Credit Unions Still Lacking Diverse, Young Board Talent

While you’ve heard about the war for executive talent, there is another credit union war that you may not have heard much about – the war for board director talent, which many credit unions appear to be losing.

Research shows the majority of credit unions have not made progress when it comes to attracting minority or young board candidates, even though these are the very demographic groups that cooperatives need for current and future growth. The only good news is that the percentage of female directors has increased over the last 10 years.

Illustrating the mounting difficulties of recruiting board members is the fact that there have been a growing number of states since 2014 – Washington, Tennessee, Colorado, Arizona and Oregon – that gave their state-chartered credit unions the option to pay board members. Currently, 19 states allow credit union board compensation. Supporters said it can help recruit and retain qualified, talented directors who are also being courted by banks, companies and other organizations that pay their board members. Although board compensation remains highly controversial, experts said there are other ways to successfully recruit board members, including minority and young candidates, who can play an important role in helping credit unions attract these demographic groups to grow membership.

When it comes to searching for potential board candidates, credit unions fall into the same trap of looking in the same places, John Pembroke, president/CEO of CUES in Madison, Wis., observed.

“The natural reaction to find these board candidates is to first ask, ‘Who do we know?’” he said.  But relying on old ways may place a credit union at a competitive disadvantage – the makeup of its community’s population may be changing rapidly, and if credit unions don’t change with it, they may miss essential market opportunities.

Pembroke’s statement is supported by a 2014 Filene Research Institute report, “Improving Credit Union Board Renewal.” The report found 85% of U.S. and Canadian credit unions use nominating committees to identify new candidates. However, when selecting potential board members, these committees typically rely on word of mouth from current directors and staff, and may also draw candidates from non-board committees. The study found relying exclusively on these types of recommendations can lead to the recruitment of new board members that are similar to incumbents. One board member remarked in the research report’s survey that their board’s lack of diversity was caused by its practices of recruiting the acquaintances of existing board members.

“You need to cast a wider net,” Pembroke said. “You have to go beyond that.”

That means directors need to reach out to candidates at other organizations or in other industries, such as community development and young professional groups; non-profit or advocacy organizations; and Hispanic, black, Asian and other multicultural outfits that align with the credit union’s values.

Focusing on minority groups and young candidates for new board blood can only stand to benefit credit unions, as they can help cooperatives gain an understanding of these demographic groups and grow their membership ranks.

William H. Frey, senior fellow for the Metropolitan Policy Program at the Brookings Institution in Washington, noted in a March blog post that the new census population projections show racial minorities are the “primary demographic engine for the nation’s future growth.”

“The new statistics project that the nation will become ‘minority white’ in 2045,” Frey wrote. “During that year, whites will comprise 49.9% of the population in contrast to 24.6% for Hispanics, 13.1% for blacks, 7.8% for Asians and 3.8% for multiracial populations.”

Among the minority populations, the biggest growth from 2018 to 2060 is projected to come from multiracial populations, Asians and Hispanics. However, in less than two years, by 2020, among youth under 18 years of age, minorities will outnumber whites, according to Frey. And for those in the 18 to 29 age group, minorities will outnumber whites in 2027.

What’s particularly troublesome for credit unions is they are not attracting young board members and minority director candidates.

According to the Filene study, only 11% of credit union directors were minorities in 2005 and by 2014, the percentage remained the same. Moreover, only 25% of board members were under 50 in 2005 and in 2014, that percentage didn’t budge either.

Although formal board policies and processes can have a measureable impact on board diversity, fewer than half of the credit unions surveyed by Filene have diversity policies. However, among credit unions that do, 80% believe their board appropriately represents their member base, compared to 40% of those with no formal policy.

“It would be nice if diversity truly happened organically, and I’m sure there are good examples of that in our credit union system,” said Miriam De Dios Woodward, CEO of Coopera Consulting, a West Des Moines, Iowa-based firm that helps credit unions reach out to and serve Hispanics. “However, I do think you’re going to run into a shorter list in that regard. From a leadership standpoint, diversity has to be a proactive strategy.”

That means credit unions have to take the initiative to make connections with members of minority groups that can build relationships, create partnerships and identify a new pool of potential board candidates.

