Good Governance Is Good Business

Within the public corporate sector, there is movement afoot to increase focus on environmental, social and governance issues (ESG). Instead of a limited short-term bottom line focus, ESG considers the benefit to all stakeholders, including employees, customers, members and the community. Credit union core values contain an intuitive sense that prospering in the long run goes beyond just delivering immediate financial performance. Credit unions know they must also make a positive contribution to their members, society and the communities they serve.

The "G" in ESG, however, deserves special attention from credit union boards and senior management. Without good governance, sustainable value creation becomes much more difficult, if not impossible. Governance best practices will energize your credit union, and support the board and senior management in creating and maintaining a healthy culture based on values and trust.

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Good governance means fostering open, continuous dialogue between board members and senior management. A collegial relationship of trust between the board and the CEO and senior management sets the tone at the top for a healthy culture. Honest and robust discussion ensues, and all parties commit to listening and collaborating. Under this paradigm, the board is not just the evaluator of senior management, it is an advisor and strategic partner with them. As a team, they consider ways to eliminate barriers, and encourage new approaches, products, services and partners that will deliver expanded value to members. Good governance denotes an informed and appropriate level of collaboration in strategic planning and strategy implementation. It means developing and sharing elements of the strategic plan with the organization to ensure alignment, inclusion and buy-in. It includes ensuring the next generation of leadership and effective succession planning.

In order to exercise their fiduciary duties, every board member needs a deep and thorough understanding of the major aspects of the credit union's business. Every director must be fully versed in how the credit union maintains its financial health, its revenue stream, its profit ratios and its balance sheet. Yet, the success of the strategy for financial health and growth must not just be measured in financial terms, but also in member service improvement and value provided to the community.

The board, as well as management, must understand the credit union's business risks. Heightened awareness is demanded due to cybersecurity issues, disruption of ever-changing technology, regulatory and economic questions, political uncertainty, and matters of managing and protecting the credit union's reputation.

This level of knowledge cannot be attained and sustained solely through attendance at board meetings. Continuous learning on issues facing the organization is needed. The process starts with a robust orientation for new directors, and continues with ongoing, in-depth learning for all directors. Regular seminars, tutorials, facilitated meetings and site visits that give directors access to the workforce all contribute to the director education needed to understand the business thoroughly. External experts, such as independent counsel and trusted experienced consultants can bring a level of external perspective and the best current information and practice. Their support offers the directors and leadership team the conﬁdence they are accessing as well as the knowledge resources they need to address the complicated, industry-wide challenges that continuously barrage the organization.

Board composition should bring diversity of thought, background, skills, experiences and tenures, and reflect the community that is being served. This best practice assures that there is no one single perspective dominating the board, and studies show that diverse teams are better able to unlock innovation that drives market growth.

Performance evaluations, another key best practice, serve to identify and lead to strengthening areas of weakness in the board. The board should evaluate the performance of individual directors, the full board and board committees on a regular basis – generally annually. Evaluations are substantive exercises, not just check-the-box activities. Externally facilitated evaluations from time to time assure an independent view. Moreover, many times outside experts can provide insights and carefully designed communication about sensitive areas needing attention, which frees the board and management from this challenging task.

Values can make the difference between having the people with the skills needed to implement your strategy versus watching them go elsewhere. Good governance, and its related emphasis on a healthy culture and values, is a strategic recruiting weapon. Talent is the scarcest resource at too many organizations and credit unions are no exception. More than ever before, today's talent pool wants to work at a place that shares their values, is true to those values, where leadership lives those values, and where the culture's consciousness is infused with care for all stakeholders. For credit unions, thankfully this is nothing new; it's in the industry's DNA.