Does Good Governance Equal Good Performance?

How to select directors is a common concern, but best practices are rarely followed.

 

By CUES Directors Educational Forum

 
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In 2010, the Clarkson Centre for Business Ethics and Board Effectiveness at the Rotman School of Management at the University of Toronto conducted a study that focused on credit union performance as it relates to governance practices. Investigators initially received more than 430 responses from directors of credit unions throughout North America. From this active pool, researchers collected data via personal interviews and conducted follow-up interviews concerning the results of the study.

According to the study, director selection is a common concern for credit unions; however, it is also one of the least followed best governance practices. Credit unions’ director population is aging, and succession planning should consider skill set when selecting appropriate replacement Board members. Those skills most identified in the study as “important” included, not surprisingly, understanding members’ needs and financial literacy. However, independence, governance knowledge, and risk management expertise also ranked high, indicating a shift in importance away from networking and previous Board experience. With proper training and a willingness to serve, credit union directors can come from just about any sector and might offer advantages such a diversity of thought gained through experience in other industries.

The next interesting finding parallels studies of publicly traded corporate Boards. Directors recognize more time should be spent on strategic issues relating to their credit unions rather than on operations, compliance, and routine matters. Credit union Board meetings should emphasize the concept of “looking forward” rather than “looking backward.”

The study also identifies several challenges credit union Boards face. Typically, volunteer Boards experience problems recruiting other volunteers. Credit unions are no different, and the recruitment process is complicated by the sophisticated skill set required and the potential liability attached to the position. Other studies have found strategies such as longer runways for director selection, diversity based on more than gender, and recognition of volunteer contributions are effective in retaining directors and increasing the pool of candidates.

In its final analysis, the Clarkson Study attempts to answer whether good governance leads to better performance. The findings are not decisive in that Boards operate under different models and use varied performance indicators. There is, however, a correlation between good governance and perceived credit union performance. But, as measured against real credit union performance, the results are essentially random. 

A final interesting note: The study found credit unions that performed well in perceived and actual performance measures performed director evaluations, had a robust CEO evaluation process, and placed high importance on continuing director education.

The opportunity for credit union directors to participate in continuing education is part of the Credit Union Executives Society’s mission statement.  Don’t miss CUES’ Directors Leadership Institute: Governance, June 5-8 at the Joseph L. Rotman School of Management, University of Toronto. This intensive, graduate-level program focuses on issues at the organizational level. For more information, visit cues.org/dligovernance; call 800.252.2664, ext. 5308 or email kristin@cues.org.

 

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April 25, 2011


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