LAS VEGAS — What should diversity look like on a credit union's board of directors?
Typically age, race and gender are the main categories that come to mind, but some CU community insiders and experts say another kind of diversity is being overlooked — and is sorely needed.
Namely, many CU board members still reflect original fields of membership, well after a single-sponsor CU switched to a community charter.
"As the eligibility for membership expanded, volunteers often were not recruited from new groups," said Susan Mitchell, CEO of credit union consultancy Mitchell, Stankovic & Associates
A CU's board should represent the membership as it stands, or if there is a forward-looking vision, what the credit union aspires to be, said Dr. Brandi Stankovic, a partner at the consultancy.
A board should represent diversity in a number of categories including age, gender and appropriate demographics for the membership's needs, including income level, ethnicity and other factors, according to Stankovic.
"I think board representation or reflection of the membership is very important," she said. "Having members of the original SEG can be very valuable as the majority of the membership, at least initially when a credit union transitions to community, will have roots with the SEG. And many times the SEG — especially when it comes from very large organizations/industries — will represent the community."
If, for example, a credit union in Detroit serving an auto-manufacturing facility converts into a community CU, it would not be abandoning the original group because that is the institution's community base.
However, she continued, "If you have been a community credit union for 10 years, and everyone on the board is over 65 years old, white, male, and retired from your former SEG, then you have a problem. That type of board formation may not be able to accurately guide your credit union to serving the general member and potential member needs."
Keeping Up With New Members
Mark Lynch, a credit union consultant based in Sault Sainte Marie, Mich., specializing in growth strategies and board governance said he frequently sees institutions that were single SEG make a transformation, but their boards don't keep up.
"It is very rare that a credit union's board really reflects the new membership," Lynch said. "Typically you will see a former teachers' credit union that switches to a community charter, and the board is still all teachers."
Jim This, president and co-founder of the Paragon Group, an Olympia, Wash.-based CUSO owned by $894 million TwinStar Credit Union that offers board effectiveness evaluations, said some boards are, and some are not, reflective of FOM changes.
"As the membership has diversified, we have not necessarily diversified the board as quickly," he said. "I think a lot of credit unions recognize this and are taking steps, but it will take a while to get that broader range of participation."
Pete Weldon is secretary of the National Association of Credit Union Chairmen (NACUC) and chairman of the board at $211 million-asset 1st Community FCU in San Angelo, Texas. He noted 1st Community started as an Air Force Base credit union, but converted to a community charter in 1978 when the base was threatened with closure.
"We now serve 27 counties and try very hard to represent all of them. We try to represent all of our members, and a lot of that comes through the employees, who are all local. I visit all the branches regularly."
Industry insiders and experts proposed a variety of solutions for CUs to improve their board diversity, ranging from defined selection criteria to associate board member programs to actually removing directors from the board to make room for new representatives.
Chuck Fagan, president and CEO of the Credit Union Executives Society, said the CUES board uses a matrix to select its members.
"The important criteria go across the top, and we try to have balance," Fagan said. "Balance comes from skill set, from geography and from gender. You want to get good representation from the membership, but you cannot sacrifice talent for leading the credit union."
With the economic downturn and numerous new regulations, Fagan noted there are "significant demands" on individuals tapped to be CU board members. They have the responsibility for financial oversight, and can be asked to provide leadership in a number of different subject areas. Therefore, the criteria across the top of the CUES board member matrix can range from financial experience to technology.
"Credit unions can identify the most important criteria by figuring out where they are heading," he said. "Are they trying to be a technology leader? Then they need to recruit people with technology expertise. But they need to keep in mind, these things will evolve."
It is difficult to judge exactly how well credit union boards reflect their membership, according to Fagan. Many likely do reflect the original charter, he noted. "But they are heading in the right direction."
"Board members are going to be advocates for the credit union in their community, so they will help with growth and bring new perspectives. Community representation is important."
Paragon Group's This said one of the best practices he has seen is a board performing a self-assessment to determine exactly what it should look like.
What typically fixes a board diversity problem, according to Lynch, is time.
"Board turnover often is slow," he noted. "No one likes to ask board members to leave, but a good practice is when a board member leaves, the credit union should look to replace that person with someone from the new SEG, or from the community, as appropriate."
According to Lynch, the age of the board members when the charter change takes place will give a good indication of how long it will take for the board to have diverse representation.
"There are a number of strategies, but the preferred one is to target new board member candidates," he said, adding CUs could have a nominating committee, or simply identify a few people who would be right for the board.
The difficult option, Lynch said, is for the board members themselves to realize they need to speed up the turnover process. "They could downsize one per year for three years, from nine members down to six. At that point, they would start to upsize again. Depending on the availability of candidates, look to add one, two or three until the board returns to nine."
The latter scenario is "a little extreme," Lynch said, because people are being taken off the board. "There would have to have unanimous agreement. It is difficult to break away from doing things the way they have always been done."
