By Frank J. Diekmann
The real challenge, OK, problem, when talking about board governance is that it really just sounds like “bored” governance. Like anything even related to board governance should be broadcast only on C-Span. It just seems so dull when compared to the spicier topics du jour right now, such as digital transformation, culture and retailing.
And that’s too bad, because a recent day-long discussion by people inside and outside credit unions on board governance was anything but boring. It was fascinating, insightful and even featured one of those can’t-look-away train wreck stories from an insider on how the nation’s biggest bank failure happened largely due to a board that had been lulled to sleep.
Rebrandings are one of those spicy topics in credit unions right now, and maybe that’s what what’s needed–a rebranding for “board governance.” Maybe Boardapalooza or Instagramaboard or #AvoidEpicFail–because it deserves your attention.
As CUToday.info reported in a five-part series, John Lass, along with Parker Cann and the law firm Foster Pepper, organized the day-long inspection of board governance at Foster Pepper’s offices overlooking Puget Sound in Seattle. Lass, the former CUNA Mutual exec who now leads Lass Advisory Services, and Cann, the former credit union CEO and state regulator, both shared personal stories drawn from their careers.
Here’s a look at some of what was shared, along with links to get the full story.
It Seems So Simple, and Yet…
It seems so simple: the credit union’s board supervises the CEO; the CEO supervises the staff, and if the board is unhappy with staff or CU performance, they should replace the CEO.
And yet it seldom is so simple—and overseeing the hiring of a CEO—the board’s one real job—can have long-lasting implications when it goes south.
Steve Peltin, an attorney with Foster Pepper who has represented numerous boards, usually finds himself being called in when there are cases where there is an issue with senior management or a CEO.
When it comes to hiring a new CEO, Peltin is a believer in using an outside recruiting firm, saying HR people and boards don’t have the network needed to attract a broad spectrum of candidates, and HR doesn’t want to dig too deeply into the person who may become their boss.
Perhaps most importantly, as Peltin reminded, “If all you do is pick the people you already know, you will have what you have always had.”
Peltin emphasized the need for credit unions and the CEOs they hire to get every issue resolved upfront.
“If there is one thing I can tell you it is that surprise is failure,” he said. “If the board or CEO are surprised by something the other party is doing, that’s a failure in communication.”
Those kinds of failures often lead to terminations and lawsuits, he noted.
For Peltin’s full remarks, go here.
Why Diversity Efforts Often Go Wrong
Seeking greater diversity on your credit union’s board? A few CUs have sought to do so, but those that do often make the mistake of not starting in the right place.
“When talking about diversity, you might first want to look at the diversity of the nominating committee,” suggested Rafael Stone, an attorney at Foster Pepper, who is also currently chair of the Seattle Times board of directors, serves on other boards, and was previously a regent with Washington State University. “I think one of the real keys to your board composition is your philosophy. If you’re going to be changing, then probably your nominating committee is going to have to start taking on the look of your membership and being broader and looking like what the real member will look like 10 years from now.”
What Stone didn’t say either due selecting his words carefully as an attorney or because he’s just classier than me, is this: When a bunch of older white guys are looking for new board members, they usually pick from a pool of guys who look a lot like themselves.
As an example of trends taking place, Stone pointed to Seattle itself, noting that in the 1960s it was 94% white. Today, that figure is 64%.
“When looking at your board composition, you really want to look at what each person brings to your board, and you really need to look at your business plan,” he said. “That becomes critical in where you are going and what you should be looking like, and whether you can match that vision.”
You can find the full story on Stone’s comments and observations here.
The Role of (Often-Overlooked) Committees
A critical piece of board governance at any credit union is the role of board committees and supervisory committees, according to Parker Cann, who acknowledged how a credit union addresses duties of each can make for strong governance—or a lot of counterproductive tension.
“If you haven’t revisited your board committee structure in the last five to 10 years, it’s probably time to look at policies, charters, delegations” and more, said Cann.
Cann is the former EVP/general counsel with BECU, former CEO of Columbia Credit Union and interim CEO at Arrowhead Credit Union, and regulator with Washington’s Department of Financial Institutions. He retired from BECU in January of 2017.
When it comes to board committees, Cann observed “There is no one size fits all here. You need to tailor your committees to fit your credit union. Boards of state credit unions and federal credit unions have legal authority to establish committees as they feel are necessary to conduct as they see fit.”
Boards need to ask themselves three questions regarding every committee, according to Cann: Is it effective, is it efficient, and is it meeting regulatory requirements and expectations?
He acknowledged that delegation to committees can make for some real “gray area,” and he called regulatory guidance at the state and federal level on board committees “inconsistent and haphazard at best.”
“Despite the regulatory uncertainty here, it is reasonable to establish written delegations to BOD committees,” he added.
For Cann’s full comments, go here.
Three Questions to Ask, 10 Scenarios to Avoid
To get to good governance, credit union boards should ask themselves three questions while also avoiding 10 scenarios that can lead to problems, according to John Lass, who today consults with numerous credit unions as well as Silicon Valley firms.
Lass outlined seven reasons board governance has never been timelier, and then cited three questions he said every credit union should be asking itself:
* Is the right CEO running the company? “This is not a single event, but part of a continuous evaluation process,” said Lass.
* Does the organization have a robust succession process, and does the plan include the appointment of a strong short-term successor?
* Does the organization have the right strategy, and, if so, is that strategy being implemented effectively? (“It’s not the board’s role to develop the strategy.”)
As lessons learned the hard way often make for the best lessons, he also outlined 10 mistakes every credit union board should work to avoid.
You can read about those and more here.
The Biggest Bank Failure Ever
Think board governance doesn’t matter? You probably shouldn’t share the opinion with the former stockholders and employees of Washington Mutual Bank, better known as WaMu. Once a high-flying financial icon in the Pacific Northwest and in the stock market, today all that is left of the biggest bank failure ever are memories and shoulda coulda’s.
Bill Longbrake, who today serves on the board of BECU in Seattle and who has a long and distinguished career in financial services, was an executive at the former Washington Mutual Bank, having joined it in 1982 when he recalled it acted much like a credit union. Over the following two decades, however, Washington Mutual would convert to a bank, see stratospheric growth, and then crash.
It’s a crash, said Longbrake, who is now the executive in residence at the University of Maryland’s Smith School of Business, that can largely be attributed to a failure of culture and governance by the board. Why does a bank’s failure matter to credit unions? Because the credit union movement in the U.S. is for the most part also enjoying robust growth—the kind of growth that can lead to complacency and blind boards to emerging risks.
Washington Mutual had $307 billion in assets at the time it was seized by regulators in September of 2008. It was eventually sold to JPMorgan Chase for $1.9 billion.
“It failed because its culture was corrupted, its strategy took a wrong turn, its external environment changed, and the board was asleep and did not pay attention. I can’t emphasize enough the importance of the board paying attention. If things are going well and you like the management, don’t go to sleep. The world can change quickly.”
Longbrake shares the full tale of what happened at WaMu here.
Frank J. Diekmann is Cooperator in Chief at CUToday.info and can be reached at Frank@CUToday.info or @FrankCUToday.