For example, the $3 billion Travis Credit Union in Vacaville, Calif., created a Hispanic advisory group that included current members, prospective members and small business owners.

“This was a connection point for the credit union to the [Hispanic] community, however, one of the nice by-products of establishing that communication and connection is you get to experience and see the breadth of individuals, and potentially identify new board candidates through that process,” De Dios Woodward explained.

That process happens when Travis CU holds meetings with the Hispanic Advisory Council to discuss specific topics, and listen and learn from the council’s feedback.

Another way to reach out to minority communities, she said, is for credit union boards to invite minority community leaders to board meetings and participate in informational sessions in which the leaders talk about what their organizations do in the community.

“Things like this can help quite a bit to expose the board to new people and gain a better understanding of what’s going on in their community, and what organizations are out there serving their community,” De Dios Woodward said.

Filene’s research, however, pointed out the most frustrating obstacle to increasing director diversity is board turnover typically occurs at a snail’s pace.

“This is particularly true for credit union boards, many of which comment negatively about directors who have been on the board for decades,” University of Toronto researchers Antonio Spizzirri and Matt Fulbrook, who authored the Filene research report, wrote. “The accumulation of institutional knowledge is critical to board effectiveness but so is regular director turnover. These two realities are difficult to balance.”

To open more seats on the board for younger directors, Brandi Stankovic, SVP for strategic advisory services for CUsolutions Group in Livonia, Mich., is seeing more credit unions create board emeritus positions, which allow board members with 20 or more years of service to continue as advisors but no longer have voting rights.

Implementing term limits can also be a way for credit unions to attract new candidates, but it may not work for all credit unions.

“I think some institutions function really well with having a fresh board every few years,” Stankovic said. “But when it becomes difficult is when you have an internal change in leadership or some other internal challenges that are happening in the organization, and then you don’t have any real continuity of board leadership as well. So I think it just depends on the organization, but it’s certainly something for boards to examine if they’ve had no fresh blood for a while.”

Pembroke said credit unions may want to consider increasing the size of their boards to achieve diversity. He also recommends credit unions bring on more than one diverse board member.

“With two diverse board members, it can create a more comfortable situation for them,” Pembroke explained. “They can feed off each other and learn from each other to become effective board members.”

Another challenge in recruiting minority or young candidates is their availability to serve or their lack of knowledge of what is required by board members and the commitment behind that, De Dios Woodward said. To address this issue, credit unions have opened non-voting associate board positions, which give prospective candidates a flavor of what it’s like to be a board member.

She noted an associate board position is also a good starting point for recruiting minority candidates and young professionals.

“Young professionals may not have as much of that experience as you might be looking for initially, but they have a lot of great qualities that you would want in a board member,” De Dios Woodward explained.

When it comes to recruitment, credit unions should also have a strong onboarding process so new directors understand their mission, duties and responsibilities. A continuing education program is also beneficial because it can help directors increase their knowledge, skills and abilities.

In addition, formal and regular board evaluations can aid the board to identify areas of strength and areas that need attention, according to Filene.

“Directors are much more likely to voice concerns through a well-defined and confidential procedure than they are during a board meeting,” Spizzirri and Fulbrook wrote. “As a result, formal evaluations can strengthen processes, structures and decision making on an ongoing basis.”

However, only 40% of credit unions have implemented formal board evaluations.

The research noted one-on-one interviews with board members are most likely to identify the strengths and weaknesses of the board and also yield measurable and actionable results. The interview process should be overseen by the chair of the governance committee or board chair. Many boards hire an outside consultant to conduct these interviews in order to ensure anonymity and increase the candor of feedback.

“The connection between board evaluations and successful board renewal is also clear,” Spizzirri and Fulbrook wrote. “Credit unions with formal board evaluations are more likely to have an effective balance of board members today and are more confident that their board renewal processes will identify strong candidates in the future. Credit unions with regular board evaluations are much more likely to recruit directors based on specific skill needs. Most boards without regular evaluations do not recruit based on skills or other attributes. Through regular assessments, the board can clearly identify gaps and redundancies in board skills that can be addressed during the board renewal process.”