Better board financial conversations

Check your rear-view mirror but focus on what’s ahead to find the best route to your credit union’s future financial goals.

Rob Johnson, president/principal at c. myers, offers that advice to credit union board and executive leaders who want to accelerate the timeline for making vital financial and strategic decisions.

He says financial conversations at board meetings are too often based on reams of paper that serve as a rearview mirror looking back at the credit union’s financial performance and history. But those numbers often fail to convey the challenges and opportunities facing credit unions in a time of rising interest rates, an evolving digital marketplace, and consumer uncertainty.

Despite industry changes, some boards are having the same meetings they did 10 years ago, Johnson says. “Leadership teams and boards are dealing with a lot more complicated questions than in the past.”

For better financial conversations, credit union leaders need to combine reports that highlight key metrics of financial performance with conversations that examine the future. 

Focusing on strategic objectives will keep those conversations meaningful by identifying potential obstacles.

To break the cycle of meeting routines, Johnson advises board members and executives to ask themselves:  

•  What do you want to get out of meetings?
•  What type of discussion do you want to occur, and on which financial and strategic topics?
•  What engagement do you want to see in your
   meetings?  
•  What problems are you trying to solve? 

Where numbers fall short

Johnson notes that credit union leaders are accustomed to dealing in numbers, past performance, and the carefully crafted budget projections that guide costs and earnings.

“The challenge is there aren’t many facts about what will happen in the future,” Johnson says. “So, how do leadership teams adjust their thinking on that front?”

One effective approach is creating scenarios that combine financial estimates with observations about the economy, competitive issues, and member needs. When possible, connect these conversations to the credit union’s overall strategy.

Ultimately, you want the management team and board to discuss the “so what” of financials, Johnson says. While numbers matter, he says directors should focus on how the numbers could change and what might cause those changes, including potential unintended consequences.

Tying conversations to strategic goals makes them more meaningful, he adds.

As interest rates rise, for example, executives can project the impact on loan and deposit growth. That will help the board understand how interest rates connect to the credit union’s business model.

“The numbers should help tell that story, but they should never be the whole story,” Johnson says. 

Thoughtful highlighting

You can create time for “so what” conversations during board meetings by developing a routine for delivering financial information. Both timing and content should be consistent to make it easier for the board to review financial metrics and allow time for thoughtful consideration of both achievements and difficulties.

Julie Renderos, executive vice president/chief financial officer (CFO) at $15 billion asset Suncoast Credit Union in Tampa, Fla., compiles and delivers information for directors via an online portal at least one week before the board meets. The 20-page financial document includes the balance sheet, income statement, expenses and income, and other key information.

Each quarter, she adds trends comparing Suncoast to peers in Florida and nationwide.

The document’s financial narrative highlights important developments. These highlights often reappear in Renderos’ monthly board presentation to tie them to Suncoast’s strategic plan and current trends. 

Renderos looks for opportunities to educate the board about developing issues.

“I’ll highlight different issues at different times,” she says. “Most recently, we’ve seen our mutual funds have a nonoperating loss because as interest rates rise the value drops. That’s a way for me to educate board members on the total return of mutual funds.”

A consent agenda addresses routine matters quickly, leaving time for conversations that “keep the board focused on the horizon,” Renderos says, noting that the full board packet for each monthly meeting can contain 400 to 500 pages.

“As we’ve grown, the board is responsible for more information,” she says.

For example, passing the $10 billion asset threshold required a capital plan for stress testing, which led the board to create an enterprise risk management committee for oversight.

NEXT: 'Tell me more'

‘Tell me more’ 

Having a trust-based relationship between the board and executive leaders is essential, along with a clear understanding of executive and board roles. 

“There must be a culture of mutual respect so when ideas are challenged in a discussion they listen to one another,” Renderos says. “It’s not a defensive conversation; it’s a ‘tell me more’ discussion.” 

Robert Jones, Ed.D., a Suncoast volunteer for five years, joined the board in 2020. He says having open, knowledgeable conversations about financial topics allows the board to focus on each decision’s member impact. As a higher education administrator and CFO, Jones has seen financial conversations go awry at other community organizations when a “bean counter” approach dominates a conversation.

“We’ve all been in a meeting where a financial person gets a little esoteric,” Jones says.

Instead, he advises CFOs to follow Renderos’ example in using the “common sense test” to make sure the information they present prepares the board to ask hard questions about whether a proposed approach is right for members.

“Every question brings insight,” he says. “It’s critical that we provide the best rate of return for members’ deposits and the best financial products at the best price. That comes through the efficiency of good management. It takes the right environment to have that freedom, time, and latitude to bring critical information forward and see where the conversation goes.”

Learning what matters 

Some directors skim the monthly board packet while others read every word. Consistency helps both types of directors quickly pick up on what matters most at $316 million asset Orlando Credit Union, says President/CEO Suzanne Weinstein. She notes that 22 years of sharing financial information with directors confirms that people are comfortable with routine.

“We’re consistent with the reporting of our numbers, which really helps our seven-member board learn about the institution,” she says. “Consistent reporting allows board members to say, ‘I understand the numbers so I recognize the trends or changes,’ and then talk about the economic factors behind them.” 

Shifts in the economic environment or the competitive marketplace create new and different risks. In response, Weinstein or the board may add or remove items on the online financial reporting dashboard that gives directors a snapshot of performance in critical areas.

The examiner’s supervisory focus may change each year, which may prompt management to expand a portion of the dashboard reporting.

“Credit unions include standard financial information that the board is required to review, including regulatory ratios,” Weinstein says. “But a portion of the dashboard may be customized based on the credit union’s strategic initiatives or other factors.”

When the board is well-versed in financial information, she says strategic planning sessions become more productive. 

This prompts directors to consider strategic issues as part of ongoing financial discussions.

“Our board packets share the strategic initiatives, the milestones along the way, and the percentage of the initiative that’s been completed so far,” she says. 

Likewise, Weinstein ties progress on strategic initiatives to other financial indicators, such as linking loan losses to local unemployment rates, to show how the economy impacts members.

Directors are often challenged by the sheer amount of financial and digital expertise they are expected to possess, especially in cybersecurity. 

“It can be difficult to keep your governing body on the forefront of what’s happening in every area of an organization, especially when credit unions have increased rules and regulations from multiple agencies that are increasing every day,” she says.

Changing it up 

Johnson reminds credit unions that engaging directors at a deeper level is the goal of “so what” conversations. 

Credit union leaders should be unafraid to change the information they share and how they promote better board discussions.

“I’ve had leaders tell me they changed their meeting structure, cut the document package for the board by 80%, or started using quizzes and articles to prompt discussion,” Johnson says. As a result, they relate that “all of a sudden I’m hearing more voices from my board, and the energy is so different.”

The goal is an invigorated board that can recognize and respond to both opportunities and threats. 

“The more we position ourselves to be agile, to adapt, and to open our thinking to new possibilities,” he says, “the more your board will be prepared for the exciting times ahead.”

This article appeared in the Fall 2022 issue of Credit Union Magazine. Subscribe here.