While assessments can be challenging, they also are a key performance driver.
The COVID-19 pandemic forced you to make significant changes instantly. This created new challenges for credit unions while worsening current challenges.
Now, much of what we did to stay safe has become at least partially embedded in new routines, such as regular virtual meetings and fewer members using branches or employees working in a centralized location.
The continuing proliferation of technology, the speed of information-sharing and geo-political events all complicate the work of the board—and expectations of it. The significant global events over the last three years have forced all boards to closely examine how their organizations should work moving forward.
This is also true for the board itself. Board composition is under heightened scrutiny. There is higher scrutiny now on the composition of the board and an expectation that the board will consider the impact of the credit union’s products and services on the communities it serves and the planet.
In today’s world, boards must be proactive and learn from experience to make informed, member-centric decisions that align with the credit union’s purpose, principles and values. Conducting regular board assessments as progress check-ins will ensure that your board is delivering on the member-centric leadership necessary for your credit union to thrive in today’s complex and dynamic environment.
“If there was ever a time when organizations needed a high-performing board of directors, that moment is now,” writes Tony Gaffney in the 2020 report, High Performance in the Boardroom: An Exclusive Report on Contemporary Best Practices of High-Performing Boards in a Time of Accelerating Change.
Doing Assessments Is Challenging
In my work with credit unions, I have seen my fair share of boards struggling with doing assessments well. A primary challenge is gaining unanimous director support for the assessment process. Even when used, however, it can be difficult to feel the assessment was worth the time when there is no follow-up.
I was the lead analyst for the CUES State of Credit Union Governance 2020 report, which highlighted that credit union boards often struggle with evaluations due to a lack of follow-up actions and considerations. Board evaluations are not useful unless it is used to develop a plan to improve. Boards may be running an off-the-shelf evaluation as a tick-the-box exercise in good governance, but this approach is unlikely to yield quality results. Without a proper framework for assessing strengths and weaknesses, your board is unlikely to be working at its full potential. This puts your board at an even greater disadvantage today.
Being Effective in Governance Means Being Proactive
To be effective, the board must be proactive. Conducting regular assessments prevents small issues from evolving into major cultural problems that erode trust and accountability among directors. Too often the board’s first assessment considers major palpable issues that are extremely complicated to overcome since they’re likely politically or emotionally charged. Anything can affect the status quo, especially new board members. If you don’t conduct assessments regularly, you might not realize issues exist until they become glaring problems that erode trust and impair your decision-making ability.
Board members can experience the same board culture differently. Not all board members are comfortable being candid or sharing what needs to be shared to assess performance. Because of this, boards invariably learn something new from assessments when they are done right.
I remember one time where, from the questions, you could tell that the board had expected comparable results as the earlier assessment. They ran the evaluation specifically because they brought on two new directors, but they had not been running them regularly.
As we were going through the results, a director interrupted and asked if the lower scores were driven by new members, which implied that maybe the board didn’t require improvements if the new members were maybe too inexperienced. Perhaps, but it is not expected that refreshment leads to any changes or poor evaluation of board processes and decision-making.
Also, I knew that the poor results in those areas were not driven by new directors. This question highlighted that the results were unexpected. This difference between expectations and reality highlights the importance of running regular board assessments. The board had the foresight to do an assessment with a third party after a significant refreshment, and they learned something they did not expect. This proactive approach means they were able to learn about new challenges, equipping themselves to manage challenges before they become significant drags on board performance as major challenges down the road.
Assessments Are Essential to Setting Expectations
Board assessments should be ongoing, feedback-oriented tools for evaluating development and how to continue to sustain performance promoting good governance. They are essential for clearly articulating directors’ expectations and holding the board accountable to its members. Objective third-party assessments can supply a valuable external perspective, finding areas for improvement that might be overlooked internally.
Your board—and by extension the credit union—is not shielded from challenges and expectations endured by banks and their boards. Credit union boards are fundamentally built more like those of non-profits when compared to a traditional bank board. Both, however, have the same fiduciary duties and personal liability risks. Your members likely want and expect more from you and the credit union than they would from a bank. Ask any traditional bank director today about their board assessment process, and inevitably all of them will tell you they approach this process annually as part of their progress checks for comparing current practices relative to prior years to gauge how they are doing and to find any emerging challenges they need to prepare for.
An emerging challenge for boards is to prove that they value diversity to make better member-centric decisions. This was a highlighted focus by credit union directors in the State of Credit Union Governance 2020 report.
One of the more significant matters affecting these discussions can be gleaned from public disclosure where many of these financial institutions are publicly declaring their dedication to enhance diversity, equity, and inclusion at both the board and managerial level. This exercise is arguably even more important than it is for traditional corporate paid boards.
Credit union boards have no excuse for not examining the effectiveness of the board, especially given their volunteer-based structure and limited pool of potential board members. Considering this, it is arguably even more important for your board to ensure high performance than it is for traditional corporate paid boards.
Two Key Assessment Methodologies
There are two primary methods for conducting board assessments: internally led by the board chair or through an independent third party.
In the board chair-led approach, the chair schedules one-on-one meetings with each board member and the CEO. These discussions are often informal and serve to gather feedback on what is working well and what could be improved. This method can be efficient and yield constructive feedback, but it does rely on a board having a culture of accountability and trust among members. Where there are major challenges or trust is low, an internal approach is unlikely to yield positive results and may even worsen the issues.
The more detailed and informative approach involves hiring an independent third party to conduct comprehensive assessments of the board, committees and individual members. A third party can supply a confidential and safe environment for directors to voice their concerns, leading to constructive improvements based on the assessment results. This is especially useful where there may be larger cultural challenges due to smaller issues still being unchecked over a prolonged period.
Regardless of the method chosen, the assessment should be structured as a progress check-in to gather detailed information to develop a plan to address current challenges and consider future requirements.
Credit unions are not immune to global events. The board must ensure they have adaptable, resilient and proactive strategies in place. This cannot be done effectively when board governance is poor. As credit union stewards, board members should consider assessments an important part of their work and neither fear nor ignore them.
Good governance is not a one-and-done effort, but one that requires regular examinations and updates. Regular progress checks with a board assessment are essential because they guide critical discussion to aid your board overcome challenges to unlock your full member-centric potential. This, in turn, will enable you to provide the leadership necessary for your credit union to thrive in today’s complex and dynamic environment.
A principal with Global Governance Advisors, Tony Spizzirri, B.COMM, is an accomplished corporate governance analyst and researcher that specializes in the strategic review, valuation and innovative design of compensation and corporate governance programs that effectively align strategy with shareholders’ interests.