LIHUE, Hawaii—An overlooked driver of why some credit unions are more successful than others is the role their boards of directors play. In short, some boards are simply more effective than others.
Those effective boards share a number of common attributes, according to one person, who shared those attributes with CU volunteers in attendance at Paragon Group’s Volunteer Leadership Institute here.
Bob Dye, general manager and COO with Raddon Financial Group, outlined for boards a number of overarching questions each needs to be asking, including does the credit union have a plan that is relevant and, equally important, is it being followed?; does it understand which industry and peer group metrics matter; what is the board learning and tracking; does it understand how much the CU’s demographics make a difference, and more.
Bob Dye of Raddon Financial Group speaking to Volunteer Leadership Institute.
And Dye offered another attribute of makes for success: “Effective boards understand that you don’t meddle in management. If you do, you’ll drive the good CEOs out, and you won’t be able to help the poor CEO enough. If you’ve got a good CEO, you give him or her direction, you establish policy, you establish performance measures, you hold him or her accountable, and then you let them go.”
Dye said he often asks boards two questions, and then asks them to fill in the blanks:
- What attributes are required to make a ‘good’ board good?
- ‘Our board could be more effective and we could help our credit union be more effective if we would…?
Having conducted that exercise on numerous occasions with numerous boards, Dye said the common answers to the first question include a clear sense of purpose/duties/responsibilities, and a clear sense of teamwork; active and regular attendance where everyone contributes; avoidance of ‘cliques,’ where some people or groups dominate the discussion; an environment of candor and open; honest discussion, without fear of criticism and without personalizing debate; board members with a variety of backgrounds and age mix; providing continual encouragement and support of CEO and management; keeping focus on strategy and direction and on matters of real importance, and a willingness to make difficult decisions.
We Would Be More Effective, If...
As for the latter question, Dye said the most common responses include:
- If we had a better understanding of the industry and trends.
- If we had a better understanding of our objectives.
- If we would rework the board report and give us more time for the most important issues and avoiding tangents.
- If we received information prior to the meetings.” “Some boards I know have a 30-minute, voluntary session prior to the board meeting to discuss what’s in the board packet,” said Dye.
- “If we could change the meeting room environment.”
Ignorance is no excuse on any board, said Dye, noting other attributes of effective boards include continuity of superior management; obligation by board members to contribute; obligation by board members to investigate deviations and irregularities, and a need to be decisive.
Dye urged boards to recognize they need to offer a competitive pay package for management—not competitive within credit unions, competitive within all industries.
Any discussion of credit union boards brings with it thorny issues of non-engaged members and whether age is a problem.
If a board member is no longer engaged and contributing, Dye said that board member has a responsibility to step aside.
On the issue of age on board, Dye said, “Some of the absolute best directors I have every worked with or known were older directors. They were engaged and active. On the flip side, I have never worked with an old board where everyone was approaching retirement age or beyond, that was effective. This isn’t an age issue; it’s a contribution issue.”
What To Avoid
What should effective boards avoid? According to Dye:
- Conflicts of interest
- Poor loan or account performance by a board member.
- Direct involvement in management of daily operations. “There is a big difference between policy and monitoring results, which is a board function, and daily operations, which is a management function.”
- Continuous second-guessing. “It is sometimes easy to over-react to a single complaint from a member or a conversation you have had and think that is representative of what happens all the time.”
- Time wasting. “The key is a chairman who runs a board meeting with a tight agenda. From personal observation, I do believe more board members need to walk in more prepared than they often are.”
Dye shared with the VLI meeting some “lessons learned” during his career working CU boards, and chief among them, he said, is that “plans and budgets are not the same.”
“Virtually all credit unions have budgets, but many credit unions still lack strategic plans,” said Dye. “The value of the budget is to fund the plan. The phrase is ‘Plan first, budget second,’ but so many organizations tend to budget first and plan second.”
When it comes to the plan, a board needs to be asking if it is relevant. And what does that mean? “If I took a look at your plan, could I quickly determine what you expect to accomplish, and how you expect to accomplish it.” Other relevancy questions: is the plan up to date, and is the plan being followed? Is progress being tracked?
Industry & Peer Groups That Matter
If something is important, said Dye, “it gets measured,” which he said is another lesson learned.
“Tracking and keeping score is how we communicate to others what is important, and by not tracking and not keeping score we are communicating what isn’t important,” said Dye. “Accountability without goals and measurement is virtually impossible. What happens if we track a lender who has a history of making too many bad loans?”
The challenge to the board and management team, said Dye, is to “determine what is and is not truly important. If you have 37 priorities, you have no priorities.”
Another lesson learned, said Dye, is to determine peer groups for comparisons, which he acknowledged are often asset size or geography-based, and include specific competitors. “Be sure to include strong performers. I’ve worked with some that also include banks, because they believe that’s important. I believe you need a peer group to retain perspective.”
Dye spent a fair amount of time sharing lessons learned with revenue, including one fundamental: “You can’t solve a revenue problem with an expense solution.”
Relying on Raddon Financial’s CEO Strategies Group data and analysis, Dye said that very few high-performing credit unions are that way because they control expenses so much better than their peers. Instead, “virtually all high-performers are high performers because they have better revenue than their peers.”
Credit unions that are highly efficient share some common characteristics, said Dye, including a high cross-sold HH index, a high percentage of share of wallet, high loan penetration, high e-statement penetration and high mobile banking penetration, among other factors.
Even if the credit union and the board are performing well, Dye offered one other observation: “Don’t confuse ‘If it ain’t broke, don’t fix it,’ with ‘If it doesn’t squeak, don’t oil it.’”