A Matter of Leadership

Perhaps one of the most vexing and controversial challenges facing the credit union community today concerns the fundamental question: How can a credit union ensure ongoing, effective governance and leadership?

One of the historical building blocks of a CU is that it is a cooperative. It has long been thought that financial cooperatives will be best led by members who have an actual financial stake—or share—in the CU itself. Since their own money is invested in the CU, it is widely assumed they will be aware of—and appropriately engaged in—the proper oversight of the credit union’s financial affairs. CU members accomplish this by electing a board to take on a set of responsibilities designed to help ensure the safety and soundness of the members’ resources, as well as the effective governance of the CU.

The current state of credit union governance is, however, being severely challenged by a rapidly changing environment and a sometimes stagnant board. (Read a bonus article, “The Nine Leadership Challenges,”.)

One of my senior consultants came to Quantum Governance from the general nonprofit sector. She was stunned when assigned to her first credit union client. What she found was a group of directors, the majority of whom had been in their positions for well over 20 years.

Because of the long-time tenure of these board members, the institution was facing the wholesale turnover of both its board and its CEO in the next few years. By holding on so long, the board members actually ended up endangering leadership continuity—exacerbating the very problem they professed to be solving by their continued service.

The time has come for boards to reframe and “rebalance their responsibilities,” as Ram Charan has noted in his new book, Boards That Lead: When to Take Charge, When to Partner and When to Stay Out of the Way. Yes, board monitoring and oversight are still important, but they are no longer sufficient. The reality is that for many CU boards, more effective leadership is needed.

What Leadership Leads To

At Quantum Governance, we talk with a lot of credit union board members and, unfortunately, what we’re hearing from them about their ability to effectively lead and govern isn’t altogether positive. The following data is from our 2014 credit union compendium:

• More than 25 percent of all board members we’ve surveyed think their board is “less than effective” at building a leadership culture of trust.
• Thirty-seven percent think they are “less than effective” at holding each other accountable.
• Only one in five board members thinks their board is “very effective” at asking the hard questions that need to be asked.
• Twenty percent of board members say they are “ineffective” or only “adequate” at acting decisively when necessary.
• Sadly, about one in three directors says their board leadership and governance culture are “less than adequate” overall.

Importantly, credit union boards are struggling to find the right people to serve—with only 18 percent saying they are “very effective” in doing so.

How to Get More Effective Leadership

So what’s a credit union to do?  Renewing the strength of your board and its leadership can be accomplished using various techniques. If you answer “no” to even a few of the questions in the following section, you’ve got some work to do. And you need to get moving, or you’re likely to get left behind. Way, way behind.

Board assessment. Is your board working on strengthening its governance practices?  Are you reflecting on what’s going well and where you’re struggling?  How are your committees functioning—especially your supervisory committee?  Have you and your colleagues committed to a regular process of board evaluation?

Training for needed competencies and strengths. Are you undertaking a robust training initiative that responds to your assessment results by strengthening your directors’ intellectual capacities and stretching the boundaries of current discussions? Do your fellow directors return from the latest CUES or other conference full of ideas and enthusiasm? (Read “Starting Point,” about developing plans for director learning, in this issue.)

Associate board member program. Have you considered an associate director program that will afford up-and-coming volunteers the ability to learn about your credit union’s business “from the ground up?” Are your committee rosters creatively drawing from non-board members–those in the community who could foster a wider sense of support for the credit union and support your associate director program? Do your recruiting “tentacles” go beyond the supervisory committee? (Also read “Working in the Governance Wings: Strategies for readying volunteers to give a good performance once on the board”)

Term limits. This practice is rooted in one of the central principles of maintaining board effectiveness over time and the idea of creating (and sustaining) a careful balance between historical continuity and rejuvenation. A big potential benefit of limiting the length of service of credit union directors is fostering an influx of new talents, skills and energy to the board as a whole, as well as among board officers.

Of course, there are a number of traditional challenges raised concerning term limits. Some credit unions fear losing valuable board leadership and institutional knowledge. (Get ideas for minimizing this risk)

It takes time to really understand the issues at play within an organization—and credit unions are complex financial organizations. Some believe it imprudent and inefficient to spend valuable time and energy getting board leadership “up to speed,” only to then urge them to move on at the close of their tenure.

Another frequently raised concern is an actual or perceived shortage of suitable or willing candidates. Such a shortage of qualified candidates can be an authentic challenge—or simply the net result of very low turnover. Of course, if a board officer or member has proved effective, there are some who would suggest it is entirely appropriate to maintain the status quo because “if it ain’t broke, don’t fix it!”

Certainly, I’m not saying that term limits are the answer. They are, clearly, only one tool. But they can be a helpful tool for your board’s leaders.

Rotation of officers. Additionally, it is helpful to periodically rotate directors through board officer positions so a sustained concentration of power in a limited number of individuals (either actual or perceived) does not occur. Rotating board officers also helps an organization from getting stuck with just one leadership style.

Board officer rotation is also thought to strengthen the pool of candidates willing to serve. This is due to the common occurrence that some will naturally aspire to board leadership roles—but only if it is perceived there is an authentic opportunity to attain a leadership role after a reasonable period of time and service. Finally, a lasting concentration of authority in a select, few individuals is, I believe, contrary to cooperative governance principles.

Know the true role of the board chair. While there are courageous conversations that need to happen at the chair’s level when a board member is failing to live up to his or her fiduciary responsibilities, strengthening the leadership of the board is not just your chair’s responsibility.

As a board member, it’s your responsibility to truly be engaged. Don’t simply attend the meetings and go through the motions; be an active player. A board member recently told me that he estimated about 70 percent of his colleagues barely even spoke at his CU’s board meetings. Is that leadership? Your members are depending on you.

More Than Incremental Improvement

The challenge I would place before you is this: Are you entirely sure your current situation isn’t broken?

Fundamental or truly transformational changes—not just incremental—are what your credit union must undertake to craft the exceptional board of the future. A board that can truly help to overcome the types of challenges facing credit unions.

It will take exceptional board leaders, working in constructive partnership with management, to be successful. It is likely that some of the leaders you need to move forward are already on your board; it is equally likely that some leaders you need to meet such challenges are not.

I read with interest the recent Credit Union Management article, “When Directors Step Down.” And I couldn’t agree more with author Michael Hudson, Ph.D.: Directors, when it’s your time, have the courage to step up and step down.

Board chairs, you have an important role to play, too, in board rejuvenation. Have the hard conversations. If someone isn’t participating or truly adding value, it’s your job to find out why, and—if need be—help find someone who will.

In the end, no single tool, technique or individual strategy is a substitute for what is needed most at this pivotal time in the credit union community and that is, of course, courageous leadership on the part of every member of the board.

Michael Daigneault, CCD, is CEO of Quantum Governance L3C, Vienna, Va., CUES’ strategic provider for governance services. Daigneault has more than 30 years of experience in the field of governance, management, strategy, planning and facilitation, and served as an Executive in Residence at CUES Governance Leadership Institute. Quantum Governance fields more engagements in the credit union community than in any other, more than 40 percent of its total client projects.