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Effective board governance is the foundation for great member service, the acquisition of next-generation leadership and resilience. The challenges resulting from the COVID-19 pandemic are being followed by a recovery, an uneven economic environment, and heightened competition for members and employees. Credit union boards must be engaged, focused, knowledgeable and able to respond to these emerging conditions. The credit union's primary stakeholders – its members, employees and communities – all are counting on it and their future depends upon it.
Stakeholders have a real interest in having their governing board function at peak performance. This starts with nominating and electing highly committed directors who bring independent business judgement, and the ability to tackle important strategic issues and manage risk effectively. They must diligently exercise their fiduciary duties of care, loyalty and obedience, and understand their responsibilities despite being volunteer board members. Serving as a board director carries the same risk and responsibility as serving as a director in the for-profit sector.
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Paying attention to governance realities and strategies that improve the quality and strength of the institution's governance will help mitigate risk. Organizational cultures that are based on the collection of independent data will also allow the credit union to attract board talent because professionals (who are volunteers) have options for how they will spend their precious time. Candidates who are being interviewed for board seats will also make their own judgements as to their views of board cultures and who they want to associate with.
Board interactions and board member collaboration will determine the quality of oversight, which has a direct bearing on the credit union's success. In high-functioning boards, every board member is committed to creating a culture of trust, collaboration and continuous learning. They need to use their time together efficiently and avoid board dysfunction that leads to both unwise decisions and missed opportunities. Ensuring that every member around the table has an opportunity to express their point of view without one director dominating all conversations is the definition of a strong board culture.
Board members need to understand their role and embrace the credit union's strategic business plan, while addressing issues of enterprise risk management and reputational risk. Strong boards understand the competitive environment that requires investment in technology to develop new products and services and maintain a strong level of cybersecurity. Boards must effectively oversee the CEO and C-suite, holding them to high standards of accountability, and ensure that a proper succession plan is in place for leadership and the board. With the rise of social media and the overriding importance of public trust, senior management must be held to high levels of accountability, creating the need for board alignment around ethics and values. Boards must be committed to diversity, equity and inclusion. They must also be thinking about how Environmental, Social and Governance (ESG) factors are incorporated into their credit union's strategies.
Engaging in a process that involves collecting data from independent parties in a sense creates an opportunity for people to look in the mirror and see how well they are functioning. A regular rhythm of board assessment is one of the most effective tools for maintaining high functionality and continuous improvement. Analyses of the board processes, committee operations, and board and committee composition establish a baseline for the board's strengths and uncovers areas to target for improvement. Additionally, regulatory and compliance trends are emerging from the NCUA as well as the SEC and Treasury.
Many smart credit union boards have expressed interest in these corporate best practices. When board members share and receive candid feedback from each other, senior executives and trusted external parties, it leads to superior board dynamics, clearer agendas, streamlined processes, enhanced meeting materials and resources, and more suitable board and committee composition.
Credit union boards often turn to trusted third parties to assist with these important assessment exercises. An experienced expert brings a broad level of knowledge from within the credit union industry, and from their work with public and private companies and other not-for-profits. They draw on broad experience to design survey instruments and perform one-on-one interviews. They bring a level of trust that allows directors to bring to light viewpoints in confidence and without attribution – viewpoints that would otherwise be swept under the rug. The data they assemble in confidence provides quantitative and qualitative support for action plans designed to boost board functionality and director effectiveness.
A board assessment is not a backward-looking exercise, but rather a proactive and focused tool that prepares credit unions to evolve their strategies and business thinking.
Stuart Levine Stuart R. Levine is Chairman and CEO for Stuart Levine & Associates LLC in Miami Beach, Fla.
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