Lack of Diversity May Hinder Growth: Print Preview
A visitor sitting in on a typical credit union board meeting is likely to see 61-year-old white males who have served for more than a decade and are planning to continue their service for many years to come.
It may be the standard makeup of most boards, but it’s not the dream scenario if credit unions want to remain competitive, according to a new white paper from the CUNA Community Credit Union Committee.
The 30-page paper, “Effective Credit Union Board Succession Planning: New Demands Shine Spotlight on Standard Practices,” examines the current demographics of community credit union board members, the issues that arise from these findings and strategies for successful board succession and retention. The white paper was prepared by George Hofheimer, chief research officer at the Filene Research Institute.
Credit unions with less than $25 million in assets are slightly more likely than those with more than $500 million to have women on their boards. Whites represent 89% of board members, African-Americans 6%, Hispanics 3% and Asian/Pacific Islander 1.5%.
“Many credit unions face serious problems if board succession plans are not effectively put into place and changes are made to attract new board members,” Todd Spiczenski, vice president of the CUNA Center for Professional Development. “This white paper provides many practical tips and suggestions that any credit union can incorporate into its daily operations to reverse the worrisome trends seen in board demographics.”
Institutional knowledge is vital to board stability and success, but it can come at the expense of board vibrancy, member stamina and both exposure to and a willingness to consider new ideas, the research showed. Existing boards have more than twice the percentage of members from the 70-plus age segment as they do from the under 40 segment.
While there has been some growth in the number of females on credit union boards, with male board members currently outnumbering females by three to one there is still ample room for improvement, according to the paper.
The research also noted that credit union boards have historically skewed white, and there has been little change in this area, even as the larger population becomes increasingly diverse. Even though these numbers may be moving in the right direction, they are doing so at a slow pace, the white paper pointed out.
Beyond having more diverse boards, the CUNA committee research found that credit unions have struggled to attract board members with substantial senior level management experience. They have traditionally chosen candidates based on their willingness and ability to learn, serve the membership and be a team player, or because they had previous experience in the not-for-profit or community realm.
When picking new credit union board members, one Filene survey cited in the research found that 81% felt that understanding member needs was the most important skill for a board member to have, with governance expertise viewed as a key priority by 51% of board members.
However, there appears to be a shift in priorities. About 40% of the respondents in the Filene survey said a lack of legal, compliance and risk management expertise on their boards left their credit unions highly dependent upon their CEO to interpret credit union performance and highly vulnerable to being misled.
The research also showed that there was strong disagreement between CEO and board members on this subject. Eighty-eight percent of CEO respondents said their boards lacked sufficient financial services expertise, while only 22% of board members did. When board members were queried in follow‐up interviews, this number jumped to 50%, according to the Filene survey.
One factor that may inhibit having more diverse boards is recruitment practices that are heavily skewed towards existing connections. Filene found that of those credit unions that still had strong ties to their original sponsor company, which is defined as having at least 75% of their board members coming from the sponsor company, the majority (72%) felt they were able to achieve sufficient diversity without looking elsewhere.
A number of the survey respondents felt that even if a board was able to come up with who they considered an ideal candidate, they had a hard time finding a prospect that possessed appropriate credentials and was willing to serve on the board.
To take steps toward better board succession planning, the paper suggested credit unions focus on and identify board diversity goals and develop an evergreen list of potential board candidates rather than waiting until there is a need for one.
Credit unions might also consider widening their searches beyond acquaintances and colleges of the existing board, according to the paper. To aide in this effort, a strong CEO and board relationship is critical to ensure that the next board member can continue that strong involvement.
Term limits on boards is a hot button issue for some credit unions. Still, limits may have to be considered a factor in preserving a board’s overall health, the paper noted.