If you are currently sitting on a board, you are finding yourself under heavy scrutiny from your stakeholders, federal and state regulators and the public. When we read about corporate troubles in the press these days, the stories are apt to ask, "Where was the board?" Worse yet, this question could be asked in the context of a lawsuit. While corporate boards have been undergoing severe scrutiny for a while now, credit union boards have started to experience it as well. The NCUA recently issued guidance requiring financial literacy for all board members and defining the board's fiduciary responsibility for credit unions.
What is the message being sent? It's simple. Credit union boards need to step up their game. What was considered a well-functioning board in the recent past may not be seen as a well-functioning board today.
Credit union boards today essentially have the following responsibilities:
o Choose the CEO, monitor his or her performance and have a detailed succession plan in place.
o Serve as a fiduciary.
o Monitor the performance of the credit union and oversee its risk management policies.
o Advise management on business and strategic issues.
o Monitor, evaluate and seek to improve the board's performance.
How does a board know if it's fulfilling its responsibilities? Board evaluations are an excellent place to start. The National Association of Corporate Directors recently reported that 90% of all public company boards do evaluations, up from only 10% conducting them a decade ago. Credit union boards have not widely embraced the practice yet. There have been studies showing anywhere from 20% to 30% of credit union boards are doing evaluations. Go to any credit union conference and ask a group of directors for a show of hands on how many of their boards do evaluations and few hands go up.
Why is this? Probably because when we hear the word evaluation, we automatically associate it with getting a grade. Also, credit union boards are composed of volunteers and, if you are volunteering, why would you want to be evaluated because your time should be valued.
However, to address these issues, let's think about what we are trying to achieve when performing an evaluation. The main objective of a board evaluation is to improve the performance and effectiveness of the board. As such, the vast majority of evaluations are concerned with the board or a committee, rather than the performance of individual members. A properly designed evaluation is objective and confidential and provides actionable data on the board's performance, eliminating the personal threat that can be associated with evaluations. When thought about in these terms, you can begin to see how an evaluation can lead to a robust discussion by board members on improving the board's performance.
What types of criteria are used in evaluating a board? There are generally two categories: board and key committee self-evaluations that assess the effectiveness of the entire board or committee without focusing on individual directors and director self-evaluations. The latter can be either individual self-evaluations or peer-to-peer reviews.
The type of evaluation you choose to use is determined by what your board wants to accomplish through this process.
These evaluations can be conducted through written surveys or personal interviews. Written surveys have the advantage of ensuring that all topics are covered, providing a data-driven score, being time efficient and, because they can be anonymous, increasing the likelihood of objective responses. Personal interviews can provide more in-depth answers and offer the chance to explore and raise topics not previously contemplated. However, they are time-consuming, require interviewer interpretation of responses and lack anonymity, so answers may not be as forthright.
To begin a board evaluation, the first requirement is that the board must commit to performance improvement. Once this commitment is made, the board should consider the following in creating an effective evaluation process:
Delegate an individual or committee to create and monitor the process, which should establish well-defined goals for the evaluation process and ensure all directors have input into developing those areas of focus that the evaluation will be based on.
The board may consider the use of a third party to guide them through the process, especially if this is the first evaluation. A third party can assist with developing the criteria, questions, communications and final reports. In addition, the third party can act as an objective observer, ensuring the process is meeting the board's goals.
Since no two boards or credit unions are the same, you should create an evaluation process that is a reflection of your board's and credit union's needs.
A properly executed board evaluation can lead to a more effective board by creating better accountability, communications and alignment with the credit union strategy. In short, it can result in a board that is a strategic asset to its credit union.
Thomas A. Waller is the managing director of the Credit Union Leadership Forum. Contact 877-505-2853 or firstname.lastname@example.org