When you get an activist director

Harness the new person’s enthusiasm as an opportunity to focus on process improvement.

October 15, 2021

Corporate shareholders want to see their investments grow in an organization. They look for a viable strategy, sustainable vision, and strong financial performance. 

When the company fails to deliver on shareholder expectations, investors may look to install new directors who will be more effective.

In the corporate world, these new board members are often called activist directors. These individuals are elected to the company board by a block of shareholders who want to see change.

This often happens when shareholders believe the company is heading in the wrong direction. Activist directors are sometimes met with reservations by other directors.

We often think of activist directors in the context of for-profit corporations, but not-for-profit organizations such as credit unions can garner activist directors as well. 

These individuals are often motivated for the same reasons as for-profit activists: Both want to see changes occur in the institution.

When an activist director seeks a board seat, emotions can run high. The current board may be offended that others think they can do a better job. 

The activist candidates often must find public fault with the current board to validate their candidacy. How a credit union handles an activist’s campaign can be a delicate governance matter.

The rise of an activist candidate is not altogether a negative occurrence. A credit union member who identifies weaknesses in the institution benefits the whole membership if their intentions are sincere. 

Their ideas may initiate a useful dialogue that could lead to better outcomes.

Activist directors also tend to be some of the credit union’s more outspoken members. It could be counterproductive to try silencing dissident voices. These individuals’ passion for the credit union can be a useful catalyst for productive change.

An activist candidate may need information from the credit union to mount a campaign for an open board seat. The candidate may request a list of credit union members, financial reports, and board minutes. 

Some state laws give members a right to inspection. Under these statutes, members may legally ask for and receive data needed for their campaign.

Inspection laws often require members seeking information to have a “proper purpose.” Court rulings are not specific on what determines a purpose to be “proper.”

An activist director can bring new energy to a credit union board.

In general, a purpose that appears to be a fishing expedition and has no justification may be rejected. A purpose that is reasonably connected to an activist candidate’s campaign would likely be considered a proper purpose by a court.

Credit union leaders may ask what happens if an activist candidate lands a seat on the board. The new director must receive the same onboarding process as other new directors. 

All new directors should receive training, access to corporate information, and tools to be an effective board member.

In some instances, an activist director joins a board over dissatisfaction with a single issue. Once elected, the new director learns credit union governance requires attention to many more matters. 

Activist directors should be educated on the entire scope of governance responsibilities. This exposure is necessary for directors to live up to their fiduciary duties.

An activist director can bring new energy to a credit union board. The board should harness the new director’s enthusiasm as an opportunity to focus on process improvement. 

Such energy can be helpful to inspire innovation and new thinking on the board. An activist director that is embraced and given ownership in the governance process can develop into an instrumental leader.

The credit union establishment should treat an activist candidate the same as it would someone supported by the board’s nominating committee. 

Candidates should stick to the facts around an opponent’s relevant qualifications and experience with financial matters. Nonrelevant statements could be construed to be slanderous if of a personal nature.

Credit unions should look on the bright side if an activist director joins the board. As with any new leader, corporate governance can be improved with a fresh perspective.

MAURICE R. SMITH is CEO of Local Government Federal Credit Union and Civic Federal Credit Union, Raleigh, N.C., and chair of the CUNA CEO Council.