Expert looks at them through the lenses of board composition, strategy, fiduciary duty and governance processes.
As the new decade breaks, what are some of the most intriguing conversations boards are engaging in? And what are some key questions they are working to answer? To help you have some of these conversations at around your own board table, let’s look at them through the lenses of the four major domains of governance: board makeup, strategy development, fiduciary oversight and governance processes.
This past decade has witnessed a controversial conversation about who should serve on a credit union board and for how long. CU boards are now catching up to the critical conversations more progressive boards have already had. If you haven’t enacted term limits for board and officer service, you are getting behind. If your term limits are around nine years of total service, you’re in the emerging trend. Lifetime service and emeritus status are disappearing from the CU landscape and high-performing boards are addressing this issue with courage.
In 2020, boards need to be renewing themselves by looking for new expertise and capabilities. If you don’t have a “profile” of the competencies and experience needed on your board moving toward your 2025 vision, you are getting behind. This profile should not be limited to competency makeup but should also include the recruitment of younger board members to help CUs match their march to a shifting member demographic.
When boards tell me they “can’t find” the needed competency or younger board members willing to make a commitment, I sense lack of effort. I have yet to find any board that took refreshing its makeup and reducing the average age seriously that didn’t accomplish this objective! Ask around at your next CU governance conference and you will find plenty of success by boards that have made this a serious strategic priority.
You might think ahead to 2025 where boards are likely to have a third of members be under 35 years old, a third between 35 and 55 years old and a third in the 55+ set. They also will reflect gender and ethnic diversity. While mandatory retirement age limits are a topic of discussion in the for-profit board conversation, age need not a determiner of when you are no longer capable to serve.
Every CU board in 2020 should act strategically as if their organizations were double their current sizes. More and more boards have already made this strategic shift in perspective. If you’re a $500 million CU, in 2020 you should act strategically as if you are $1 billion in assets. This mindset ensures you will be stretching your vision and energizing your strategies for movement rather than caretaking. Organic growth is not a strategy; it is the conservative mindset of a timid organization. You either have or don’t have a growth strategy. If you do, you’re tracking metrics demonstrating better-than-average progress. The business environment and certainly the competition from banks ensures we cannot afford to be a sleepy mom-and-pop shop much longer. The 200-plus mergers that are happening each year emphasizes this point.
In 2020 the emerging standard is for boards to have a strategic retreat twice a year. The first retreat examines trends, disruptions and innovative developments in financial services and narrows strategic learning interests to a vital few new ideas. The second retreat, following a few months of reading and learning about your interests from retreat one, zeros in on the vital few strategic initiatives for the organization—either to continue or to develop anew. Two strategic retreats are already commonplace with CUs over $1 billion in assets.
By now and certainly as boards enter this new decade, they will find strategic dialogue and progress tracking consuming as much as 70% of each board agenda. Unless overall performance is failing, fiduciary and risk management discussions take up the remaining 30% of board meetings.
Performance dashboards are now commonplace across all areas of organizational performance: finance, member value and organizational culture. More space is suddenly being given to the board’s role in overseeing corporate culture. Maybe 2020 is a good year to revisit that with the executive team: What are the principles that guide organizational culture and how do you track them to ensure you’re living up to them?
Disruptions of the last decade—from cybersecurity to advances in the application of artificial intelligence in our operations—have increased the risk quotient. No one is exempt from cybersecurity challenges and this risk in 2020 is now commonly tackled by semi-annual or even quarterly reports to the board on the organization’s risk mitigation efforts. However, the risks are much broader across the organization and go beyond the seven key risks the National Credit Union Administration expects you to manage.
An enterprise risk management mindset identifies the vital risks to the organization as identified by the executive team and tracked by the board. What possible disruptive risks has the board considered? Is organizational culture keeping pace with employee expectations? Is board makeup a risk to our 2025 success? Executive compensation—too low or much higher than benchmark compensation plans—can also be a risk. Front-line turnover currently hovers around 20% for credit unions. Is that a risk for you? Disaster recovery/business resumption, fraud, talent development, compliance, onboarding new board members and social media exposure are also frequent risk topics. Maybe this is the year your board develops a learning plan (such as this one for CUES Unlimited+ members) about what robust ERM might look like.
The 2020 board meeting. If there were ever a model needing 2020 refresh, it’s the typical CU board meeting. Boards are just now moving away from “old business, new business” and catching up to the use of a “consent agenda.” Almost three-quarters of participants at Directors Conference in December 2019 had adopted a consent agenda.
Today’s typical board meeting can be a dulling mix of presentations, domination by one or two board members, and CEO domination vs. healthy and deep board dialogue. Add to that the over-investment in fiduciary oversight and the lack of performance dashboards and we have boring mix of wasted intellectual capital.
The 2020 board meeting should be a mix of fiduciary (30%) and strategic conversations (70%) that “flips” agendas from long PowerPoint presentations to pre-reads that allow agenda items to begin in dialogue vs. presentation form. Today’s progressive board agenda begins with the consent agenda, moves to financial, risk/compliance oversight and then to strategy.
Board Governance processes. An annual board self-assessment has been a high-performance governance standard for some time now. Even so, I still find CU boards who have not done a self-assessment in some time. Self-assessment need not be a large-scale review of everything every year. It can easily be a one-time focus on such governance practices as strategic planning process, board meeting refresh, board makeup and recruitment, and enterprise risk management practices.
Because governance practices and the business environment are moving faster than ever, it’s even more important to take stock of how you’re doing and set some board development goals. In a more disruptive and faster-moving business environment, it’s become more difficult for board members to remain knowledgeable and alert to shifting trends. A board self-assessment that asks directors about their learning interests can help target and focus board development throughout into the next decade.
2020 committee housecleaning. We still find CU boards with “facilities” committees choosing furniture and drapes, “human resources” committees reviewing HR policies, and “marketing committees” holding forth on the best social media approach for the credit union. These are all business areas requiring professional expertise, not volunteer opinion. Please abandon these “operational” committee endeavors and hold your executive team responsible for ensuring professional guidance is applied to these areas of endeavor.
Two critical committee functions for boards are enterprise risk management, possibly combined with the audit committee function and governance committee. Profiling and recruiting the next generation of board members, dealing with term limit considerations and facilitating an annual self-assessment are all great governance committee charges and quite typical of board committee structure.
Other 2020 topics. Diversity for both board and the organization won’t fade away as a concern. The generations after baby boomers, gen Z and millennials look for this in their business relationships.
These same generations also put more value on your organization’s contribution to a more sustainable planet and are impressed with commitments to carbon lite operations and buildings.
As board service for pay has now come into the CU business space, look for greater member interest in serving on the board and not necessarily from qualified applicants. I’m hearing buzz about this dilemma at every CUES meeting I attend.
Preparing our next generation of board officers is now a lively interest. With the introduction of the Board Chair Development Seminar, recognition is growing for the need to prepare future board officers before we elect them. Your board should have a plan for officer development in 2020.
Regular CUES columnist and seminar leader, Les Wallace, Ph.D., is president of Signature Resources, Aurora, Colorado, and author of Principles of 21st Century Governance. He is a governance consultant to boards in all domains of commerce and not-for-profit enterprise and has just engaged with the 401st board of his consulting career. Read more from Dr. Wallace.