To envision and protect the future of the credit union, a board needs to assess itself and the CEO.
The road to organizational improvement starts with a single step—and often that step is assessment of leadership. Credit union boards play a critical role in such assessments—not only in evaluating the CEO’s performance, but also in evaluating their own.
“We look at assessments from a couple of different vantage points,” says Jennie Boden, managing director of strategic relationships and senior governance consultant with CUES strategic partner Quantum Governance L3C, Herndon, Virginia. “We look at assessing not just the board but governance as a whole … the board in its relation with the CEO and the management team and also how the supervisory committee is functioning, because governance really is a relationship that involves all three of those components.”
Another governance expert suggests formalizing the process.
“It’s a high-performance standard for boards to do some sort of assessment every year,” notes Les Wallace, Ph.D., president of Signature Resources Inc., Aurora, Colorado, and author of Principles of 21st Century Governance. “It helps if the board has a written policy stating that it will do an annual assessment. That gives momentum to the executive committee or governance committee to see that it gets done.”
Wallace has consulted with hundreds of boards, including many credit unions. “When I’m working with a credit union board, I typically ask, ‘What was the board’s most important contribution to the success of the CU last year?’ That helps them to start reflecting on current performance and how they can be better.”
Ancin R. Cooley, CIA, CISA, principal of Synergy Credit Union Consulting, Chicago, notes that not all CU boards are receptive to assessments.
“As volunteers, they view their service as a labor of love—they love their community, they love their credit union—so the notion that ‘someone wants to assess how well I’m doing as a volunteer,’ for a lot of people, it’s off-putting. As a consultant who advocates for board assessments, oftentimes I get pushback along the lines of: ‘I get evaluated at work. I shouldn’t have to be evaluated as a volunteer.’”
Cooley is able to counter that argument with a simple but powerful rationale.
“I tell them that ‘when you decided to volunteer for this organization, the impetus was that you believed in its mission, and the predisposition embedded in that is that you want to see the organization survive and thrive beyond your tenure on the board. The best way to do that is to implement certain metrics for you and future board members to adhere to.’”
To emphasize this point, Cooley explains to board members that CU governance is analogous to someone’s last will and testament. In much the same way that an individual sets up stipulations in a will regarding how his or her assets will be distributed, a board should likewise set up governance standards for the CU.
“The way we do that is by implementing criteria and baseline behaviors that we deem to be good for the organization—and evaluating those criteria objectively on an annual basis. By doing that, we’ll be able to guide the organization even after we leave the board, because our wishes, vision and expectations for the organization will be melded into that criteria,” Cooley says.
Conducting an Assessment
Darren Bagshaw, managing partner of Bagshaw Consulting Group, Calgary, Alberta, says all assessments should begin with a central question: What do we want to achieve?
“The important thing about conducting assessments is the outcome,” Bagshaw says. “You need to determine: ‘What is the behavior that we want to improve, encourage or change?’”
The scope of a board assessment can be broad, but it also can be narrow, focusing on specific areas that the board wants to target for evaluation or improvement. “Sometimes assessments cover 50 questions when they could be boiled down to eight or 10 questions covering the things that matter most,” Bagshaw explains.
Boards can undertake various kinds of assessments, Wallace says, and some can be fairly simple. “For instance, at the end of each meeting,” he explains, “the board could ask a few questions about how the meeting went and what they can do to improve it. That’s pretty tepid, but at least it gets dialog going. Another option is to choose one element of governance they want to improve—say, effectiveness of meetings or strategic planning—and conduct an assessment on that.”
Most boards do what’s called a “full spectrum” assessment, which Wallace describes as a comprehensive, soup-to-nuts assessment of critical elements of governance conducted by an outside resource. This type of assessment often includes hiring a consultant to phone each director and have a conversation about key questions.
That’s “probably the most powerful assessment a board can have,” Wallace says. “It provides the opportunity for follow-up questions that produce a useful dialog.”
Telephone surveys are particularly effective in identifying problem areas. “For instance, if a board member says, ‘I’m not happy with fill-in-the-blank,’ the consultant can ask pointed questions to get to the heart of the problem,” Wallace explains. “You would typically do a telephone survey every three to four years and use something else in between, such as focusing on one element of governance that you can improve.”
Using multiple methodologies can also enhance results.
