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Contemporary Governance Mitigates Lawsuits

September 25, 2009
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By John Wallace

Since we’ve all had a front-row seat to the recession, it’s easy to relate to the economic impact it’s had on us professionally and personally. These unprecedented and unpredictable times have put corporate governance at the forefront for credit unions and their boards of directors.

According to CUNA Mutual Group, Madison, Wis., insurance claims received during the first half of 2009 related to lawsuits against directors, officers, volunteers, and employees have risen 72% compared to the same period in 2008.

While there isn’t a universal definition of corporate governance, it’s commonly referred to as a set of processes, customs, rules, policies, and laws that guide how an organization is directed, administered, or controlled for the benefit of stakeholders.

Likewise, there are many viewpoints on administering a contemporary form of corporate governance in response to today’s turbulent environment. However, most experts agree that more rigorous corporate governance practices can greatly improve an organization’s performance while reducing the likelihood of costly lawsuits brought against its directors and officers.

At the heart of corporate governance for credit unions are members—their primary stakeholders—whose interests should always be considered.

Credit unions’ secondary stakeholders may range from management, employees, suppliers, regulators, and the communities in which they operate. Every board decision should consider the impacts to its stakeholders.

Five governance best practices

The following practices can strengthen your credit union’s corporate governance and help reduce your professional and personal liabilities:

1. Establish written governance guidelines. These should establish the role of the board and any director qualification requirements, such as a minimum number of directors with a financial or legal background and when a vote by members or the board is required.

Do what’s best for your stakeholders and don’t take the path of least resistance. Your guidelines should reflect this concept.

2. Formalize a written procedure for disclosing conflicts of interest and board independence. Perform this annually to allow directors to compile a list of potential conflicts and submit those to the rest of the board. An example of an independence guideline would be to not allow a vendor or an affiliate of a vendor to sit on the board.

3. Designate a director in charge of corporate governance. A director of corporate governance can promote and establish governance best practices and be part of the buying decision for Director and Officer Liability insurance.

4. Develop written procedures for requesting third-party work. The board must be able to hire third parties to conduct independent analyses and provide independent recommendations, particularly for major transactions like a merger.

5. Create a director orientation packet. Give new directors a good start by providing key information, including articles of incorporation, bylaws and amendments, board meeting calendar, summary of disclosures, requirements concerning conflict of interest policies, and rules of government audits.

Recognizing the importance of corporate governance in today’s volatile marketplace and applying best practices in its administration will help protect your credit union—and you, as a credit union official and individual—from costly lawsuits.

The book, “Corporate Governance,” by John L. Colley is well-regarded resource for more detailed corporate governance best practices.

CUNA Mutual’s new Management & Professional Liability program, which is designed exclusively for credit unions’ litigation risks, will be available on or after Jan. 1, 2010, in most states. To learn more, e-mail cuprotection@cunamutual.com.

John Wallace is the product executive for CUNA Mutual Group’s Bond and Management & Professional Liability insurance products. Contact him at 800-356-2644, ext. 7151.

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Great article! Unfortunately, most employees don’t feel valued or appreciated by their supervisors or employers. In fact, research has shown that the predominant reason team members quit their jobs is because they don’t feel valued. This is in spite of the fact that employee recognition programs have proliferated in the workplace – over 90% of all organizations in the U.S. has some form of employee recognition activities in place. But most employee recognition programs are viewed with skepticism and cynicism – because they aren’t viewed as being genuine in their communication of appreciation. Getting the “employee of the month” award, receiving a certificate of recognition, or a “Way to go, team!” email just don’t get the job done. How do you communicate authentic appreciation? We have found people have different ways that they want to be shown appreciation, and if you don’t communicate in the language of appreciation important to them, you essentially “miss the mark”. Additionally, employees need to receive recognition more than once a year at their performance review. Otherwise, they view the praise as “going through the motions”. A third component of authentic appreciation is that the communication has to be about them personally – not the department, not their group, but something they did. Finally, they have to believe that you mean what you say. How you treat them has to match the words you use. If you are not sure how your team members want to be shown appreciation, the Motivating By Appreciation Inventory (www.appreciationatwork.com/assess) will identify the language of appreciation and specific actions preferred by each employee. You then can create a group profile for your team, so everyone knows how to encourage one another. Remember, employees want to know that they are valued for what they contribute to the success of the organization. And communicating authentic appreciation in the ways they desire it can make the difference between keeping your quality team members or having a negative work environment that everyone wants to leave. Paul White, Ph.D., is the co-author of The 5 Languages of Appreciation in the Workplace with Dr. Gary Chapman.

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