During the industry debate over board member term limits,regulators have focused on the board's responsibilities, financialliteracy, qualifications and, in almost every regulatory letter,made it clear that the board is responsible for more and more ofthe credit union's day-to-day operations.

Term limits is another failed attempt to improve boards andcredit union governance.

I think term limits are a distraction and take away focus fromthe real issue. The real issue is how well credit union governanceworks. Does the board represent the best interests of the members,oversee the CEO, set the strategic direction for the credit unionand hold the CEO accountable for implementing the business plan?Too often the answer is no it does not. Too often the board andmanagement look after their own interests. One clear example is thealmost complete absence of healthy credit union mergers.

California's legislature has experimented with term limits as acure for all that was wrong with state government. The results areclear. California's legislature's performance is far worse withterm limits than it was before term limits. The state has a hugebudget deficit and most of the major decisions are now made byvoter initiatives that by pass the legislature. We have alegislature that is made up of inexperienced legislators who relyfar too much on their career staffers and lobbyists for advice.California is close to economic collapse. While we can't completelyblame term limits, we can say that term limits have not fixedanything.

I think that term limits will not fix the governance issues thatplague credit unions. The fundamental problems are not due toancient board members who never retire. The most significantproblems that impact credit union governance are rooted in themember-owner concept. Credit union members do not serve the samerole as owners who own shares in a company. Members have anundivided ownership interest that can only be realized in aliquidation. They have no ownership stake. Members leave the creditunion with nothing other than their share deposits. Members don'tusually vote; they don't attend annual meetings; they don't readthe annual report; and members do not petition to run for the boardso that most board member are in fact not elected by member votesbut by acclamation at the annual meeting attended mainly by staff.Therefore, the key governance issue is that the owners are absentfrom the process of governance. Members have abandoned their role.The connection between the credit union and its members is acustomer relationship, not an owner relationship.

The direct consequence is that the board and management are notheld accountable by members for their performance. It is fair tosay that regulators hold board and management accountable, but thatis usually after the problems arise. Regulators are not owners andtheir interest is to protect the insurance fund. Any business thatrelies solely on regulator guidance will soon be out ofbusiness.

Term limits are the sign of failed governance. If the board,nominating committee and members are doing their respective jobs,there is no need for term limits. The board has to evaluate theperformance of the board as a whole and individual board members.The board has to set expectations for performance of the board andboard members, and then hold them accountable. The nominatingcommittee has to consider the performance of individual boardmembers and decide if they deserve to be nominated and in the caseof prospective members of the board to see if they meet thequalifications set by the board. Members have to attend annualmeetings, read the financial statements and vote in the elections.Members have to raise their voice when credit union performance issubpar. Unfortunately, members don't have the same tools thatstockholders have to evaluate performance. Stockholders can use theprice of the stock as a barometer of credit union performance.

Term limits imply that experience doesn't count. Term limitsimply that nominating committees can't decide who should not benominated. Term limits are a sign that members are not involved.Member involvement means members are running by petition, electionsare contested and board members are accountable for theirperformance as they stand for contested elections.

We must give members better reasons to get involved and bettertools so that they can act like true owners.

Here are some tools I would give members. I would advocate thatexamination reports be made public. When a credit union fails, itis too late to know that for years the examination reports havebeen terrible. I would advocate that CAMEL ratings be made public.I would advocate that bona fide merger proposals be made public. Iwould advocate that NCUA upgrade the M in CAMEL to measuregovernance. Good governance should include a measurement of howmany members vote to elect the board; how many members attend theannual meeting; how many members access the annual report online;whether the board does a self evaluation each year on the board andeach board member; and whether the elections are contested ornot.

The best way to get members involved is to give them anownership interest. We can't do that. So the next best alternativeis to give them lots of information so that they get involvedbecause they care.

Term limits will achieve one thing–turnover. Come to Californiaand see what turnover gets you. It means that the legislature isweak while lobbyists and professional staff are strong. That iswhat you will find with term limits in credit unions. Weak boardsand strong management. We don't need that.

Henry Wirz
President/CEO
SAFE Credit Union
North Highlands, Calif.