Today, one of the more challenging roles to fill within a financial institution is a seat on the board of directors.
While board members play a vital role in an institution’s overall governance and provide significant fiduciary guidance, credit unions often overlook the process of identifying, evaluating, and providing onboarding and ongoing training for these individuals.
With a board member’s personal reputation and assets on the line, it’s crucial to find community leaders who are not only well respected but have the wherewithal to guide the credit union with integrity from a strategic perspective.
To take a deep dive into the evaluation, acquisition, and training of a board member, we asked the principles of a training and coaching company, St. Meyer & Hubbard—president Bob St. Meyer and chief experience officer Jack Hubbard—to share their insights gleaned from 40 years of financial services and sales experience.
Risk and responsibilities
The challenges credit unions face in getting board members up to speed on their director role become apparent in a discussion of some of the key responsibilities of boards for financial institutions.
Hubbard, a board member at a Chicago-area financial institution, suggests three main director duties: fiduciary, advisory, and strategic oversight.
►Fiduciary. “Clearly, the fiduciary responsibility of boards of directors is critical,” Hubbard says. “The buck stops there.”
Many potential candidates are reluctant to join a credit union board because of the accompanying liability, according to Hubbard.
He cited the significant legal consequences that can occur if board members fraudulently or unwittingly approve unsound loans or look the other way when something unseemly takes place.
►Advisory. This role can be especially challenging for individual board members who don’t have a background in financial services or who aren’t able to keep up with the ever-changing laws and regulations, Hubbard says.
“Board members should not seek to run the bank day-to-day, but it is important to share their expertise and provide their perspective,” Hubbard says. “It isn’t possible to do without some working knowledge of the industry.”
►Strategy. According to Hubbard, strategy is where diversity in experience is extremely important.
“It is absolutely vital that credit unions not only get people involved from other industries, but from other disciplines that can help from a strategic perspective,” he says.
But that doesn’t always happen.
“Often, credit unions bring someone onto the board because they do a lot of business with the credit union or they are a big deal in the community,” Hubbard says. “That sounds good on the surface, but then they get into a full board or a committee meeting and they can’t contribute anything.”
Instead of leaving a board member’s success up to chance, each financial institution should begin by proactively identifying and selecting the best candidates for its board, according to St. Meyer.
“Many board members don’t understand what their role is supposed to be,” St. Meyer says. “When selecting a board member, whoever is doing the hiring should be ready to explain two or three key priorities or responsibilities. That should be done during the interview and vetting process.”
That conversation helps potential candidates better assess their fit. Both the credit union and the future board member must go into this relationship with their eyes wide open.
“A credit union should know what they are looking for when considering candidates,” Hubbard says. “The evaluation of new board members includes the targeting of qualified individuals who bring a unique and valuable perspective to the table.
“It’s not enough any longer to have one lawyer, one accountant, and one Realtor on the board,” he adds. “Today, it’s vital to seek specialized skills, look for targeted business expertise, and bring diverse interests and competencies to the board table.”
Getting them up to speed
Board members are no different than new credit union staff. When they’re brought onto the team, they need to be properly and effectively onboarded and trained similarly to any new employee. It’s the only way to make them productive.
“You have brought on someone you believe has the requisite skills to help the credit union progress,” St. Meyer says. “They may not know the jargon or the shorthand, and even reading the board reports might be a challenge.”
It’s important to determine how to introduce a new board member to the information they need to become a successful contributor at board meetings.
Hubbard suggests the following ideas to ease the onboarding process.
Bored? Or board engagement?
Engaging the board is the chairman’s responsibility. He or she is a meeting facilitator who needs to pull members into the conversation, according to Hubbard.
Hubbard and St. Meyer say that to establish productive and engaging board meetings, you must establish trust between members and executives. This can take time to establish, and this trust has to be carefully managed.
“It’s one thing to have a board member learn that this is a relevant question to ask the leadership; it’s another issue to understand when and how to ask those questions,” St. Meyer says.
“With all the changes in financial services, it’s incumbent upon us as board members to stay current with industry trends,” Hubbard said. “It’s up to the credit union to provide board members with tools to stay informed and up to speed.”
Tips for board participation
Credit unions can encourage participation by board members and foster a sense of collaboration through ongoing formal and informal education for directors, according to Hubbard. Some suggestions include:
Creating an atmosphere of collaboration
One way to evaluate overall board engagement is if all board members are asking questions, making recommendations, and actively participating in meetings.
To assist with meeting focus, consider asking board members to leave their cell phones outside the meeting room.
Ask questions such as these when this collaborative atmosphere isn’t apparent during board meetings:
Detecting training gaps
During the evaluation and onboarding process, it might become apparent that individual board members or the entire board could use training in certain areas.
An uninformed board not only leads to poor execution, it can be a precursor to lawsuits or worse. St. Meyer & Hubbard sees training gaps in all areas within the board process.
“Lending is certainly the No. 1 thing,” Hubbard said. “If you don’t understand what you’re doing when evaluating and approving loans of any size, you’re putting the credit union’s capital at risk.”
Hubbard suggests providing some level of credit training for directors to ensure they have adequate knowledge to actively participate in the loan approval process.
“If you could get board members to take an e-learning class or have someone come in and say, ‘Here are some of the things you ought to know about making a loan and approving a loan,’ that would be beneficial,” Hubbard says. “All board members need is the basics so they can ask the right questions before they cast the up or down vote.”
Additional best practices
Beyond evaluating candidates and assessing and training board members, keep these additional best practices in mind when filling board roles:
JEFF KELLY is vice president of governance, risk, and compliance for OnCourse Learning Financial Services, a leading provider of governance, risk and compliance training for financial services industries.