Board Competencies Beyond Fin Lit
While there are multiple viewpoints on the federal credit union industry’s new efforts for directors to smarten up as mandated by the NCUA rule on director financial literacy, an upshot opportunity presents itself in the form of enhanced governance by directors.
The issue of improved and effective governance is hard to argue against. The NCUA financial literacy requirement for directors to have at least a working familiarity with basic finance and accounting practices, including the ability to read and understand a credit union’s balance sheet and income statement and to be able to ask substantive questions of management and auditors, seems pretty basic after one year of its promulgation. We have come too far from the 1920s, ’30s and ’40s when a mom-and-pop style of oversight worked for many credit unions. A director position on the board as a reward or recognition for service from a select employee group member met most credit union’s operational needs for governance.
It is a legitimate concern for many as they struggle to keep up with the ever-increasing regulatory mandates of a U.S. financial institution. When you add the additional director financial standards to the mix, some smaller credit union CEOs are worried about surviving.
If smaller credit unions fail, blame cannot be placed totally on the director financial literacy requirement as the cause. It may turn out to be a contributing factor for some, but the larger picture will be competition challenges unique to our industry, the emerging regulatory and technological changes, and the needs of our varied memberships.