economic reality.
2. The EQ Factor: The Bridge Between Cycles The true test of a CEO is not how they act when the environment matches their personality. The test is how they behave when the economic cycle turns against their natural instincts. Can the Adventurous CEO pump the brakes? Can the Prudent CEO seize a rare market opportunity?
This requires high Emotional Intelligence. When we evaluate leaders using the EQ-i 2.0 model, we look specifically at two traits that determine survival during a market shift:
- Reality Testing: Is the CEO objective enough to see that the easy-money days are over? Leaders with low Reality Testing fall into the sunk-cost trap, defending their past strategies even when the data proves they are failing. Leaders with high Reality Testing see the market exactly as it is, without ego, and adjust accordingly.
- Flexibility: When early warning signs appear—like rising 30-day delinquencies or increased credit line utilization—can the CEO change their mind? An emotionally intelligent leader solicits feedback, builds consensus with the board, and delivers bad news promptly so the institution can adjust its strategy. A rigid leader hides the data to protect their image.
The Real Test for the Board
The original article noted that some CEOs who thrive during an economic expansion simply cannot make the shift to defense during a contraction. The skill sets and temperament are different.
If your board is trying to evaluate whether your CEO is ready for the road ahead, don't just look at the capital buffer they built three years ago. Look at how they handle objective reality today. A sustainable, resilient credit union is not built by a leader who predicts the future perfectly. It is built by a leader with the emotional intelligence to adapt when the future changes.