“This is what we call a full assessment,” says Boden. “You might begin with a survey, but then pair that with a document review; board member, management team or even supervisory or audit committee member interviews; focus groups; or possibly observation of a board meeting.”
The advantage of using multiple methodologies is to achieve a more complete picture of the board’s performance. As an example, Boden notes that board members might take a survey and give themselves high marks for having an appropriate balance of strategic and operational discussions in the boardroom. However, a review of the board’s meeting agendas and minutes may reveal that only a small percentage of time is dedicated to strategic initiatives. Having a consultant do one-on-one interviews or observe a board meeting might likewise contradict the board’s rosy assessment of itself.
“If you compare the data and results from all these methodologies, they may be fully in alignment with one another or they may be completely out of alignment,” Boden observes. “That’s why we recommend multiple methodologies; it allows you to test what you’re hearing from one methodology against another.”
Effective Assessment Tools
Quantum Governance works closely with CUES to offer assessment tools, including for governance, board member skill inventories and CEOs. Quantum Governance recommends reassessing a year after an initial full governance assessment, and then at two-year intervals after that.
Another effective tool for evaluating board members is a peer assessment—in which board members evaluate each other. As Boden describes it, “If done well, peer assessments can be a useful tool for bolstering relationships and helping board members to improve their service, skills, the way they relate to one another and the overall effectiveness of the credit union’s governance.” However, she offers a caution regarding their use—the potential for unintended consequences, including hurt feelings.
“That’s why we recommend that a board be mature enough and seasoned enough to handle a peer assessment,” Boden reports. “I’m not referring to the maturity level of the board members, but rather that the board has previously experienced other types of assessments. It’s best to begin with a full governance assessment before jumping in at the peer level.”
Bagshaw sees value in doing peer assessments in conjunction with self-assessments. As an example, he observes, “You may give yourself high marks on your communication skills, but a peer assessment may show that you need improvement.”
However, Bagshaw likewise advises boards to be cognizant of the fallout that could occur from critical peer assessments. “It might be better to start with a self-assessment and have someone run through that with you, and perhaps next year target a self-assessment combined with a peer assessment. Or perhaps do a self-assessment and an assessment of the board as a whole. That way, you’re not addressing the communication skills of anyone in particular and it doesn’t get too personalized.”
Cooley says surveys are an effective way to evaluate the performance of individual directors as well as the board as a whole. Survey questions could probe if individual directors possess the appropriate skills and background; the board receives useful information in its meetings; board dialogue is of high quality; board discussions are meaningful and pertinent to the task at hand; board discussions are open and candid; and board members actively participate in meetings. Board members rate these statements on a scale ranging from “strongly agree” to “strongly disagree.”
“A good chair can use this information to drive training in the next year without having to call out specific individuals,” says Cooley. “For example, let’s say that most board members strongly disagree with the statement that ‘board discussions are open and candid.’ If I’m the chair, I may decide that we need to take a crucial conversations course so we can do a better job in speaking candidly about what’s happening in our organization.”
Assessing the CEO
In addition to evaluating the board as a whole and directors as individuals, the board is responsible for regularly evaluating the CEO.
“The important thing here is to make sure everyone on the board has a voice,” Boden says. “That doesn’t mean they all have to give feedback to the CEO at the same time. Instead, they can designate a small group to hone their collective input into a synthesized report that is then provided to the CEO.”
Board members can provide input for the assessment in a variety of ways, according to Boden. They can complete a written survey (such as the one available through CUES), respond to an email poll, participate in one-on-one interviews, or provide feedback during an executive session of the board.
Boden suggests another tool that boards may wish to use in evaluating their CEO is a 360-degree assessment, soliciting input from direct reports and others in the CEO’s orbit, such as a mentor or a coach.
Bagshaw observes that 360-degree assessments can uncover information that other types of assessments do not. “For instance, some CEOs do well in presenting themselves to the board, but don’t do well with their direct reports,” he explains. “So ideally, to effectively measure the CEO, it’s best to get feedback from every level of the organization.”
CEO assessments are similar in purpose to board assessments, Bagshaw adds, in that both are intended to drive desirable behaviors. He recommends measuring such behaviors at least quarterly.
