Article

Good Governance: There’s No One-Size-Fits-All Way to Lead a Credit Union

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Matt Fullbrook Photo
Manager
Rotman School of Management

5 minutes

To define your board’s unique set of best practices, stay open-minded, make changes, set measurable goals and keep learning.

It is not lost on me that my regular access to boards and CEOs is an unusual privilege. Beyond unusual, really. And credit unions in the U.S. have been more generous than most in their willingness to allow me behind the curtain to listen to their stories, gather data and provide what advice I can. I have worked with and studied credit union boards since 2007, which has given me perspective on the many things that have changed over that time, and some important things that haven’t.
 
Earlier this year, the Johnston Centre at University of Toronto, Quantum Governance and CUES released a report called The State of Credit Union Governance 2020. It built on findings in a similar study from 2018 and asked a bunch of new questions to gain a better understanding of continuing and emerging governance trends in the U.S. credit union system. Our data came from Quantum’s massive database of board assessment results and a brand-new governance survey distributed to all three partners’ networks.
 
So, what’s on the minds of credit union directors and CEOs? Exactly what you’d expect, for the most part:

  • Board composition, renewal and skills
  • Board-management alignment (or lack thereof)
  • Balancing focus on strategy versus operations
  • Continuing education/development on governance

While these themes will be familiar in just about every credit union boardroom, some of the nuances have evolved significantly in the past decade, and even in the past two to three years.
 
Credit union boards face difficult challenges when it comes to director recruitment, board skills development and effective renewal. For starters, the fact that most directors are volunteers is both a feature of the system and a bug. To many, volunteerism is baked completely into the cooperative philosophy, ensuring that boards will attract and retain directors who genuinely believe in the movement. To others, an inability to compensate directors is just one more obstacle to overcome in recruiting the necessary skill sets and holding directors accountable. In my experience, both arguments have solid merit.
 
Let’s admit it up front: The job of a board is extremely difficult. There are no two ways about it. Credit unions are complex—and sometimes very large—financial institutions. Boards must find a way to provide expert oversight of human resources, legal, and accounting and finance, in addition to ever-increasing needs in technology, privacy and security, social media and more—all through the specialized lens of the financial services sector. The responsibilities of a credit union board are too complex for a group of gifted amateurs. It is also objectively difficult for any board to identify and retain volunteers with expertise that covers all of those bases. As a result, many—if not most—boards have information and expertise gaps that are at the heart of each of the themes from the 2020 report.
 
For example, the less expertise a board has in a key functional area of the credit union—let’s say finance—the more likely it is for staff to need to take time during board meetings diving “into the weeds” to get the board up to speed. In this sense, board composition, board-management alignment, and the balance of strategy and operations are all interconnected. But if things really are that difficult and entangled, what can boards and managers do to make it better?
 
My first recommendation to boards and executives is usually to ensure they set specific and measurable objectives against which to measure results. For instance, if you make changes to your board meeting agendas with the goal of emphasizing strategic deliberations then you need to deliberately measure whether they have had—and will continue to have—the desired impact. Do you spend more time at board meetings on strategic items? Is the board asking fewer questions about operational minutiae?
 
Another often-overlooked element of board meeting effectiveness is the way that executives ask questions. In my experience, simply asking “does anyone have any questions?” rarely has the desired effect. If managers come to meetings prepared with provocative, future-oriented questions for the board, then the resulting conversations are likely to be, well, about the future.
 
Perhaps the most important step, however, is ensuring that directors and executives have opportunities to take part in relevant and up-to-date governance education. The best governance education offerings add value in two important ways. First, participants gain research-driven practical insights and tools that are tailored to address both fundamental and evolving governance challenges. I have taught in the CUES Governance Leadership Institute since 2007 and have seen how hard my fellow faculty work to keep their content and messaging relevant.
 
Second, and perhaps most important, is that continuing education provides directors and executives an opportunity to interact with a diverse group of peers. Each of those peers is experiencing similar challenges, but likely in different ways. Exposure to the diversity of effective approaches to governance might be the greatest gift a director can get. I often argue that there is no such thing as “best practice” when it comes to governance simply because no two organizations face the exact same challenges in the same ways. By hearing other credit unions’ stories, by learning from their successes and failures, your directors and managers will be better equipped to enhance your own credit union’s effectiveness.
 
The reluctance in the credit union system to invest heavily in the development of board members is often surprising to me. I certainly understand that, on the surface, the ongoing cost of courses, conferences and workshops might feel like a difficult sell to members. Every dollar you spend on your board is a dollar not spent on something else that might benefit members more directly. In the end, however, your directors are the credit union’s last line of defense. They are ultimately accountable to the members’ interests and require an almost unbelievable breadth and depth of expertise in order to bear that accountability with due skill and seriousness. An investment in your board’s ongoing development is, in my opinion, an investment in the success of the credit union and worth every penny.

Matt Fullbrook is manager, David & Sharon Johnston Centre for Corporate Governance Innovation, Rotman School of Management, University of Toronto. He is a lead faculty member for CUES Governance Leadership Institute and will present Board Chair Development Seminar in 2020.

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