Good Governance: Dealing with Divisive Directors

Like a lot of things in life, governance challenges seem to come in threes. There was the year that we had three clients struggling with their representative boards. Last summer, the trials were three different mergers and acquisitions. This spring, three of our clients have been grappling with how to hold a problematic board member accountable. And not just problematic board members, but very problematic ones.

We’ve seen this before—and not just in threes. 

Let me begin by saying that, as a believer in exceptional governance, I value the cooperative principle that “credit unions are democratic organizations owned and controlled by their members. One board member equals one vote, with equal opportunity for participation in setting policies and making decisions.” But sometimes you run into a board member whose presence completely derails the democratic process. What to do when removing such a member would actually improve governance, the operation of the board and contribute to stronger organizational outcomes? 

The Principle of Democratic Member Control: Pretty Drastic

The democratic member control principle drives three of the paths available to credit union boards when they believe that it’s time for one among them to leave their ranks. (These are the options available to federally-chartered credit unions as outlined in National Credit Union Administration federal credit union standard bylaws. Additional options may be made available for state-chartered credit unions by their regulators.)

1. Article VI. Board of Directors, Section 8. Attendance and removal. a. If a director or a credit committee member, if applicable, fails to attend regular meetings of the board or credit committee, respectively, for 3 consecutive months, (choose one of the following) ____ or 4 meetings within a calendar year, or ____ 4 meetings within any 12 consecutive months or otherwise fails to perform any significant duties as a director or a credit committee member, the board may declare the office vacant and fill the vacancy as provided in the bylaws.

2. Article IX. Supervisory Committee Section 5. Powers of supervisory committee—removal of directors and credit committee members. By unanimous vote, the supervisory committee may suspend any director, board officer, or member of the credit committee. In the event of a suspension, the supervisory committee must call a special meeting of the members to act on the suspension. They must hold the meeting at least 7 but no more than 14 days after the suspension. The chair of the committee acts as chair of the meeting unless the members select another person to act as chair.

3. Article XVI. General Section 3. Removal of directors and committee members.  Notwithstanding any other provisions in these bylaws, any director or committee member of this credit union may be removed from office by the affirmative vote of a majority of the members present at a special meeting called for the purpose, but only after an opportunity has been given to be heard. If member votes at a special meeting result in the removal of all directors, the supervisory committee immediately becomes the temporary board of directors and must follow the procedures in Article IX, Section 3.

These are drastic paths to have to take, and they put into play reputational risks for both the board member and the credit union. But there are other options besides the most drastic ones. 

Other Pathways, Starting With Accountability

The name of the game, ultimately, is accountability—setting clear roles and responsibilities through the development of both board member and officer job descriptions (I encourage you to develop job descriptions for the supervisory/audit committee chair and members too); outlining expectations for behavior in a board member covenant and even a code of ethics that applies to everyone throughout the credit union, from the board to the tellers; and implementing accountability mechanisms to ensure that everyone is doing their job within the boundaries of the covenant and the code. 

But what do you do when that fails you? 

Here are some tried and true steps that you can take, in increasing order of seriousness:

1. Solicit the help of the board member’s trusted peer (or peers) for a private conversation to address the behavior.
2. Schedule a formal meeting between the board member, the chair and another board officer to address the behavior.
3. Outline the offending behavior in a written reprimand letter, asking the board member to correct their behavior immediately.
4. Call for a written apology from the board member to those offended.
5. Require formal sensitivity/or related content training.
6. Prevent the board member from participating in any trainings, conferences or seminars paid for by the credit union until select steps (such as those outlined above) are complete and the behaviors are corrected.
7. Provide a copy of the written reprimand letter to the governance and nominations committee to inform the nominations process. 
8. Institute peer-to-peer evaluations and provide a copy of the board member’s results to the governance and nominations committee to inform the nominations process.

And for especially serious cases:

1. Stipulate that the board member will be formally censured or that their resignation would be called for unless select steps (such as those outlined above) are complete and the behaviors are corrected.
2. Note to the board member that formal censures and/or a vote for their resignation will appear in the credit union’s public minutes.

It’s Worth the Effort to Manage Divisive Directors

I can tell you that all our clients who have adopted any number of the steps above did feel a sense of relief ultimately, as hard as it might have been. In most instances, the board members simply resigned, knowing that it was best for them as individuals and ultimately for their credit unions. 

While no process is ideal, and we at Quantum Governance certainly want you to honor and adhere to the principle of Democratic Member Control more than anything, sometimes a bully or undemocratic individual acting in bad faith needs to be stopped. Sometimes, that board member who refuses to adhere to the credit union’s policies must simply be shown that their behavior is unacceptable. And sometimes, their behavior becomes so antithetical to the very essence of a cooperative that you don’t have much of a choice. 

Jennie Boden is CEO of Quantum Governance. Quantum Governance provides credit unions, corporations, nonprofits, associations and governmental entities with strategic, cost-effective governance, ethics and management consulting, facilitation and evaluation. With more than 50% of Quantum Governance’s clients representing credit unions, the organization fields more engagements in the credit union community than in any other. Quantum Governance is a CUES strategic partner in the field of governance and is home to more strategic governance experience than any other practice in the country. The firm is a unique L3C organization that integrates the best elements of both the for- and non-profit communities into one practice. It is a low-profit, limited-liability service organization dedicated to the public good and one of the very first such legal hybrid organizations in the United States.