Responding to uncertainty

Cyberattacks, financial crises, hurricanes, and health pandemics. While they look substantially different, each is a crisis. When one happens, credit unions must be ready to respond appropriately.

Russell Country Federal Credit Union in Great Falls, Mont., has entered crisis management mode multiple times over the years in response to Y2K, the 2008 financial crisis, and cyberattacks.

But the coronavirus (COVID-19) pandemic has proven to be the most challenging crisis the $76 million asset credit union has faced so far.

“None of the previous events threatened human life and the economy like COVID-19. While an ‘easier’ crisis such as Y2K has a theoretical end date, there is no known end date for COVID-19,” says Bryan Fox, a board member at the credit union since 1981. “This all makes COVID-19 a game changer.”

The multidimensional crisis means credit unions and boards must gather information and make decisions that address the health response piece—how to continue serving members while ensuring their safety and that of staff.

They also need to make business and financial decisions that will allow the credit union to continue providing products and services to meet stressed members’ financial needs, such as new loan products, loan deferrals, or waived fees.

“In any crisis, individuals must come together in a synchronized and integrated fashion to achieve common objectives and goals,” Fox says. “The COVID-19 pandemic has tested our board’s agility and flexibility. It forced us to quickly cast out old paradigms, think outside the box, and adopt creative solutions while keeping everyone informed.”

Identifying solutions and effective decision-making are the critical tasks boards must carry out during any crisis.

Boards are an integral resource when leadership shifts into crisis management mode.

Before the crisis

It’s often difficult to know exactly how a crisis will hit and what impact it will have. But that doesn’t mean boards can’t take steps to prepare before a crisis occurs.

Tony Ferris, CEO of Rochdale Paragon Group, encourages credit union leadership and boards to engage in “proactive preparation.” This includes predefining the objectives surrounding a crisis, such as gaining a general idea of how to continue to serve members, protect staff, and assist in the community.

“Have those dialogues about what you will and won’t do under certain situations,” Ferris says.

He notes it’s beneficial to involve the board in tabletop exercises, which can be used to determine the board’s role and expectations during a crisis.

Ferris says these types of exercises allow the credit union to be more organized when a crisis strikes and enable the board and leadership to respond more quickly and effectively.

“The time to respond to a crisis is long before one exists,” says Ted Henifin, board member at $3.1 billion asset Langley Federal Credit Union in Newport News, Va. “Policy development, trust building, and defining roles and responsibilities are hard work, but it must be done outside of a crisis."

NEXT: Response during a crisis

During a crisis

When the credit union enters crisis management mode, take steps to allow the board and management to make decisions that will mitigate the impact of the crisis while enabling the credit union to continue operating under the outside pressures that create the crisis. This could be a hack, a natural disaster, or a
global health pandemic.

“It requires future-forward thinking,” Ferris says. “It involves making decisions in real time with an understanding of how those decisions impact the long-term objectives of the organization, such as implications on market perception, member and loan growth opportunities—even implications as an employer of choice.

“It’s a dynamic process requiring a thorough understanding of decision trade-offs and the identification of potential strategic risks, which may be problematic as the credit union resumes normal operations,” he continues. “It’s not about perfect decisions, but informed decisions to limit the potential unforeseen consequences as much as possible.”

The first step for the board and leadership: define the scope of the problem. This definition may change multiple times throughout the crisis, says Tim Harrington, president of TEAM Resources.

During crisis management, the board’s primary responsibility is gathering information to make decisions. They’ll often need more frequent updates and more detailed information than they would receive in a regular, non-crisis climate, says Kevin Smith, consultant with TEAM Resources.

When COVID-19 struck, updated information was vital for the Wichita (Kan.) Federal Credit Union board, which received daily updates about what was going on and the changes that were being implemented, says John Davis, a board member at the $132 million asset credit union.

“Anytime there is a substantive change, we’ve had an additional meeting, held virtually,” Davis says.

The board must understand the credit union’s objectives and the critical risks posed by current and future events before it can assess the impact of the situation and make thoughtful decisions for the short and long term, Ferris says.

“A key board role is the challenging of core management assumptions, which creates diversity of thought and a common understanding,” he says. “This is vital during times of crisis. However, this needs to be conducted in a solutions-based manner and remain at the governance and strategic level.

“Ultimately the board should seek to drive to better decisions and not be a hindrance to agile decisioning,” Ferris adds.

