Governance: Is Yours Up To The Task?

Unlocking your board’s full potential is a complex undertaking. Without board confidence, no governance model will be successful.


In my consulting work last year, I encountered a credit union whose board and management shared a unified vision and a cohesive set of goals in a productive, forward-focused relationship. Board members could describe significant past accomplishments as well as future objectives for their credit union. Management had an easy rapport with board members, even on tough issues. There was mutual respect between both parties.

It was a different story at another credit union. The board and management could not agree on annual goals or simple steps to take, much less on a long-term vision for the credit union. Management did not always seem to understand the board’s concerns. In turn, these board members frequently insinuated themselves into the day-to-day operations better handled by management directly. Suspicion abounded between the two sides and even among board members themselves.

On paper, both credit unions had a similar profile with skilled, experienced management teams and board members that came from each institution’s principal Select Employee Groups (SEGs). All of the board members had served for years, but because of the differences in governance, the effect of each board could not have been more opposite.

In the end, only one institution served its membership effectively, while the second struggled internally — limiting its ability to deliver long-term value. If left unchecked, governance at any credit union can quickly degenerate into a chess game. Boards and management must work to ensure that this partnership serves the institution and its membership, not the other way around.

Governance may seem a rock-solid principle, but it is nevertheless malleable, changing over time. And not just with people — such as CEOs and board members — but also with the times. A successful management team monitors these changes and makes the strategic adjustments to steer the board clear of decisions that could unsettle the credit union.

The Board As Institution

As a distinct and vital component of a credit union, the board is supposed to evolve right alongside the institution. But boards are also a function of interacting human beings and subject to any number of forces that can dampen the credit union’s growth and impede its long-term prosperity.

In the most successful scenarios, the board’s role typically evolves from financial oversight to a more strategic, long-term view of the organization, a transition that is not always easy to make. In addition to agreeing on what that long-term strategy should be, the board also needs to achieve a general consensus on near-term goals, the metrics by which to measure their progress, and the products and services that are best for the membership.

This last task can be especially difficult. Despite a wealth of board materials that are meant to apply to any institution, each credit union’s membership is unique. A good board not only has to be exceptionally sensitive to what that membership wants today but must also peer into the future and discern what members will want five years out, before they themselves even know it. To do that, a board needs confidence in its own abilities and the self-assurance that the directions it is recommending to management are the right ones. Without board confidence, no governance model will be successful.

This confidence can’t be bought off a shelf. Although enjoyed one year, it can slip away the next. At the same time, a board also needs to be able to accept and adapt to changes at the credit union and within the cooperative movement. In my experience, the less confident a board feels, the more it will indulge the urge to manage daily operations and neglect its primary task of governance. Participating in league and industry conferences can build the board’s confidence, enlightening individual board members more quickly and providing insight into new trends, laws, products, and services that will keep the institution relevant to its membership.

When it comes to meeting member needs, temptations abound to divert the board’s attention, including internal politics and elections, concerns about the next report or the next meeting, and finger pointing over past mistakes. In my experience, boards do best when they try to discover their appropriate role for the credit union and then act in that capacity. One essential board obligation is to foster the cooperative model by ensuring that the credit union operates in harmony with the seven cooperative principles The absence of a cooperative spirit is an emerging and troubling trend among a number of institutions. Credit union leadership, as represented by both board and management, must highlight cooperative differences and do a better job of communicating how these values affect all stakeholders.

A well-functioning board also has to consider how it is going to attract the right people to replace those who retire. To do so, the board has to make governance appealing enough for other members to want to serve. Spell out the benefits of serving the membership and being a key part of the organization. Explain the standards and expectations for serving on the board. Motivate them to serve!

Board Self-Governance

Even as it governs the credit union, the board has to govern itself by holding members accountable. Boards should ask members to perform a self-assessment annually. This not only allows each to reflect on their contributions to the organization, but also serves to reinforce the expectations of the role. It also needs to examine how the institution’s leaders view the board as a whole. The board should be open and honest about its effectiveness in governing the credit union. Are board meetings focused on the right issues? Is the dialogue among board members constructive? Is their dialogue with management at the appropriate level?

A well-functioning board often questions whether it is drifting from its paramount responsibility — establishing the credit union’s long-term cooperative strategy — in favor of internecine squabbles or micro-management. A good board is also wary of adopting a checklist mentality for its meetings, instead of ensuring that each session adds to the credit union’s long-term growth and prosperity.

Attaining this level of self-governance requires trust and the ability of board members to communicate candidly with one another about issues and solutions. This maturity starts with the quality and experience of the people elected and can be nurtured further through board retreats and sessions with consultants.

The Board-CEO Relationship

Good communication is difficult enough for two like-minded individuals let alone a group of people with varying personalities and experience, some of whom are paid for their services to the credit union (management) and some of whom volunteer (board members). An expectation of good communication needs to be honored and practiced by both sides.

Unfortunately, this is not always the case. In some instances, management neglects to pass along important information. A board kept in the dark cannot govern effectively. Worse yet, it may not even recognize that it is kept in the dark at all.

Without all the facts, a board cannot know the answers to sensible questions put to management or perhaps even the questions that should be asked. This situation always ends poorly for the credit union and in many cases for the CEO, whom the board has hired to carry out its long-term vision for the credit union, and the CEO’s close associates. I have seen situations in which the CEO left the credit union and the board, lacking sufficient information about the credit union’s financial position and direction, could not keep the institution on course.

Good communication requires educating board members with benchmarks that show how the credit union compares with its peers. Otherwise, the board and the credit union are steering blind. Sooner or later, they will lose their bearings altogether.

In my experience, the best boards actively pursue the right balance in their relationship with management and then work to build and maintain that relationship over time. Another characteristic of effective boards is they expect success for the credit union, its management, its membership, and the communities they serve. More importantly, these boards design for success, from board processes and committee meetings to performance reviews and incentives.

Give The Board A Checkup

Unlocking your board’s full potential is a complex undertaking, but this winter, take stock of your board. Give it a checkup. Is it all that it should be? Is it adding value or just going through the motions? Evaluating a board has always been a delicate undertaking because these volunteers can be pulled in any number of directions by parenthood and careers. But they are also vital members of your organization, plotting the course for future cooperative success. As captain of the credit union ship, the board must not only be willing to take the helm periodically but also step aside and let management implement the board’s vision.