Oct 27 2011
Boards and CEOs: Who’s Really in Charge?
CEOs have been rising in prominence and power in corporations and in credit unions in recent decades. In large part, this rise is merited, but boards should be cautious about ceding too much power.
Robert F. Hoel, PhD
College of Business, Colorado State University
Report Number 254
“Which is more important for the long-term success of your credit union: the board or the CEO?” The question, often posed to credit union directors, usually makes them uneasy, because it doesn’t have a clear-cut answer.
The best CEO-board relations are symbiotic, with an informed and conscientious group of directors monitoring a capable and transparent CEO. In these situations, the question is an interesting intellectual exercise. The worst CEO-board relations are dysfunctional, with a micromanaging board, an incompetent CEO, power struggles, or one of a dozen other dark dynamics dominating the relationship. In these situations, the question underscores an existential threat to the credit union.
What is the research about?
Boards and CEOs: Who’s Really in Charge? is part two in a Filene Research Institute governance series, following Power and Governance: Who Really Owns Credit Unions? The final report is Boards and Leadership: How Boards Can Add More Value. All three take aim at credit union governance, both the good and the bad, and prescribe real-world responses.
Researcher Robert Hoel draws on an exhaustive literature review of corporate governance and decades of firsthand experience to frame each chapter with helpful conclusions, recommendations for credit union leaders, and hypotheses that, while not proven, are excellent to use in credit union boardrooms as conversation points for improving governance. The research literature on the governance of corporations is extensive, and Hoel mines it well for specific insights to improve the governance of credit unions.
What are the credit union implications?
CEOs have several advantages over boards of directors that tip the balance of power in their favor. They spend far more time on credit union business, control ongoing access to the full staff, and control the day-to-day expenditures of the credit union. Given these advantages, there is a danger that boards trust too much and abdicate their strategic and oversight roles. The report recognizes and celebrates the inherent tension in even a healthy CEO-board relationship. It also recognizes the need to pick carefully through the tension while drawing (and enforcing) the right lines.