The Langley Federal board works under a policy governance model, Henifin says, so it operates in the same manner regardless of whether a crisis is occurring.

“Every day there are crises of various magnitudes, and the board should focus on ensuring the systems are in place to address whatever crisis comes up,” Henifin says. “Systems, however, are only as good as the people working within them, and the board’s top priority is ensuring the CEO is the best person to lead the organization.”

The board is also responsible for acting as a sounding board for the CEO, who will be busy “jumping from fire to fire to fire,” Smith says.

The board must be willing to listen to what the CEO says and provide an environment to discuss ideas, concerns, and challenging decisions.

At Langley Federal, Henifin says the board has delegated authority to the CEO to work within established policies and make decisions that will move the credit union toward agreed-upon strategic goals. This allows the CEO to make critical operational decisions without having to convene the board.

“In today’s world, decisions need to be made quickly to survive a pandemic or to ensure long-term relevance and viability,” Henifin says.

Once leadership makes a decision, everyone agrees the board must speak with one voice.

“Everyone on the board has to support it,” Davis says. “If you disagree with an action and you’re the only one, the action is the majority and you must go along with it. Don’t have a tantrum because you didn’t get your way.”

While a crisis may be chaotic, Smith says it’s important to take time to compile notes about what steps the credit union took, why it made those decisions, and what the results were.

There may be a tendency to put off recording these notes or to rely on memory. But Smith urges board members—and leadership—to write information down while it’s still fresh in their minds and review it later when a similar situation arises.

“We’re going through some weird stuff right now and everybody wants to have it all behind us,” Smith says. “But we’re going to learn a lot. Take notes about what went well and what didn’t go well and learn from it. We can make credit unions much stronger if we remember.”

NEXT: What to avoid

What to avoid

Stay level-headed and focus on steps the credit union must take to operate effectively and continue serving members.

During a crisis, boards should avoid engaging in certain actions and mindsets, including:

► Getting into the weeds. With the increased amount, frequency, and detail of information, board members may start to focus on operational decisions rather than the high-level policy decisions they’re tasked with making.

“When you get more information, you get more heavily involved, and there’s a temptation to get right down in the weeds and start making decisions,” Smith says. “The board should be careful and resist that temptation.”

► Making assumptions. Avoid confusion, ambivalence, and making assumptions about the credit union’s readiness.

All of these elements could negatively impact how members perceive the credit union during a crisis, which could have a long-lasting impact once the crisis has passed.

“The board should never assume the credit union is adequately prepared,” Fox says. “Lost member confidence is almost impossible to regain, so be decisive and keep them informed.”

► Seeking perfection. Crisis situations call for fluidity in decision-making, Ferris says. As circumstances change and leadership receives feedback, plans can—and should—be revised.

Given the uncertainty of a crisis, it’s unlikely the first solution will be perfect. The board must realize and accept that mistakes will occur.

“Stay focused on overall objectives, but avoid paralysis by analysis,” Ferris says. “Create a combined trust for open and honest communication, and avoid the notion that decisions have to be perfect.”

► Having false confidence. Even during a noncrisis environment, boards receive a lot of information. The amount of information increases substantially in a crisis.

Make sure the board understands the information, how it connects to the credit union’s strategy, and what implications it has on the credit union.

“False confidence can be created through thick reports,” Ferris says. “Large amounts of data don’t necessarily result in a true understanding of the key aspects involved in a particular situation or decision. The board should require that key assumptions, themes, and potential failure points are explicitly drawn out for transparency and deliberation.”

► Entering panic mode. Panicked decisions are made with the part of the brain that controls the limbic system and not the neocortex, where logic and reasoning functions occur.

“Staying calm will allow a board member to make clearer decisions,” Harrington says. “Avoid panic, avoid ‘awfulizing’ things, and avoid thinking this is the end of the world.”

Instead, the board “should strive to provide a calming presence, a balanced perspective, and strategic direction,” Fox says.

► Waiting for normal. With a crisis like COVID-19, boards need to avoid the temptation to think the credit union will “return to normal” and resume pre-pandemic operations, Smith says.

“There is no back to normal,” he says. “This could be an opportunity or it could scare the heck out of some organizations and boards. Be open-minded.”

This article appeared in the Fall 2020 issue of Credit Union Magazine. Subscribe here.