Credit union and corporate governance are so similar that if credit unions followed most of the best practices compiled by the Business Roundtable—an association of CEOs of leading U.S. companies— board engagement would increase significantly.
If credit unions and their boards “skillfully implemented” a credit union version of the Roundtable’s list of board responsibilities and practices, “it’s highly likely that their members would be better served in both the short term and the long term than they are now,” says Bob Hoel, author of the report. Here are a few examples of how credit unions can adapt the Roundtable’s “Principles of Corporate Governance”:
Four types of boards
Most descriptions of corporate board responsibility stress the importance of monitoring, controlling, advising, and coaching, Hoel says. Applied to credit unions, he identifies four types of boards:
1. Watchdog boards emphasize monitoring and controlling. But in excess, these actions can turn into micromanaging, with boards second-guessing CEO decisions.
2. Rubber-stamp boards aren’t strong, capable advisers and coaches, nor are they energetic watchdogs. They focus on small, even trivial issues and leave major decisions to management.
Directors might lack intellectual and experiential attributes necessary to direct modern credit unions. They highly value collegiality and might be selected because they’re likely to go along with whatever management and other directors want.
They might also be known as sleepy boards because most of their members lack the mental energy and physical stamina needed to perform their board duties well.
3. Scout and new technology boards are always searching for better ways to meet their members’ financial needs and preferences. They understand the concept of market segmentation and push for more effective methods to attract new members, especially young ones.
They embrace new technology for product and service delivery. They see that the consumer finance industry is rapidly evolving and that their credit union isn’t likely to deliver high value to members in the future if it doesn’t adapt.
4. Challenger boards combine the best features of scout/new technology boards and watchdog boards. As in the corporate world, boards in this quadrant are relatively rare, but they’re the most effective.
They focus on the future and act as a watchdog—two activities that aren’t easy to integrate, but which yield excellent results.