3 board best practices and why credit union directors avoid them
by: Fred Johnson, President/CEO, CUES
Oftentimes a person’s greatest weakness is an extension of their greatest strength.
Apply that idea to credit union boards, and you might find that directors’ deep commitment to serving members’ financial needs can make it hard for them to leave the job—even when, ultimately, that would be the best thing for the credit union’s ability to serve members.
That’s not to say that board turnover for turnover’s sake is a good thing. In fact, Board Renewal Report, a new study conducted by the Clarkson Centre for Board Effectiveness (part of the Rotman School of Management at the University of Toronto) and sponsored by CUES, found that 81 percent of directors and 75 percent of CEOs report satisfaction with the level of turnover on their boards.
Indeed, the report points out, having a formal board renewal process provides boards with an effective tool for understanding if and when turnover is needed. Here are three best practices in board renewal that your credit union might want to take a serious look at, if you’re not doing them already.
1. Term limits. According to the new Clarkson study, only 28 percent of boards have term limits in place. Term limits specify how long directors can serve on the board. For example, CUES’ policy is that its directors can serve three, three-year terms.
I’ve had credit union directors tell me, “We do have term limits—they’re called board elections.” The problem with this approach is that incumbents rarely lose.
While not so definitive as term limits, having a board election policy in place can make the election process more effective as a board renewal tool, according to the report. An election policy might include provision for staggering board terms so not every director is up for election at once, and guidelines for the governance/nominating committee in terms of how potential directors may be added to the ballot.
2. Ongoing development of potential directors. Unfortunately a lot of credit union boards wait to recruit until a director decides to leave, or dies. Good ways to be prepared for an upcoming board change—whether expected or unexpected—include establishing programs to help groom people to lead. Such efforts can include member advisory councils, as well as volunteers-at-large and associate director programs.
In addition, credit unions can keep an “evergreen list” of people who have expressed interest in being a board member—or maybe even done some preparation for stepping into a board role. CUES does this and it has helped us when board members have left before the end of their official terms for personal or professional reasons.
It’s not enough to look to the members of the supervisory committee or to board advisors in the moment you need to find a new director. Boards need to lay down the criteria of what skills and characteristics they think a board member should have before they’re in the throes of choosing someone. For example, does your board need better member representation by having someone from a select employee group or from a particular geographic area?
It’s important to decide, ahead of time, what you want, and what the organization and members need. It’s easier to make more rational decisions about these questions when there’s no pressure to choose someone.
3. Board/director performance evaluation. Performance evaluations—of both individual directors and the board as a whole—are part of living up to the fiduciary standard boards have to members. A formal evaluation process can be beneficial to board renewal efforts by identifying gaps in board skills and experience, so recruitment efforts (as well as board development efforts) can address these concerns, the report suggests.
CUES’ board of directors does such an evaluation every other year using CUES’ Self-Assessment for Credit Union Boards.
In all of this, it’s important to note that the goal of a formal board renewal process is not solely to force turnover. Rather, the primary goal of board renewal is to maintain an effective and passionate board. The best boards use best practices in board renewal to realize their greatest strength: their commitment to serve the financial needs of the credit union’s members.
Fred Johnson is president/CEO of CUES, a Madison, Wisconsin-based, independent, not-for-profit, international membership association for credit union executives. CUES’ mission is to educate and develop credit union CEOs, directors and future leaders. www.cues.org
