The 4 Challenges Of Board Governance (Part 2)

Each credit union needs to develop its own best practices for board governance, but there are some critical common themes.

 
 

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.

 

 

Real strategy involves understanding what works – and why – and choosing what not to do. It’s about recognizing that you can’t be all things to all people and embracing that uncomfortable reality as a strength. And it’s about understanding your credit union’s particular mission and rebuilding your business model to pursue it.

The future demands leadership. To lead effectively, credit union boards must refocus on the challenges of governance that only they can meet: focus on strategy, stay out of the weeds, cut the deadwood loose, and build for a sustainable future.

A well-grounded strategy provides a framework for business planning and a test for major decisions: Does our business model support our strategy? Will this or that significant investment help us realize our strategic vision? Does this challenge threaten our ability to achieve strategic objectives over time?

This kind of planning — thinking over the horizon — is fundamentally different than traditional “strategic planning.” It’s visionary and adaptive and it takes an open mind. It’s a new skillset that’s not intuitive, so it takes time to learn and get comfortable doing. But it’s a critical survival factor for credit unions today. The status quo is a no go where everyone from fintech startups to megabanks is trying to eat our lunch.

The future demands leadership. To lead effectively, credit union boards must refocus on the challenges of governance that only they can meet: focus on strategy, stay out of the weeds, cut the deadwood loose, and build for a sustainable future.

Click here to read Part 1.

 

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Use this set of essential performance ratios for strategic planning to make the most of your team’s time together.

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Sept. 5, 2017


Comments

 
 
 
  • Good information. On Target. And most larger, progressive CUs do follow most of this advice. The question is how do you get those 3,000+ CUs that for whatever reasons have not made this leap at the Board level. I speak at three to 4 CU training conferences per year. Mostly Board member, and many Board members still don't get the fact that they should be leading the strategic direction of their organizations. After the last twenty or more years of Regulators, consultants (Myself Included) and even the leagues and CUNA/NAFCU hammering Boards not to be tactical, most board members get and subscribe to that. However, I still see a lot of confusion between Strategic and Tactical with Board members. And I literally hear from Board members that it is not their job to "tell" management "what" to do. Yet, I believe this author and I would agree that that is exactly what a board should be focused on. "Results!" "What" results the Board expects from management. And the two or three seemingly universal issues all CUs have: (1) Growth - Members, Assets, Loans (income) (2) Maintain/Improve Member Service (which always involve discussions of Staff/Mgt., Technology and Facilities) (3) Improve/Maintain Safety and Soundness (I.e. Financial stability, minimize Regulatory/Examiner issues). I see a common reluctance, especially in smaller and Mid-size CU Boards to insist that things get done. They truly believe that a Board that says to management, “you must resolve this issue” (Whatever the issue), is a tactical or micromanaging. It is not! That is true direction, and just because statements like that addresses something tactical - Such as: (1) You Must Resolve...Our lack of income - Come to us with at least three things that we are not doing today that could improve our bottom line. (2) Lack of Membership Growth - Come to us with at least three things that we are not doing today that could improve our Lack of membership Growth. Etc. . .Boards, step up, insist on success.
    Walt Agius
     
     
     
  • As a new board member I have encountered and been frustrated by the scenarios you refer to. Instead of dealing with accountability for fulfilling strategy, we spend most of our time reviewing the minutiae of the monthly financials. While such oversight is needed when disparities exist, I feel that these powerpoints can be the thickest of weeds at times. Thank you both for your insight.
    Les Henderson
  • Thank you both, Walt and Les, for your comments. As a frequent board consultant myself, I find the best results come from a combination of factors. 1) A CEO and either Board Chair or Board Members who understand things are not working. 2) Time spent approaching the issue from an experiential and quasi-educational angle, such as a review of governance models, a strategic visioning exercise, or a simulation. And 3) the ability to engage Board Members respectfully but firmly as they try to pivot back into their comfort zone. This is rarely something a CEO or Board Member can deal with on their own, and unaddressed, it impedes the kind of progress for membership that could and would be achieved if not for the lack of Board self-governance.
    Chris Howard