Directors Not Good At Grading Own Performance

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MADISON, Wis.-Credit union board members do a poor job of judging their own efficacy, according to a new study.

The analysis from the Filene Research Institute found that when asked to self-judge the quality of their governance and the strength of their CU's performance, directors who considered their governance practices good also said that their credit unions performed well. But when directors who claimed good practices were matched with their actual ROAs over seven years, there was no statistical correlation to above-average ROAs.

The Filene Institute reported that the study, "Tracking the Relationship between Credit Union Governance and Performance," further found that volunteer CU boards display a broad range of competence and engagement, and that there are "several areas ripe for governance improvement." Among them:

• Time management. "Effective meeting management is a challenge, and boards seem to have only a vague sense of how their meeting time is spent. To improve, boards must know how their time is currently spent and then prioritize agendas to spend more time on strategy."

• Director evaluations. "A dearth of board introspection means chairs and other directors need to be proactive in formally evaluating their own contributions. They should consider implementing annual board effectiveness surveys, formal peer feedback, formal reviews of the chair, and feedback from management."

• Continuing education. "Surveyed directors who ranked their boards in the top decile of governance performance all had formal continuing education policies, while those in the lowest decile rarely did."

• CEO evaluations. "The only governance practice that yielded a strong positive correlation with actual CU ROA performance was whether boards felt they had an effective CEO evaluation in place."

"Credit union governance is one of those issues that never seems urgent, but thinking about it and improving it just might be a more important issue than anything else we face right now," says Mark Meyer, CEO of the Filene Research Institute. "As a credit union director myself, I can vouch for the importance of holding ourselves as accountable as we hold management."

The study was conducted by researchers at the Rotman School of Management at the University of Toronto, with sponsorship from the Credit Union Executives Society (CUES).

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