The board-term debate

I was fortunate to recently facilitate a roundtable of credit union board chairs at NAFCU’s 51st annual meeting. The purpose of the roundtable was to debrief the week’s conference and identify important strategies they could implement back at their home credit unions.

There were about 70 board chairs in the room, and they were an impressive group. Our open forum quickly turned to the hot topic of board term limits. Both sides of the argument were well stated by the attendees.

The purpose of this article is to provide a high-level overview of the issue.

Background

I’m hearing the board-term debate more today than I have at any point in my 30-plus year career. I believe that contributing factors behind the debate are due to an increased pursuit of more board diversity, to improve the board dynamic, and – in some cases – to increase board engagement. These are the themes I hear when the debate arises.

Before I get into the pros and con, I want to go on the record and say that a person’s age is not an issue as long as they are engaged and fulfilling their roles and responsibilities as a board member.

The pros

The first pro of board term limits is that it forces the board to be in a constant and committed state of new board member recruitment. Far too many credit union board elections occur today unopposed, resulting in the same folks winning year after year. This limits board diversity and the opportunity to attract new skill sets. Lack of diversity in the credit union leadership space was well demonstrated in the board chair roundtable that I facilitated. Of the 70 or so participants in the group, there were three women (4 percent) one African-American male (1.4 percent), and a couple of Gen Xers (3 percent). The rest of the group was white men, and I’m guessing the average age was at least 65. Again, I was VERY impressed with this group. But we have to be honest: many of our boards no longer reflect the makeup of our membership or the communities we serve. I think this is important because diversity makes for richer conversations and better decision-making.

Second, board terms help manage the board dynamic, allowing a natural process for removing people who are not the right fit – and don’t want to step down. Like it or not, it is difficult for some of us to confront conflict and when we don’t, issues can go on forever and never get resolved. I have spent some time with very dysfunctional boards. I have seen the negative impact one or two of the wrong people on the board can have to the credit union’s culture and performance. It’s amazing: once the credit union is able to replace a few people, the board, management, and the credit union’s culture improves, and it becomes more effective.

The con

The biggest Con to board term limits, and it’s a big one, is that it could force very capable talent to rotate off. One very clear strength of long board tenure is the institutional knowledge these individuals possess. They have served through very different markets and have witnessed a lot of change. There is great value in this institutional knowledge, and it’s important that it get passed down to the next generation of directors. It’s even more important during periods of change, like a new CEO transition.

The bottom line

I have very successful credit union clients on both sides of the debate. I see first hand how term limits have helped some credit unions build strong and evolving boards. Conversely, probably most of my clients don’t have term limits, and they have high-performing, diverse and skilled boards. Without board terms, these credit unions have been able to rotate, recruit, and retain appropriately to make sure their boards are relevant to today’s needs and challenges, and up to the task of quality board governance.

My counsel is to pick the method that is the right fit for your organization’s needs, goals, and culture. The bottom line is that with or without board terms, the board is responsible for making sure the board has the right people in place at the right time. Board chairman leadership is very important. What skill sets are needed for today and tomorrow? Has the board become stagnant and in need of some new blood? Is everyone engaged and filling their proper role as a director? Is the board diverse enough to ensure proper representation for changing member and community demographics? Is the board culture negative and in need of change? Board chairs should be bold, and work with the board to address these issues.

I’d like to conclude with expressing my gratitude for the current generation of board members. Many of our directors have more than 20 years of experience. These directors have governed during the most dynamic period of credit union history. Under their leadership, thousands of credit unions have grown, thrived, evolved and found new and better ways to make credit unions clearly different and better. Five years from now, many of these directors will have retired. Let’s hope that tomorrow’s generation of directors are as committed to the credit union cause.