Too big to govern?

The fallout from the Wells Fargo scandal continues to be in the news on a daily basis. While the bank emphasizes a small percentage of employees were involved, common sense dictates there were certainly cultural issues that allowed many others to turn a blind eye to apparent abuses. Obviously Wells Fargo is a huge bank, with somewhere around 265,000 employees. I believe we have confirmed that Wells Fargo is too big to fail, but is it too big to govern?

Many in the credit union industry have taken a “that couldn’t happen here” view. I’m not so sure. Credit unions have been extremely successful avoiding many of the problems experienced by big banks. Our focus on members goes a long way to protect us against making poor decisions for short term gains. But we also know many credit unions have spent years and dollars to develop a “sales” culture. Often, it’s an essential part of the process to embrace sales incentives and at-risk pay to realize the benefits of the sales culture. None of this is bad or necessarily has a negative impact on members. Done well, a properly designed incentive plan should help members obtain products and services that will benefit them and, in turn, the credit union. It’s essential that credit unions have good controls, management and governance in place to ensure the culture stays in alignment with providing value to members.

We have seen significant change in financial services and credit unions have had to adapt to survive. We have new products and services, new delivery channels and a variety of new risks that didn’t exist even ten years ago. As credit unions, have our governance practices changed to adapt to this new environment? For many, we know that they haven’t. The credit union may well have the same board members, have the same type of board packet of information, and the same type of meetings. Regulators and the public in general hold board members to a higher standard than ever before. If a problem occurs, there is always the question of what did they know and when did they know it? If a scandal occurred at your credit union, are you prepared to say the board has done everything it can to preserve and protect your members?

Like everything else, good governance best practices evolve with the times. There needs to be an ongoing review and assessment of how the board operates. This is not an exhaustive list but there are several things a board can do to ensure they are evolving at the same pace as the credit union they govern.

  • Modernizing policies and practices
  • Enhancing board meetings
  • Streamlining the committee structure
  • Reinvigorating the board nomination process
  • Creating board job descriptions
  • Undergoing a board assessment
  • Initiating board succession planning

If your credit union has not been undertaking this type of regular review, now is the time. It’s unlikely a Wells Fargo type scandal would occur at a credit union. But, before we say that could never happen here, we want to be sure we have done all we can to ensure a robust governance framework.

Jim Hansen

Jim Hansen

As a Senior Consultant at Rochdale Paragon Group, Jim is responsible for providing clients with strategic consulting with an emphasis on governance, succession, risk management and strategic initiatives.  Previously, Jim ... Web: Details