Executive Summary
Compare, for a moment, credit unions and professional sports teams. Both are fueled by competition, differentiation, and consumer interest. Like credit unions, professional sports teams are managed and governed by a select group of leaders. These executives won’t be found on the field of play, yet their roles are arguably the most critical for the long-term health of the team. When a team underperforms, leaders shake up the governance structure and insert new personnel.Credit unions don’t track wins or losses as a performance measure. However, they are held accountable for their own success. A credit union’s board serves as the defender of the credit union mission. Most boards take full responsibility for their role as stewards of the members’ interests and the organization’s strategy. Just like in sports, if a credit union isn’t delivering on its value proposition, the board has the power to inject new people, processes, and protocol. Good boards should hold themselves accountable in the same way.
What Is the Research About?
In this report we outline credit union board renewal and the steps credit unions can take to establish a formal process for renewal. Using survey data, we evaluate:
- Board selection
- Board diversity
- Board duties
- Board composition
- Turnover
Shockingly, we found that 60% of credit unions do not perform any type of board evaluation. Even worse, nearly 40% of credit union boards admit that their board renewal processes have not led to effective board composition.
What Are the Credit Union Implications?
Due to the lack of regulatory guidance on board renewal, credit unions are left to their own devices to develop, implement, and maintain appropriate board renewal processes. Many of the same concerns raised 10 years ago continue to linger. Many credit unions still do not recruit based on specific skills. Most boards doubt that they are sufficiently representative of credit union members. Perhaps most concerning is the reality that some credit union boards are dangerously unaware of their core duties.
The overarching message of our findings is that formal processes yield results. A formal board evaluation plus a formal process for removing underperforming directors and a director term limit is highly effective. Moreover, one-on-one director interviews are good, but adding a confidential survey and peer evaluation is even better.
The most fundamental step that a board can take to ensure effective board renewal is to delegate responsibility for renewal oversight to an independent committee. The responsibilities of this committee might include:
- Defining the skills that the board needs in order to function effectively.
- Assessing the skills of current board members (1 and 2 together are the components of a skills matrix).
- Identifying and monitoring current and potential gaps and redundancies in board skills.
- Reporting results to the board, which includes identifying opportunities for improvement as well as reinforcing what the board is doing well.
- Developing and delivering continuing education opportunities for directors.
- Developing and delivering orientation processes for new directors.
It’s important to prioritize strategy and oversight. Even with technology’s growing influence and credit unions racing to keep up with industry trends, the core mission to serve members will never change. The knowledge developed and expressed in the board-room is where member value begins. This is why board renewal is so important. If the implementation of formal board renewal processes leads to the loss of long- tenured directors, then the board can feel confident that they have made that decision in a careful and thorough manner.
