Directors Go Back to School

Directors are moving from the boardroom to the classroom as NCUA raises expectations of their financial knowledge.

November 01, 2011
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Back to School


  • CUs must develope directors’ ability to identify and manage risk in all major operational areas.
  • A financia literacy certificate gives CUs and directors a paper trail for regulatory compliance..
  • Board focus:   The larger and more complex a CU is, the more training will be required for directors.


NCUA’s financial literacy requirements are pushing credit union directors to combine the will to offer volunteer leadership with the skills required to assess financial performance.

The agency’s Rule 701.4 requires new directors at federally chartered credit unions to learn to read and under-stand their credit union’s balance sheet and income statement within six months of joining the board. Directors already serving on their boards were required to demonstrate compliance by July 27, 2011.

Credit unions, directors, and even NCUA representatives point out that many directors already had the necessary financial skills before the rule was introduced.

Instead of worrying about which board members have achieved financial literacy—and which are lacking—many credit unions are seizing the opportunity to fill gaps in current directors’ financial skills while strengthening financial training for new board members.

Quality volunteers

The rule change prompted some credit unions to develop policies and procedures that formalize training practices, according to David Small, NCUA spokesman and assistant director of public affairs.

“Attracting volunteers with the right skill sets to serve as directors is challenging in today’s environment,” Small says. “While most credit unions ensure new directors have the tools and skill set necessary to be effective directors, they might not have formal policies to help guide this process.”
Small says training efforts should include:

  • Developing directors’ ability to identify and manage risk in all major operational areas, such as asset/liability management (ALM), investing, and lending, particularly in new business ventures;
  • Offering management support for directors’ financial skills by providing ongoing training and information; and
  • Discussing financial trends and ratios at monthly board meetings because annual training is often insufficient.

“The goal is to equip directors to make sound, informed decisions regarding routine business operations and strategic initiatives, and to understand their credit union’s financial footing,” Small says.

A systematic approach

The NCUA rule provides flexibility so credit unions and directors can devise the best route for achieving the necessary skill levels. Kevin Smith, CUNA’s director of volunteer education, says many credit unions sought training outlines and materials from CUNA and state credit union leagues.

CUNA developed a financial literacy certificate volunteers can earn by completing the self-study Volunteer Achievement Program, Credit Union Finance for Non-Financial Managers and Volunteers training, or onsite instruction. Volunteers must pass a test administered at the end of training to earn the certificate.

“Our goal in creating a certificate was to set the bar a little bit higher and streamline the paper trail for directors,” Smith says.

NCUA also has indicated that credit unions must conduct ongoing, personalized reviews of financial data and operations. Smith says the biggest challenge lies in preparing directors to address size, complexity, and risk profiles.

“The best starting point is to take an honest assessment within your board room,” Smith says. “Look for gaps. It can be as simple as asking the chief financial officer or other senior managers to address those gaps and calibrate training to get everybody to the same place.”

Proven readiness

Mike Read, board chairman at $435 million asset People’s Trust Federal Credit Union in Houston and a CUNA-certified credit union volunteer (CCUV), says the institution believed its directors already met the financial skills standards when NCUA passed its rule.

The credit union’s nine-member board includes two directors who are certified public accountants (CPAs) and a director with a PhD in economics. Six directors have completed CCUV training, and the board discusses financial issues at every meeting and holds quarterly ALM reviews.

But shortly after NCUA announced its director financial literacy rule in late 2010, the board voted to document its preparedness by having every director, director-in-training, and Supervisory Committee member obtain a financial literacy certificate.

“Our perspective was that it simply eliminated the question that could ever be raised about whether or not this board had done the proper training and preparation to meet that requirement,” Read says. The existing training budget was reallocated to cover the cost.

Directors’ experience is documented with a biography, educational and professional background statements, and transcripts of credit union training.

“We have a file on every director now that tells exactly who we are, what we are, and how we contribute to our credit union,” Read says. “We wouldn’t have done that without the introspection this rule provided.”

People’s Trust Federal also appoints two nonvoting directors-in-training who prepare to serve by attending board meetings and completing training programs. A mentoring program matches new volunteers with experienced officials for at least six months.

Next: In-house training

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