Self-governance is the greatest challenge any credit union board faces. If a board cannot govern itself effectively, how can it govern a credit union adequately? The board that masters this challenge, on the other hand, has the foundation to tackle anything else it’s ever likely to see.
In Part I, we looked at administrative governance challenges. Here, we will consider the critical challenges of focus and restraint. Boards need to keep their collective eye on the jobs that only they can do effectively, and work with the professional managers they hire to set clear expectations and responsibilities for everything else.
Click here to read Part 1.
If managing itself is the first job of a credit union board of directors, setting strategic direction is the most important one. Making strategy isn’t just making plans, it’s making choices — critical, even existential choices. This requires knowledge, effort, preparation, and commitment. Success is not an accident of fate, it’s the result of consistent, hard, collaborative work by an entire board.
Staying Out Of The Weeds
Except for the very smallest, credit unions are not “run” by boards, they’re run by professional managers. Boards must govern. On a periodic basis, every board should review the governance model it’s using, the reasons it’s using it, and whether it’s holding to it. Unhappily, for too many boards, the hardest part of this difficult task actually seems to be agreeing that it should be done.
While governance models vary, they all specify clear separation between the board’s role, the responsibilities of professional management, and the areas where they need to partner constructively. In other words, every governance model requires a responsible, capable board to know its role, stay focused on it, and let management do its job. This doesn’t mean abandoning responsibility for management’s performance, it means understanding the limits and scope of supervising management effectively and constructively.
Choose your cliché — “in the weeds,” “micromanaging,” “not letting go” — they are all examples of what credit union boards exist NOT TO DO:
NOT to manage the day-to-day activities of providing financial services to the membership
NOT to examine every delinquency or budget variance
NOT to second-guess management decisions made within designated parameters
While many smaller credit unions still make lending decisions by committee, even that role is fading fast. Board involvement at ground level, except for specific and rare exceptions, should not be happening in any credit union large enough to have a CEO.
The credit union board that best meets its responsibilities is the one that stays focused on strategy and the overall value proposition for membership, not the specifics of delivery. It’s the board that understands where strategy meets operations, empowers its executives, and stays out of the weeds.
Setting Strategic Direction
Drawing clear lines around what the board should not be doing puts a premium on what it MUST be doing. Arguably, strategy is the most important task of the board in a sound, healthy credit union. And strategy starts with a fundamental question: why do you exist in the first place?
By nature and by law, credit unions are mission-driven organizations. Knowing “why?” isn’t a luxury, it’s table stakes. It’s also what allows you to answer the question of how your credit union gets from where you are today to where you want to be, and what you want to become, in the future.