Modern board governance began to take shape in the United States in the early 1980s. In the early 21st century, we saw the introduction of binding regulations for financial institutions and the stock exchanges. In 2003, the Sarbanes-Oxley Act came into power.
In The Theory of Governance, John Carver wrote, "Drucker (1974) observed that corporate boards have one thing in common, 'they do not function.'" Others have characterized them as "largely irrelevant through most of the twentieth century" (Gillies, 1992), "pawns (rather than) potentates" (Lorsch, 1989), "ornaments" (Mace, 1971), and, most picturesquely, "like ants on a log in turbulent water who think they are steering the log" (anonymous, quoted by Leighton and Thain, 1997).
If boards have been ineffective for much of corporate history, they have been even more unobserved. The topic of corporate governance interested only a few.
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Effective board position descriptions are more than documents used to publicize openings. They can serve as the foundation for recruiting, set ongoing performance expectations, form the backbone of a successful succession plan, evaluate board performance and shape director development efforts. There is no formula for creating effective board position descriptions, but this object will provide a number of techniques to aid in their development, a best practice that fairly few credit unions have undertaken to date.
Situations differ for directors in Australia, Canada, Europe and the United States, but performance requirements are the same. That means higher levels of both responsibility and risk for volunteers and paid directors at credit unions worldwide.
Former NCUA Board Member Gigi Hyland said, "Boards of directors need to take a long, hard look in the mirror and ask themselves if they are really the best people to be representing their members."
CUNA Chief Strategist Bill Hampel said, "The U.S. has no regulated stands for directors, but supports the importance of qualified candidates."
Stuart Levine reported at the Reality Check Conference in 2010 that 43% of 70 credit unions had no board member criteria selection process and 32% did not review governance practices and other related policies annually. 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 and how will diversity in the board configuration should be. The membership of the credit union wants boards to govern effectively.
There are organizations, or groups of organizations, that have defined what their boards are expected to do and have shared and reinforced those definitions in orientation and training. But for the most part, board members are not receiving that information. They are good-intentioned, wise people who want to serve, but are forced to guess what that service involves.
How do board members define their job? What do the CEOs, who work with the boards, expect them to bring to the table? They expect legal and fiscal accountability to dominate board members' focus, for probably obvious reasons and reporting requirements. The define account it from an accountability standpoint, concentrating their focus on fiduciary and legal concerns. They also seek reduced emphasis on vision/mission for board members.
Smaller credit unions are facing overwhelming tasks. The credit union structure cannot afford to lose, or merge, anymore credit unions. It is the responsibly of larger credit unions to assist the smaller institutions. Their board of directors should take the suggestion of Ms. Hyland and also ask if their board is diverse enough to move forward. Smaller credit unions fared healthier after the housing market collapse, because their loans were in personal loans.
In the future, regulators will be looking at board governance policies, annual board assessments, governance practices, board policies for appointments and the criteria for board selection. Regulators will also want to see a true job description that includes specific duties and responsibilities, expectations and education requirements.
Hyland said, "The fight for the future of credit unions encompasses a great deal more than advocacy alone. It includes things like making sure your members care you exist. It includes empowering their financial lives so they can make good, educated decisions on reaching their goals. It includes making a difference in the communities in which you are located, so you act like and are perceived as a good corporate citizen."
Good governance has positive outcomes, such as:
- CEO and the board are on the same business plan
- Transparency in understanding the process
- Acknowledgment of future goals and accomplishment
- Communication in accord
- CEO and board united and productive
Adopting a board governance plan should not be perceived as weakness in your credit union. Your members will appreciate the positive direction the board is undertaking. Good governance is about both attaining desired results and achieving them in the right way.
The control of a governance model can lie in a distinct objective that requires or sets the desired level of positive performance for the credit union, and is defined by principles and responsibilities. The model should arrange the governance and risk oversight process, policies and by-laws, and board responsibilities. Strong board governance models start with defining lines for decision making that are assigned to the committees responsible for informing the board and CEO. The goal is not to dictate, but to define decisions and actions in ways that will be significant from a governance position.
Finally, the Inc. September 2014 issue included a number of articles on new businesses on start-ups. In one article there were three questions: 1. What's important? 2. What should be the same? And, 3. What needs to change?
Looking at your credit union, how you would answer those questions?
Norm Halls
Director
STCU Credit Union
Springfield, Mass.
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