Building a Better Credit Union Board

School may be out, but given the ongoing fintech evolution, digital transformation and cybersecurity threats, credit union leaders must provide a learning environment for staff and add directors with specific competencies for better board composition.

Take into account the customary fiduciary and regulatory aspects of their duties, plus the fact that most board positions remain unpaid and the financial services landscape is becoming increasingly difficult to navigate, and choosing credit union board members can be tricky.

Brandi Quinn, SVP of enterprise reporting at the St. Petersburg, Fla.-based CUSO PSCU, which has established its own set of criteria for building a successful and knowledgeable board, passed along some ideas to help credit unions with their board decisions:

• Develop a complete grasp of expectations that could influence the credit union in the coming years by evaluating the current state of business. This should include an understanding of any related income taxation changes.
• Address required skills by identifying a competency matrix that highlights what the board needs to oversee at the credit union given its challenges. This would include cyber and enterprise risk, tech or vendor platforms, and payments shifts.
• Establish a culture of performance via board self-assessments, individual director assessments and/or shorter terms. The credit union should also document responsibilities and expectations in governance policies and director job descriptions.
• Instill diversity in the boardroom to allow for differences in thought. Ensuring an assortment of opinions can elevate the boardroom discussion and put credit unions in a position to address essential topics in a knowledgeable and timely fashion.
• Create a learning culture that includes boardroom or external training to ensure directors can effectively help the credit union board navigate critical issues and risks.

Quinn, a CPA who spent ample time in public accounting and working with businesses, noted a vital key to the success of any organization is ensuring essential governance is in position to help it remain on track.

It should also be noted that government and regulatory mandates hold the board of directors responsible for the overall direction and control of a credit union.

One of the key components that is top of mind, for both leadership teams as well as the board of directors, is the need to address an elephant in the boardroom – IT and cybersecurity risks. The updated FFIEC Information Technology Examination Handbook specifically requires IT governance for boards, which means tackling risk management, and reviewing and approving plans for addressing continuing and emerging threats including cyberthreats. “Ultimately the board is responsible for cybersecurity risk,” Quinn said.

It is also important to consider anticipated guidelines and regulation changes, and their potential effects on the credit union. “Perhaps these are changes we expect in income taxation or yields and interest rates,” Quinn said. Likewise, boards need to foresee how some macro trends could evolve and force a credit union to adapt.

The SVP recognized PSCU is atypical of most credit union board compositions in that all 11 of its directors are CEOs of member credit unions. “The past five years I’ve had the opportunity to support our board of directors and really further develop a governance program,” Quinn said. Its board wrestles with evolving information technology, such as the movement toward digital and cybersecurity risks, which she suggested may be foreign to many directors who perhaps do not have that background.

Quinn trusts what is working well for the CUSO’s board likely could translate to a good roadmap for credit unions as well. This includes assessing board members’ current state as well as their skills and background, and planned retirement dates.

This issue is relevant because board succession is a very popular topic. “[You] certainly [can’t be] definitive. You don’t want to ever tell somebody, ‘You said you were going to retire next year,’” she noted. But it is important to know if say, half of the board aims to retire in the next five years, because this might create an almost immediate obligation to address succession.

“You assess the current state, you look at potential future needs, and perhaps identify what an ideal board in the future might look like,” Quinn said. “Creating almost a culture of performance is one of the critical components of an effective board.”

She maintained it is a challenge to look at what the board of the future needs to look like and increasingly address the need for talent that is not readily available, number one; and number two, that is not part of the current composition. Quinn added credit union boards these days demand candidates with more than just a financial background, or understanding of marketing and banking.

Ideally directors coming onto the board room would bring their skillset with them, whether that comprises a financial, IT, regulation/compliance, security, law, analytical/data fluency or general business background. That way everybody contributes something drawn from their legacy and critical skills, Quinn pointed out. “Once you have kind of a current state and really have assessed it, you know who you are as a board of directors.”

It is important for boards to look at their current makeup and future state to prioritize areas of diversity that are most important to them, Quinn specified. That not only includes gender, cultural or ethnic diversity, but a diversity in thought. “That’s where you bring in different skill sets and backgrounds for directors, have almost a state of a healthy tension, and drive a board to be as effective as it possibly can be.”

Quinn suggested additional features that could increase credit union board efficacy: Employ self-assessments, including peer-to-peer evaluations, and create a learning culture. “They [directors] can turn around and walk back into their own daily lives with maybe having learned something or a new perspective on an issue.”

Another key tenet of a great board is ensuring directors are onboarded and assimilated into the group effectively. “It is really a joint effort between the board and the management team, Quinn said.

She maintained building an effective and well-informed board is a very current, valid topic, especially as the fintech world continues to change. “Credit unions need to be in a position to address that very rapid evolution. Ensuring your board of directors stays ahead of that curve is a critical component to this.”

Does this increased acumen, responsibly and comprehension diminish the number of people willing to serve? Quinn admitted that while there are not any quantifiable numbers on that topic, she did reach out to a few credit unions to try and find out if there were issues enlisting new board members. “There’s no comprehensive view but certainly in the credit unions that I deal with there is a general hesitancy to raise your hand and say, ‘Yes, I’m going to join.’”

But there are things organizations can do to recruit and encourage those who might possess certain skills, such as a cybersecurity or IT background, and are willing to serve on a board. “It’s making them deeply wanted – this extends to public organizations or private organizations as well as not-for-profits.”

Quinn believes credit unions need to build a holistic package to help a potential candidate understand organizational issues and concerns, and how the board manages them. She indicated it’s important for credit unions to continue to evaluate what’s happening within their own four walls and for boards to say, “Yes, I need that skill as part of my next board recruitment process.”