Bagshaw gives the example of a board that wants the CEO to better communicate the CU’s strategic vision to his or her direct reports. To verify whether this is occurring, the board could check in with the appropriate managers once a quarter, or even once a month, and ask them to describe how their objectives fit into the overall strategy of the organization.
“If they’re unable to articulate it, then clearly the CEO is not communicating the strategy as effectively as he (or she) should,” Bagshaw explains.
While board and CEO assessments can be similar, they judge different competencies.
“On the board side, the competencies center around strategic direction,” Cooley says. “The competencies for the CEO are both operational and strategic. The board also has to have the competency to manage management and have the proper mechanisms in place to properly and effectively manage the CEO.”
When evaluating the CEO, Wallace recommends that boards keep these six leadership abilities in mind. Can the CEO:
- Drive strategy (including being aware of trends, and competency in visioning, strategic thinking and strategic planning)?
- Lead organizational transformation (including facilitating creativity and innovation)?
- Manage the enterprise, both the finances and the people?
- Keep a member focus, creating and tracking value and satisfaction?
- Maintain good board relations?
- Demonstrate integrity and credibility?
Wallace recommends that boards conduct a formal CEO evaluation annually to consider competencies and performance, though he adds that it’s important to provide additional feedback as needed throughout the year.
“Good feedback is immediate,” he says. “You want to make sure the board is confronting the CEO or patting her (or him) on the back based upon performance. That’s part of the board’s job in helping the CEO be as successful as possible.”
A well-executed CEO assessment will include an incentive for meeting prescribed goals. Wallace points out that this typically comes in the form of a bonus.
“For example, if the strategy of the credit union is to triple in size over a five-year period through mergers and acquisitions, there ought to be a bonus that goes to the CEO for pulling that off,” he says.
Wallace says that bonuses should only be awarded when CEOs achieve objectives above routine management and caretaking. “Boards need to identify for the CEO what the stretch goal is, describing what accomplishment will result in the achievement of a bonus.”
In evaluating the CEO, boards often define success by improvements to the bottom line, but experts say organizational improvement can be so much more than that.
“We encourage credit union boards to assess their CEOs on more than financial performance indicators,” Boden says. “Performance evaluations should include a whole gamut of skills that you’re holding the CEO accountable to, such as HR skills, how well the CEO works with the board and how well the management team is working as a whole.”
Bagshaw says high employee engagement is a sign the CEO is performing well.
“I think one of the most important measurements around a CEO—in addition to quantitative measurable impacts in terms of the bottom line—is the engagement score,” he explains. “The results of an engagement survey reflect directly on the CEO. If the engagement is high, generally speaking, he’s doing a good job. If the engagement is low, then at least on the people side of the business, there needs to be improvement.”
What boards need to see from the CEO is a progression toward meeting the credit union’s goals, and Cooley observes that this is not always measurable by a steady upward trajectory in profits.
“For example, let’s say the credit union built a new branch last year. The board should recognize that we had to expend a lot of monies to do so, so this year and maybe half of next year, profits aren’t going to be as large as they otherwise would be. But if we built that branch in 2014, and here we are in 2019 and we’re still getting excuses around the branch expenditure, perhaps we need to ask the question: Is the branch still the problem or is it something else?”
As part of evaluating the CEO, Wallace observes that it’s important for the board to measure the CEO’s effectiveness in meeting strategic objectives. For instance, let’s say the board has determined that the CU should expand geographically, increase membership among millennials or strengthen its car loan business. All of these goals are measurable, and the CEO should be able to demonstrate progress toward them.
“The board doesn’t have to be experts on metrics, but they do need to define the improvements they are looking for,” Wallace says. cues icon
Types of Assessments
The consultants contacted for this article identified the following types of assessments:
- Board Self-Assessment: The board rates itself using surveys, phone interviews, document reviews, focus groups and one-on-one interviews.
- Governance Assessment: An outside consultant considers the board’s governance abilities; it could be comprehensive (covering all elements of governance) or focused on a specific area, such as strategic planning or CEO evaluations.
- Board Member Skills Assessment: This helps individual board members evaluate their skills and competencies as well as areas for improvement.
- Peer Assessment: An assessment in which board members provide feedback about each other’s performance to improve individually and as a group.
- 360-Degree Assessment: This evaluation process seeks input from the individual’s higher-ups, peers and subordinates.
Diane Franklin is a writer based in Missouri.