Building Balanced, Intentional Boards

The struggle to achieve self-enlightenment may conjure up images of a down-on-their-luck individual’s third go-around at a silent meditation retreat, but it’s also a common struggle for credit union board members. When management consulting firm Stuart Levine & Associates meets with the board of a new credit union client for the first time, firm representatives like to ask the following questions: Why are we here? And, what do you want to achieve, and why? Often, according to Chairman and CEO Stuart R. Levine, clients are stunned by these questions.

Levine, who has served on the boards of 15 for-profit and not-for-profit organizations himself, has been helping credit union boards achieve self-enlightenment and much more for over 20 years. Currently, credit unions comprise about 25% of the West Palm Beach, Fla.-based firm’s business, with health care and other financial services organizations rounding out its client mix.

When it comes to credit union board governance, recent research revealed several areas where the industry could improve. According to the 2023 State of Credit Union Governance report, recently released by CUES, the professional development credit union trade association, in partnership with Quantum Governance, L3C and the University of North Carolina at Chapel Hill, gaps loom in the areas of board engagement, board-senior management alignment and diverse candidate recruitment.

Out of the four elements of board governance – board member roles and responsibilities, trust, engagement and accountability – credit union boards are least effective at staying engaged, according to the report. It also found a disconnect between credit union boards and senior management, with each group scoring their credit union’s board differently on the four elements of board governance. Only 22% of the report’s survey respondents said their boards are very effective at attracting skilled candidates, and what’s more, respondents gave their boards a below average score in the area of prioritizing demographic diversity during the nominations process.

Levine recently shared insights based on his decades of advising credit union boards with CU Times for this Q&A. Responses have been lightly edited for length and clarity.

CU Times: What are the biggest differences between the challenges faced by credit union boards and those faced by boards in the other industries you work with?

Levine: One of the very unique areas for credit union boards is succession planning. When you look out at the landscape globally of credit unions, you see people who have served for a long time and have long legacies, and there’s no precision around succession planning. That’s very unique from our experience in health care and the for-profit, publicly-traded sector.

The second area is business accountability. We build a collaborative culture for board members and the CEO by creating a CEO dashboard, which isn’t a common experience yet in credit unions. And that accountability means, for example, here are four things we’ve asked the CEO to do and be accountable for, and it’s not a question of them being a good person or having known them for 20 years – we get all that. [It requires] having clarity around the CEO dashboard, the board giving feedback and the CEO getting involved from a strategic point of view.

The third, which is rapidly growing, is in the area of cybersecurity. If you don’t have, ideally, two people on your board today who are really strong cyber experts, and you’re not actively engaged in approaching people who could fit that criteria, that’s a deficiency and a concern.

CU Times: What are a credit union board’s responsibilities in terms of cybersecurity?

Levine: It’s to make sure that one, the board has an independent director who has current experience and understanding of the implications, and of the systems and platforms. Two, it’s to make sure that the board has an understanding that an independent advisor is needed to exercise legitimate fiduciary responsibility as outlined by the NCUA.

When we talk about cybersecurity, we’re talking about protecting the assets of the members we serve every day and their families. It’s a big responsibility. One thing we’ve seen in our experience currently with certain boards, is they don’t reflect in their minutes that they’ve had a conversation like we’re having right now. With D&O (Directors and Officers) insurance, if God forbid you lose your data, when you notify the D&O policy provider, they’re going to ask you what you’ve done. In your minutes, did you have a conversation about these subjects? And what actions did the board take?

CU Times: What are the most common conflicts that arise between a credit union’s board and senior management, or within the board itself, and how can they be resolved?

Levine: When you talk to a board about the need for representation, I have seen cases where directors get agitated because they feel their politics are different. It has nothing to do with politics – it has everything to do with the sustainability and resilience of the credit union. And if in fact the community is changing and growing in different directions, then we have to attract board members who reflect those needs. So conflicts honestly do come in that area, in making sure we have not only ethnic diversity but gender diversity and so forth. It’s not a check-the-box exercise, we’re talking about a dead-on serious, strategic conversation, and for me and our firm, it’s always about data. We had a conversation with a pretty good-sized credit union where we asked, if you aspire to be around five years from today, what are you doing? Because this is where the market is moving, this is where the population is moving. So when it comes to conflicts on the board and data, the data is what drives the conversation in the right direction.

Another common conflict is around board pay, and this is where the CEO dashboard becomes so important. Let’s say you identify four issues and one of them is member satisfaction, and if you’re the CEO, you’ll say to a board member, ‘Twenty-five percent of your compensation is going to sit on member satisfaction.” All of a sudden, you strategically have changed that.

I get the fact that everybody’s a volunteer in the credit union space, but maybe it’s time to be honest, rip that Band-Aid off and compensate boards. Because if they’re going to give the amount of time you’re going to need and put their reputation on the line, maybe it’s time to have a conversation about compensation for directors. I’m a proponent of that.

CU Times: How should credit unions go about recruiting a diverse set of board members who truly represent the credit union’s membership?

Levine: This is where culture on the board becomes so incredibly important. If we were trying to recruit you for a credit union board, you would want to understand what the culture of that board looks like. Are these people you can learn from, would enjoy having dinner with once a month, and who share your vision and values? If the answer is not a resounding yes, then diversity becomes a check-the-box issue. Saying ‘we need one of those’ is damaging to the culture and I would argue to the credit union.

Credit union boards are populated with well-meaning, good community people, and in many cases, a member’s board seat is definitional to their life, socially and otherwise. And so if you go up to them and say, ‘Thank you for your service the last 39 years, but now we need to [replace you],’ you have to be so careful with that transition. Those people have quite a bit of knowledge and legacy, and they should be respected. It shouldn’t be a transition for transition’s sake, but [to attract] people who, say, understand technology and the changes in the community.

I believe an effective board represents different ways of thinking and coming together. There has to be a balance in the boardroom. That doesn’t mean you have to throw people off the board, but as people roll off, you can find ways to create a social construct that represents different experiences. And the conversation shouldn’t be around how long a candidate has served on the board, but what your current needs are based on your current reality of serving members.

CU Times: What is the board’s responsibility at a credit union considering major digital investments or fintech partnerships?

Levine: The board has a responsibility to provide oversight and approval of contracts that are bigger than a bread box. If you’re a CEO of a credit union aspiring to provide new products and services, I’m a supporter of partnering with fintechs and [technology] CUSOs as long as the board understands the reasoning for it. You’re going to take a couple million dollars of member capital and enter into an agreement with a third party, and that’s why you need to make sure you have two or three people in that group of seven or eight who really understand technology, and can reach out to their colleagues and say, does this make sense? What questions should I be asking? And, does the board have the verve to bring in independent advisors that do not gain financially from the transaction?

CU Times: What are your thoughts on the generational shift in credit union leadership, with many longtime leaders retiring?

Levine: If you have a new leader from a younger generation, board members need to put all their skills and support around that person to make them successful. It’s like giving the car keys to my teenage daughter without giving her driving lessons. That automobile can do wonderful things, but it can also do terrible things if it’s not handled properly. Some of our most joyous assignments have been where people have been mentored and gone on to do things beyond what even they thought they could do. And mentors should be independent, because you don’t want someone to be conflicted out of the conversation.