Credit Unions Must Modernize Board Governance

In today’s complex financial services industry, the governance of credit unions must be modernized to reflect relevant business practices and build organizational value for members. Strategic representation at the board level requires more than attending monthly meetings; it is about positioning the credit union to serve a diverse and changing field of membership. There’s so much more to know – from technology to regulation to business analytics. Engaged volunteer board members will strive to be aware of these matters at a high level, and how they can affect the credit union while refraining from getting involved in the operations of the institution. Boards should be looking on the horizon to the financial services landscape and simply guiding the credit union toward a destination that changes the lives of their members today and into the future.

High-performing boards shape the direction of the credit union through its mission, strategic plan, purpose statement and critical policies. If your credit union’s mission is to be the community’s financial institution, then the board and management should be reassessing policies that stand in the way so the board can approve changes. Management should also be ensuring a seamless process is in place for new account openings, whether it’s reducing paperwork, simplifying the legalese or making digital options available.

Then the board must ensure the leadership has the resources necessary to support the vision. As consumers move deeper and deeper into the digital world, credit union boards must keep up to speed and work with management to ensure the appropriate level of investments are made in this area. With increasing digital dependencies also comes increasing cybersecurity needs. Are those being properly supported as well? Every year should bring an increasing technology budget. Yes, it is expensive to operate in the digital space but critical to survive, let alone thrive, in today’s environment.

The most successful boards also monitor performance – trust but verify! The board must ensure the member funds are being used for a good purpose. Again, if your credit union aims to be the community’s choice, are the proper key performance indicators, such as membership growth, lending practices that reach a diverse community and average age of members, moving in the right direction after a reasonable amount of time?

High-performing boards have systems in place to attract, retain and develop incoming volunteers, and hold every member of the board accountable. This governance practice is tough to implement as it requires an assessment of people who are at the soul of the credit union fabric – some serving as volunteers for more than 50 years. Nominating committees are reluctant to look for new skills in volunteers as an incumbent board member may be challenged and feelings hurt. True, credit union cultures are all about the people, however, credit union volunteers need to step up and ask themselves if their backgrounds are relevant to today’s membership. Become mentors to support the credit union legacy instead of coveting the social engagement that will eventually require others to force the decision. Good governance practices require reassessment of volunteers and their contribution to the credit union, identifying gaps and seeking to fill those gaps with a deep bench of associate volunteers who can step up when openings arise. Board assessments must be both broad – assessing the composition of the board, leadership potential and technical expertise of the board as a whole – and individually-focused. Key areas to review regarding existing individual board members and volunteers include understanding mission and vision, representation of the membership and awareness of products, services and pricing, among other things.

These are important characteristics to consider when interviewing board candidates, too. As members leave the board, credit unions must create a pipeline of volunteers. We see far too many credit unions with boards that do not reflect the current field of membership or have lost their commitment to cooperative principles. Here are a few questions you should ask board candidates as you interview them and rate their answers:

• How would you describe the board’s role in a credit union? What is the CEO’s role?
• What do you think are the most important financial considerations that board members should understand and why?
• What is your motivation in wanting to be a board member?

Not only do these questions help you determine whether the candidate would be good fit – they can provide useful information on existing board members as well. Ask all volunteers to go through a vetting process when terms come up. Here’s a sampling of solid questions to ask:

• What changes have occurred within the economy that the board should take into consideration when representing the member’s best interest?
• Please describe your continued commitment to the credit union and why you want to serve.
• Describe the role of a board member and what leadership qualities will be required in the future.

Credit unions require thoroughly vetted volunteers who bring educated ideas to the table and understand the needs of the community, as well as the financial institution. When they start losing their edge and commitment, we must be willing to help them see it is time to allow new volunteers an opportunity. When board members lose touch with what’s on the horizon in the financial world, or even when their background is no longer representative of their own neighborhoods, the credit union board must be prepared with strong replacements when the time comes.

The future of the credit union cooperative business model rests in the hands of the volunteers. Reputational risk is paramount and social media commentary can enflame or enrich the member experience and credit union financial health. What is your board’s reputation in the marketplace? Board liability is greater and CEO relations are not as easy to navigate as in the past. We owe it to the future financial strength of our members, their communities and the credit union community as a whole to embrace modern governance.

Susan Mitchell is CEO of Mitchell, Stankovic and Associates. She can be reached at 855-362-2002 or susan@mitchellstankovic.com.