Aug 04 2010

Tracking the Relationship Between Credit Union Governance and Performance


Volunteer credit union boards display a broad range of competence and engagement. This research aimed to identify any relationship between good governance and good financial performance. This report expands on two recent Filene governance reports: The Board’s Role in Credit Union Mergers and Recruitment and Selection Practices at Credit Union Boards.

Using in-depth interviews and survey tools, the researchers plumbed credit union board practices in key areas, including the following: time allocation, decision- making processes, board composition, director selection, board performance measures, and credit union performance measures. The study shows several areas ripe for improvement, including:

  • Time management. Effective meeting management is a challenge, and boards seem to have only a vague sense of how their meeting time is spent. To improve, boards must know how their time is currently spent and then prioritize agendas to spend more time on strategy.
  • Director evaluations. A dearth of board introspection means board chairs and other directors need to be proactive in formally evaluating their own contributions. They should consider implementing annual board effectiveness surveys, formal peer feedback, formal reviews of the chair, and feedback from management.
  • Continuing education. One way to encourage better governance is to demand individual improvement. Surveyed directors who ranked their boards in the top decile of governance performance all had formal continuing- education policies, while those in the lowest decile rarely did.
  • CEO evaluations. The board/CEO link drives financial performance. The only governance practice that yielded a strong positive correlation with actual credit union ROA performance was whether boards felt they had an effective CEO evaluation in place.

As market forces continue to buffet credit unions, boards require a new level of diligence for their credit unions to succeed.

Report Number 219