LAS VEGAS–A conference made up primarily of CU board members were told their credit unions would likely be better of if many of them didn’t return to the meeting in future years.
The reason, suggested Ben Rogers, managing director of research at the Filene Research Institute, has everything to do with freshening up the make-up of credit union boards to better reflect the membership and to bring new ideas and approaches to make it more effective.
But none of that will happen, he said in remarks to the Directors and CEOs Leadership Conference here, without serious board commitment.
“You have to want it. You have to do it. And you have to keep it up,” said Rogers. “hose three things underpin everything when it comes to board effectiveness.”
Rogers said Filene’s research has found that currently, 35% of CU boards have no procedure or process for terminating ineffective directors, 37% don’t believe their board renewal process identifies effective leaders, and 61% said have no formal board/director evaluation processes.
Board renewal can pay great dividends, according to Rogers, who pointed to what has taken place in Canada after the law began requiring governance practices in organizations be disclosed, and that governance ratings be adopted.
Almost immediately, the low-hanging fruit was picked and boards moved to disclose what they were already doing. In 2002, 19% were doing board evaluations; by 2012, 78% were conducting them. After about 10 years, boards, under external pressure, began adopting meaningful new structures and behavior and the balance of the control shifted, he said. The result has been measurable improvements in those organizations, according to Rogers.
Filene research has also found that when CUs were asked about their board renewal policies, 74% pointed to regular elections (which he noted are required, anyway), 28% said they had term limits, and 2% said they had a mandatory retirement age.
“I’m not here to say you should do term limits, but I am saying it’s something you should talk about for effective board renewal,” said Rogers.
Rogers said that when research has probed which board practice is most strongly correlated with good ROA performance, of all the measured relationships, 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.
Four Types of Boards
According to Rogers, there are four types of boards--Rubber Stamp and Sleepy Boards; Watchdog and Micromanaging Boards; Scout and New Technology Boards, and Challenger Boards. The latter, Challenger Boards, is the ideal position for credit unions, Rogers said. “Challenger boards bring new ideas and hold management accountable for making things happen.”
Rogers offered these recommendations for all board:
- Measure CEO performance
- Review board responsibilities annually.
- Don’t’ worry about board size
- Add women, minorities, youth to board
- Require financial knowledge of board members
- Attract board members with management and financial experience.
But to make any of those work, he repeated, “You have to want it. You have to do it. And you have to keep it up.”