In response to economic disruptions, the federal government is asserting higher standards of governance for all financial services institutions, including credit unions.
During our presentation at the most recent Reality Check Conference, we obtained responses on the current governance practices at almost 70 credit unions across the country. Forty-three percent had no board member criteria selection process in place, 32% did not review governance practices and other related policies annually, 47% had succession plans in place for their CEO or board, but not both, and 11% had no plans for either. Unfortunately, these responses indicated a critical gap that exists in the CU industry.
The National Association of Corporate Directors 2009 public company governance survey found financial oversight and internal controls are top issues.
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In line with this focus, the NCUA Board recently proposed a rule that would establish financial literacy standards for new credit union directors. Within three months of their election or appointment, directors will be required to have a working knowledge of basic finance, accounting, balance sheets and income statements. Correspondingly, they will be held accountable for asking the right questions of management.
Two of the latest corporate governance disclosure requirements are explanations of the particular experience, qualifications or skills that led the board to determine why each director and nominee is qualified to serve, as well as how diversity played a factor in board composition and new board member nominations. The follow up to this is how these diversity policies are being implemented and assessed.
The changes present opportunities for director education and training. It is impossible to make good strategic, financial or ethical decisions without a clear focus on values, market trends, good financial metrics, clear communication and disciplined processes.
Directors have an obligation to the members they represent to continue to learn and grow. To ensure you are adding value to your credit union as a director, ask yourself the following questions:
Does your board review its governance practices annually?
Do you measure and benchmark member satisfaction?
Do you understand your credit union's strategy?
Do you have an annual board assessment process?
Do you have an appropriate criteria-based board selection process?
Do you have a succession plan in place for your board and CEO?
Does your board have a conduct of business and ethics policy?
Have you reviewed your committee charters?
Do your board meetings fulfill their stated objectives each time?
Does your board fully digest the regulatory reports and put appropriate plans in place? Do you have an enterprise risk management policy?
Do you have D&O insurance?
Do you have a new board member orientation process?
Your principal board responsibilities are to select the top management of the credit union, plan for succession and provide general direction and guidance with respect to the organization's strategy and management's conduct of the business. Certain governance processes need to be put into effect to ensure your fulfillment of fiduciary responsibility as a director. These include board evaluation, board leadership and member criteria for candidates, directors and committee members, committee structures and charters, board education and director orientation, board books, existing bylaws, ethics and conflict of interest policies and enterprise risk management.
We owe it to our members to govern our credit unions effectively. I applaud those of you who already are thinking about these issues and taking steps to advance your education in this area. For those of you who are not, recognize that change is coming and embrace it. Your challenge is to attract and retain mission-driven volunteers and talented people to serve on your boards and to maintain your relentless focus on strategic leadership to ensure member value for your credit union.
Patience and focus are needed to build a process that avoids a check the box mentality and ensures full engagement of the board.
Stuart R. Levine is the founder and chairman/CEO of Stuart Levine & Associates, a director of Broadridge Financial Solutions and chairman of the governance and nominating committee and lead director for D'Addario & Co. He can be reached at 516- 465-0800 or [email protected]
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