By Michael Fryzel
State and federal regulators have always emphasized the importance of having knowledgeable and dedicated individuals serve on the board of directors of credit unions. The recent Symposium on board governance highlighted in articles written by Frank Diekmann on Nov. 3 and Nov. 12 pointed out important issues that need to be addressed by the entire credit union industry. If credit unions are to continue to grow in size and maintain their commitment to their members, it is essential that their boards are comprised of individuals who are aware of their fiduciary responsibilities and possess the leadership skills to carry them out.
In his articles Mr. Diekmann discusses the remarks of the speakers at the Symposium who pointed out how many boards now operate and what they believe could be done to improve them. In reading the remarks one thing is clear, little if anything has changed as to how board members are chosen, who controls what they do and what they believe their role to be.
The Question
So, the question becomes, considering how successful credit unions have been, what changes are needed?
In many cases the composition of a board only changes upon the death of a member, someone choosing not to continue to serve because of other commitments or the ability of a strong majority to force someone off the board by not renominating them. This is validated by looking at the tenure of board members across the country where their services are not measured in years but decades.
Some may believe that a long-serving board member brings a lot to the table. That may be true in many cases, but in others it could be disastrous. I know of one instance were an individual served 60 years as a director. He played a dominant role in determining the CU’s investments and expenditures. He was frugal and conservative and his role led to a credit union with tremendous potential remaining small and stagnant to this day. Other boards have also experienced such dominance by either a long-serving chairman or lifetime board members who for years control the direction and focus of the credit union for better or worse.
Another example of board governance or the lack there of, is having in place a strong CEO who controls the agenda, dominates the discussion and determines the direction of the credit union. A strong, dedicated CEO can mean the difference between success and failure. A CEO with vision can build a credit union into a strong, safe progressive institution. Those types of successes can be seen across the country. Often-times in those cases a board goes along with the game plan drafted by the CEO and adhere to a strict advice and consent role as their part. If this works, is it wrong?
What Makes for the Best Boards
Replacement of board members is another area of CEO dominance, a chairman’s influence or a combination of both. If there is a vacancy to fill, more often than not, the CEO and board chairman decide who would be a good fit with the current members. Neither wants meetings that are controversial and the CEO does not want someone who would meddle in day to day activities. So together they come up with a name, have that person dress up their resume and then sell the board on the agreed candidate. Rarely is there not unanimous consent for that choice.
Regulators have rightfully not gotten involved in the way board members are selected unless the credit union is coming out of a conservatorship. Their main concern has always been that the board understands how a credit union works, has the ability to read and understand financial statements, is involved in long term planning, knows the needs of their members, maintains standards of safety and soundness and knows what the law requires of them in their role as a director.
As much as everyone would like to see the model boards described by the commentators, the best boards are the ones that work for their specific credit union. Whatever that proper mix is, there should be no argument if it breeds success.
So, yes, the discussion of board governance should continue. The experts, trade associations, individual credit unions and regulators should offer their ideas on ways to improve and perhaps develop a best practice recommendation. Boards may not be perfect and look like the ones that govern large corporations. But if they are not broke, why fix them?
Michael Fryzel is a former chairman of NCUA now in private practice. Mr. Fryzel can be reached at meflaw@aol.com.