The 4 Challenges Of Board Governance (Part 1)

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

 
 

The duties of a credit union board of directors are laid out in detail by the NCUA and other regulatory bodies, and there’s no shortage of guidance from trade groups and consultants on how to meet these obligations. But what about the reality of how boards function?

Behavior doesn’t go by the book, and that includes in the boardroom. The challenges facing credit unions will continue to shift and change, so the most important trait of a successful board in years to come may be the ability to learn and adapt. And that ability has to be grounded in some fundamentals.

By fundamentals, we mean more than just being able to read and understand a financial statement. That matters, but a capable management team will ensure a board can do that. We mean governance — setting direction, setting parameters, representing the interests of membership, and ensuring compliance and performance.

We see four basic governance challenges almost every board faces:

  • Doing the job
  • Preparing for the future
  • Staying out of the weeds
  • Setting strategic direction

These are not exhaustive, and the boundaries between them can blur, but they offer a useful framework for thinking about governance. In Part I, we will look at the first pair, which are basically administrative in nature. We will set aside the other two, which are more institutional, for Part II.

Ensuring the performance of board members is the responsibility of other board members. It is a tough job, but there’s no one else to do it.

Doing The Job

Showing up to meetings regularly, on time and fully prepared, is not the mark of a great or even good board member, it’s the bare minimum that must be expected and required of every board member. Nothing can take a board meeting off course faster than the unprepared, lackadaisical member. Sometimes the misdirection is to mask a lack of preparation, sometimes it’s just because that’s the way the way things have always been done. Regardless, it’s a major problem.

At best, board members who are just “along for the ride” are bad passengers, hijacking meetings so nothing substantive gets done or withholding the support and authority that management needs to do its job. In some circumstances, these “free-riders” hinder or even shut down critical change, posing a threat to their credit union’s future. Boards owe their membership better than that.

 

 

But who enforces these obligations? Member-owners? Through elections? Seriously? The credit union that has real competition for board seats is a rare bird, indeed. Ensuring the performance of board members is the responsibility of other board members. It is a tough job, but there’s no one else to do it.

This may mean difficult conversations, hurt feelings, even broken friendships among long-term board members. There are no easy answers, but ducking the issue only makes things worse. The first commitment every board member needs to make is to do the job; the second commitment is not to tolerate a colleague who doesn’t share that first commitment.

Preparing For The Future

This brings us, rather naturally, to the challenge of managing board succession. It’s not easy to craft a graceful exit for board members who have stayed past their expiration date. Trips to the GAC and other conferences, the conviviality of belonging, and even plain old inertia can make it awkward if not nigh on to impossible to retire board members who are no longer willing or sometimes even able to deliver the service their role requires. But it must be done.

New board members should bring outside points of view, fresh energy, and much-needed expertise, whether you’re talking about the local market, SEGs, technology, or other key success factors. But for most credit unions, it’s a real challenge to find and recruit people with the right skillset, the right attitudes, and sufficient time to be good board members. It’s also hard to make those folks a compelling offer once you find them.

People worth having won’t commit if there isn’t an actual board seat waiting at the end of the tunnel. They need training and preparation, but they also need a clear path and timeline. Being an associate board member or committee member while waiting for someone to throw in the towel — or even to die — isn’t most people’s idea of fulfilling community service.

There’s no magic bullet here. The personal politics involved can be complex and powerful, especially in cases where this board responsibility has been ignored for a while. Nonetheless, board members owe this to membership – the people who put them in those seats and are counting on them to ensure their cooperative is and continues to be safe, sound and a worthy, trusted financial partner.

If the first job of a credit union board of directors is self-governance, the most important one is setting strategic direction. We will address those challenges in Part II.

Click Here To Read Part 2

 

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Sept. 5, 2017


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