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Credit union supervisory committees operate within an increasingly complex environment as financial services continue to evolve, says Michael Daigneault, CEO/co-founder at Quantum Governance.
During the 2022 CUNA Supervisory Committee & Internal Audit Conference, he offered six directives to shape the supervisory committee of the future:
1. Understand the committee’s role as a governing partner in the modern credit union governing structure. Credit unions are governed by three bodies: management, the board, and the supervisory committee.
“Governance deals with the legitimate distribution of authority throughout a system, whether it’s a country or a credit union,” he says. “The supervisory committee’s role is to make sure the board is doing its job.”
2. Build effective relationships with the board, CEO, senior management, and fellow committee members. Effective relationships, regardless of the context, are built on trust.
“Trust is a large, amorphous concept, but we can break it down into components that are easy to understand,” Daigneault says. Among the components he notes are reliability, honesty, benevolence, openness, and transparency.
3. Maintain an appropriate degree of independence, far from the influence, guidance, or control of others. Independence requires the board, management team, and supervisory committee to exercise fairness and remain free from influences that can affect their objectivity.
“If you can’t act in an independent manner, your opinions have less value,” Daigneault says.
At the same time, there must be collaboration among the board, management team, and the supervisory/audit committee. “Collaboration is essential to ensure that the work you do is relevant and aligned with the credit union’s mission and strategic direction,” he says.
4. Understand that the committee’s duties evolve as the credit union grows. Supervisory/audit committees have moved beyond audits to more of an enterprise risk management (ERM) role, Daigneault says.
ERM identifies potential events that may affect the organization as a whole and manages risk within a defined risk appetite while working toward the organization’s objectives.
“To successfully manage risk, an ERM initiative must be enterprise wide and be viewed as an important and strategic effort,” Daigneault says.
If a supervisory/audit committee takes on ERM responsibilities, it must develop an explicit risk tolerance statement that indicates the level of risk the credit union is willing to undertake, he adds.
“Partner with the board to develop a list of key risks and include scenario planning to address those risks,” Daigneault says.
5. Ask the right questions. “Most supervisory committees ask fiduciary questions about financial results,” he says. “But beyond that, it’s important to dig deeper and determine where [initiatives] fit strategically and what fundamental assumptions are driving results.
“Don’t underestimate the power of questions or subtle suggestions. That’s why the supervisory committee is there.”
6. Compose a high-functioning committee. Identify and profile the supervisory/audit committee of the future and create processes to find and develop the best talent, Daigneault says.
“Then go out and find those people.”