Credit union and corporate governance are so similar that if credit unions followed most of the best practices compiled by the Business Roundtable—an association of CEOs of leading U.S. companies— board engagement would increase significantly.
If credit unions and their boards “skillfully implemented” a credit union version of the Roundtable’s list of board responsibilities and practices, “it’s highly likely that their members would be better served in both the short term and the long term than they are now,” says Bob Hoel, author of the report. Here are a few examples of how credit unions can adapt the Roundtable’s “Principles of Corporate Governance”:
- The business of a credit union is managed under the oversight of the credit union’s board. The board delegates to the CEO—and through the CEO to other senior management—the authority and responsibility for managing the everyday affairs of the credit union. Directors monitor management on behalf of the credit union’s members.
- Making decisions regarding the selection, compensation, and evaluation of a well-qualified and ethical CEO is the single most important function of the board. The board also appoints or approves other members of the senior management team.
- Directors bring to the credit union a range of experience and knowledge, but there are certain characteristics that all directors should possess. Every director should have integrity, character, and sound judgment. In addition, directors should represent the interests of all members and shouldn’t represent the interests of particular constituencies.
- Effective directors maintain an attitude of constructive skepticism. They ask incisive, probing questions, and require accurate answers.
- The composition of the board, as a whole, should reflect a mix of skills and expertise that’s appropriate for the credit union given its circumstances, and that collectively enables the board to perform its oversight function effectively.
Four types of boards
Most descriptions of corporate board responsibility stress the importance of monitoring, controlling, advising, and coaching, Hoel says. Applied to credit unions, he identifies four types of boards:
1. Watchdog boards emphasize monitoring and controlling. But in excess, these actions can turn into micromanaging, with boards second-guessing CEO decisions.
2. Rubber-stamp boards aren’t strong, capable advisers and coaches, nor are they energetic watchdogs. They focus on small, even trivial issues and leave major decisions to management.
Directors might lack intellectual and experiential attributes necessary to direct modern credit unions. They highly value collegiality and might be selected because they’re likely to go along with whatever management and other directors want.
They might also be known as sleepy boards because most of their members lack the mental energy and physical stamina needed to perform their board duties well.
3. Scout and new technology boards are always searching for better ways to meet their members’ financial needs and preferences. They understand the concept of market segmentation and push for more effective methods to attract new members, especially young ones.
They embrace new technology for product and service delivery. They see that the consumer finance industry is rapidly evolving and that their credit union isn’t likely to deliver high value to members in the future if it doesn’t adapt.
4. Challenger boards combine the best features of scout/new technology boards and watchdog boards. As in the corporate world, boards in this quadrant are relatively rare, but they’re the most effective.
They focus on the future and act as a watchdog—two activities that aren’t easy to integrate, but which yield excellent results.