Board Revamp for Better Cooperative Leadership

by Mark Meyer, Filene Research Institute

Warren Buffet once called corporate boards “tail-wagging puppy dogs,” and credit union boards should take that as a caution. Governance should be the lifeblood of the credit union. Democratic representation by a board of directors should guarantee two basic things: that members’ interests are served and protected and that the cooperative can serve them competitively and sustainably.

With an aim for fruitful comparisons, Filene recently led a wide-ranging research report that draws on survey responses from hundreds of North American credit unions in the United States, the central-affiliated cohort in Canada, and the federated Desjardins Group.

What Are the Implications?

From those comparisons, some interesting differences emerge. For example, as a federated system, Desjardins excels at some aspects of board development and system governance in ways that the more atomized US and Canadian credit union systems do not.

More important than the differences, however, is a troubling drift away from truly cooperative and democratic governance. This sample of recommendations previews the discussion in the full report:

1. A majority of respondents in the United States and at centrally affiliated Canadian credit unions reported that management (not members, and not boards of directors) was the most important body in driving the change process at credit unions. Desjardins credit unions point to members as predominant initiators of change.
2. There is little evidence from any of the three North American credit union systems that the board holds itself or its individual members accountable for performance. Without such self-scrutiny, the only realistic check on governance competence is market failure or regulatory intervention—which, despite recent activism, should not be considered an integral part of healthy board governance.
3. Effective boards cannot be built through the activities of a once-a-year nominating committee (few Desjardins caisses or U.S. credit unions operate nominating committees) appointed by the board. Credit unions should consider replacing the nominating committee with a member-elected governance committee or augmenting the role of the nominating committee to function as a full standing committee that embraces board development, improved board performance, and member engagement/education as an ongoing, year-round priority. Fully empowered supervisory committees also can play this role.
4. The cooperative philosophy and ideals together with the credit union ethos are the very basis of cooperative governance. But this survey reveals that few members seem to acknowledge that basis, and without the endorsement of the membership, the validity of this governance structure must be questioned.

Based on an analysis of the current state of credit union governance, the authors’ most important long-term recommendation is the establishment 
of a directly elected governance committee, which would hold the power to appoint members of a management board and monitor the effectiveness of the board and its members. Doing so, the authors argue, would support the dual goals of reengaging members about their rights and obligations and enhancing the capacity, training, and performance of the board.

More controversially, the authors recommend that in the long run credit unions move toward an arrangement in which the independent governance committee acts as the only democratically elected governance link between credit union members/owners, the board of directors (which would be hired, not elected), and management. This structure would ensure that a credit union gets the board it needs in terms of the necessary skills while still maintaining member oversight and control. The authors point out that this redesign carries some risk in that it might inadvertently result in a qualified board that does not function within the cooperative philosophical framework.

If these seem like radical recommendations, it’s because they are.

To access the full report visit: filene.org/research/report/Corp_Governance