Consultants seem to agree that governing a credit union has become more daunting. And the trend toward greater board accountability isn't likely to go away.

Dan Clark of Dan Clark Associates noted the impact of NCUA Reg. 701.4, which mandated financial literacy training for board members. Board members have always been required to be informed and educated enough to take good care of a company. Most nonprofits get away with recruiting one financially savvy board member, and the other directors look to that person to determine whether the organization is in good financial shape. Now every credit union director needs a working knowledge of financial issues, he said.

“There has been a great deal of hesitation to adopt a governance rather than management posture. Even once it's adopted, habits die slowly,” Clark said.

The board should delegate all personnel issues to management, he stated. But that's a big shift. There is what he labels an erroneous idea: only boards can make policy.

“There is nothing in the written record going back to the Egyptians and the pyramids that said the board owns the policy function. It is a board function, but they don't own it exclusively. That's more of a truth than what's practiced,” he said.

“All leaders make policy to guide their followers. You can't always watch them. You want them to know what is O.K. and what isn't O.K.”

Clark describes the approach contained in the governance manual offered by his firm, about to be issued in its 15th edition.

“In my manual the board has a one-page personnel policy that in effect said you want the right people on the staff and you want them managed correctly. It's up to management to write a personnel manual that helps staff do the right thing and spells out the performance review process.”

There is an exception, he added. If management creates a policy that commits the credit union for more than one budget period, that requires board review.

Clark has seen a growing desire for board meetings to become more strategically focused and forward looking. He decries meetings where the treasurer spouts data from the balance sheet and income statement. His view is the board should have the statements before the meeting. Don't waste face time with things that should have been studied in advance, he said.

Clark acknowledged he's not the only one urging boards to be more future-oriented. He argues that on the other hand, regulations–or at least the way credit union boards interpret the rules–are taking them the other way.

“Having been a former regulator, I understand you want to be aware of operations, but I don't think we should be asking directors to write procedures,” he stated. “Employees should be the ones to write procedures they are following.

To move things along at board meetings, he advocates dropping Roberts Rules of Order from the boardroom and letting the board establish its own guidelines. That's been in his manual since the early editions. He argues there is nothing in law or regulation that requires boards to use Roberts in board meetings.

When a director told him the by-laws required using Roberts Rules of Order, he asked her to send him the applicable section from the by-laws. The by-laws only specified that at the annual meeting would be governed by Roberts.

Lynn Walker at Boundary Management Consultants has seen across the board, whether it's credit unions or not, nonprofits or profits, a greater sense of directors' responsibilities and accountability. He said there's a heightened recognition of their obligations, and they tend to be more diligent.

Credit unions are beefing up efforts to recruit board members who want to contribute and do a good job. At the same time, there are hurdles.

“It's not just the fact boards are being held more accountable,” Walker said. “There's a wider and wider range of things people can do in their free time. It's not just happening on credit union boards. It's much more difficult to find the kind of quality people.”

He indicated many governance models are available to help boards. People are looking for best practices in governance, and there is more sharing of ideas. Directors listen more, and they look more closely at governance than in the past. He sees a much greater knowledge base among directors. Some of that has happened through more education for board members.

At the same time, Walker added, “Vulnerability concerns people more. Regulators and regulations continue to focus on boards, holding them more accountable. I don't see any end to that. Among the membership, there's beginning to be a greater sense of their voice within the credit union.”

As for bankers' allegations that credit unions today are just like banks, their governance absolutely makes a difference, Walker stated.

“Unlike a for-profit bank, whose focus is only financial, credit unions can define their return as not entirely financial but whether members are better off because the credit union exists. They offer a betterment to the community that goes beyond financial returns. Do they struggle with it? Yes. But that's kind of what a nonprofit's role is all about.”

“The board has a role beyond oversight. In addition to making sure nothing bad happens, they have a role in making sure something good happens. How are our members better off? I think that's a question all boards should ask.”

Miriam Carver, a policy governance theorist and consultant, said credit unions continue to be concerned about the accountability of the board and the board's need to stay in control.

As for persuading directors to follow new governance models, “When anyone is very experienced at doing something, it is a challenge to follow new guidance and do something differently,” she said.

“It's not unusual to see board members of quite large credit unions who can remember when the credit union was small. The level of involvement may have been different at that time. For a lot of board members it's really quite challenging.”

An issue she hears discussed is whether the CEO should serve on the board. CEOs have stated that if they are going to achieve the status they need, they should be on the board. Boards have said that in order for them to obtain the information they need, the CEO should serve as a director.

“I think both arguments are quite spurious,” Carver said. “As for the status and recognition of the chief executive, it is an important role and it does require a level of respect. If the board is not treating the chief executive like a very important person, putting him or her on the board is not going to help things. If the board needs information from the chief executive, then the board should demand it.

“The board is there to act on behalf of the owners, but the chief executive is there to act on behalf of the board. They are different roles. Putting the chief executive on the board, and expecting him or her to act in the interest of owners rather than in the interest of meeting board expectations, places the chief executive in a very funny position.”

As for credit unions and other non-profits struggling to find people willing to serve as directors, “I can see why,” Carver said. “A lot of credit unions and other non-profits have such meaningless, tedious meetings. This is not because they are meaningless, tedious people–they have no idea what the real governance job is.

“If you have a very rigorous definition of the governance job, you can tell prospective board members they do have an important role and a meaningful contribution to make. … Governance is a real job that needs to be designed in such a way that it's doable.

“Let's not tweak what credit unions and other nonprofits do. Let's start from scratch and find something that actually makes sense.”

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