Volunteers

Risk Oversight Is Top Board Priority

Managing risk requires your board to consistently discuss ‘what if’ scenarios.

November 11, 2011
KEYWORDS oversight , risk
/ PRINT / ShareShare / Text Size +

Credit union boards are under increasing pressure to practice effective risk oversight, says Joette Colletts, regional manager of risk management with CUNA Mutual Group in the Credit Union Directors Newsletter.

This additional scrutiny comes from the perception that financial institutions weren’t adequately prepared to manage the risks they encountered during the recent financial crisis. While credit unions didn’t cause the financial crisis, they’ve been caught up in the regulatory backlash.

A credit union’s board of directors is ultimately accountable for risk oversight, including the evaluation of current risks and identification of emerging ones. Some credit unions employ formal risk oversight processes and policies, and some use informal ones. Some might even oversee risk on an ad hoc basis.

Whether sophisticated or simple, an effective risk oversight program is one that creates long-term protection and stability and requires boards to consistently discuss “what if” scenarios.

Boards can ensure proper risk management processes by challenging management to identify, assess, and manage the most significant enterprise-wide exposures. Doing so sets a positive tone and creates a risk-alert culture to guarantee safety and soundness and consistently achieve credit union goals.

Ten Types of Risk

Consider these 10 risk categories as you prepare written policies, suggests CUNA Mutual Group:

1. Credit;
2. Interest rate;
3. Liquidity;
4. Transaction;
5. Compliance;
6. Strategic;
7. Reputation;
8. Technology;
9. Cyber; and
10. Human capital.

Keep in mind that NCUA includes the first seven as part of its risk-focused examinations

This culture will include processes and a written policy your board reviews and approves annually. This provides documented direction, keeping your board focused on risk oversight and subsequent decisions.

Proper risk oversight also protects directors’ personal reputations and assets and helps directors embrace the benefits of serving on the board of a first-class, well-governed credit union.

Keep in mind, risk is inherent in any business. Your oversight role shouldn’t be to eliminate risk, but to make sure it’s managed in a way that benefits your members.

Determine your credit union’s “risk appetite”—the amount of risk exposure or potential adverse impact from an event—your credit union is willing to accept and retain in pursuit of providing value to your members.

Because boards represent members, board and management should agree on an acceptable risk appetite. Your credit union then must implement risk management controls to bring the exposure level within the accepted range.

Address risk within your business strategy as a whole. Effective risk oversight by the board looks at risk holistically by examining the global risk possibilities your credit union could encounter.

Traditionally, boards have been concerned primarily with “pure” risk, where no positive outcome was possible. Such negative risks include property risks (fires or hurricanes), robbery (loss of cash), and employee dishonesty (loss of assets).

The board’s focus was on preventing, reducing, and transferring the risk through insurance. Boards now have to consider speculative or “positive” risks as well—those that could result in improvements to the credit union, but that might have negative effects.

These result in positive outcomes such as outperforming credit union goals: an increase in loans, higher return on investments, or an increase in market share.

An important but often-overlooked tool in managing risk is a written policy, developed with legal counsel and specifically addressing the board of director’s commitment to risk oversight. Include a list of key risk indicators as part of your written policies and procedures. Keep in mind risks evolve, so it’s critical to update these indicators regularly.

JOETTE COLLETTS is regional manager of risk management with CUNA Mutual Group. Contact her at 800-356-2644,  ext. 5159.

Directors Newsletter

 

 

 Directors Newsletter

Post a comment to this story

heroes

What's Popular

Popular Stories

Recent Discussion

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.

Your Say: Who should be Credit Union Magazine's 2014 CU Hero of the Year?

View Results Poll Archive