Managing From 10,000 Feet Up: Effective Board Governance

Credit union boards that understand their proper role in the organization and have the capacity to meet their obligations serve as effective catalysts for growth and member value.

 
 

As credit unions turn their attention to their respective fall planning sessions, many will implicitly or explicitly undertake an evaluation of the role and effectiveness of their board.

Credit union boards are a key stakeholder in the overall management and success of the organization. A credit union board that understands its proper function in the organization and has the capacity to meet its obligations serves as an effective catalyst for growth and member value. Clearly establishing the appropriate roles and responsibilities of the board and its relationship with the CEO is therefore essential to a credit union's future success.

Setting the Strategic Direction

The primary role of a credit union board is to establish the strategic direction of the organization. The board's role is to define the credit union's future and leave daily management responsibilities to the CEO and his/her team.

Assuming responsibility for defining the credit union's vision and strategy can be a significant challenge for a credit union board. As one chief executive of a small credit union commented, "our board used to leave the strategic direction to me. Getting my board to become accountable for setting our strategy required a lot of effort to educate and train them."

Once the board establishes the strategic direction of the credit union, the board needs to step back and allow the CEO and his/her team to develop and execute the implementation plan.

Monitoring Performance

Credit union boards also play a critical role in helping to set the organization's performance goals and regularly monitor progress against plan. An effective board influences management decisions by setting goals and monitoring performance against these goals, not by 'micro-managing' the day-to-day operations of the credit union. According to the chief executive of a large credit union, "my board provides an indispensable role of ensuring that my team and I remain on track."

Managing Risks

Since a credit union board represents the interests of its members, the board must be aware of the key risks to which the credit union is exposed and vigilant in managing these risks. Key risk categories include operational risks (i.e. fraud, systems crashes, security breaches), market risk (i.e. risks associated with interest rates changes), credit risks (i.e. delinquencies), and event risks (i.e. floods). Effective board governance also includes ensuring compliance with all relevant regulatory issues.

 

 

 

Sept. 12, 2005


Comments

 
 
 
  • Good Article (Timely message). Several of the governance sessions in conferences stop short of communicating why a change is necessary. i.e. to create a culture where it is virtually impossible to do unethical things (protecting their own assets)... i.e. to move accountability onto the CEO -- not to take power away from the Board....
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