Does Board Have Same Standard For Itself As Management?

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Let me ask a few questions.

Would a good credit union manager employ staff that don't have the appropriate qualifications, skills and experience? Would a good manager not have some form of ongoing staff training? Would a good manager not set any goals for the staff to achieve and not measure their performance?

Now, here are some questions for board directors.

Would a good credit union board employ a CEO who doesn't have the appropriate qualifications, skills and experience? Would a good board care whether the CEO stayed abreast of current developments? Would a good board not set any goals for the CEO to achieve and not measure his or her performance?

Now, here is another question? Where ultimately does the buck stop in your credit union?

If you answered that the buck stops with the board, how many then apply the same rules to themselves as they insist or expect from their management and staff. How many boards have policies and practices in place to ensure directors have or are acquiring the appropriate skills to undertake their duties? How many boards have policies and practices that require directors to remain up to date with developments and undergo continual training? How many boards have policies and training on ethical behaviors? How many boards set goals for themselves and measure their individual and collective performance?

I suspect the answer to these questions is not as clear cut as the answers to previous questions.

So why do some boards have one set of rules for management and staff and another set for themselves. Of course the first reason directors will give is the electoral process. Directors argue they are elected by members who should be able to choose whoever they wish to represent them. Directors also argue that the electoral process is the best form of performance assessment-if members are unhappy with the performance of directors they will use the electoral process to remove them.

As a credit union board director for 22 years, I don't buy any of those arguments as a reason not to address these important governance issues. For example, how many board members have been removed for poor performance by members at an election? In the vast majority of credit unions, members have no way of knowing about the performance levels of individual directors.

The election process is an extremely important part of a credit union's democratic structure and one of our movement's key operating principles. However, it should not be used to as an excuse to resist the introduction of good governance practices. The reality is that the vast majority of credit union boards could make dramatic improvements to their governance practices within the existing democratic structure, and not just in the areas I've outlined.

How many boards regularly review and document the role of the board, particularly if the credit union is growing or going through mergers? How many managers and CEOs are frustrated with boards that either intrude into the role of management or who don't take sufficient interest in the importance of their role? How many boards have a policy on the ideal composition of the board and a succession policy to replace directors who retire?

Why should credit union boards strive for the best possible governance practices? The first reason is safety and security. Members rely on the board to ensure their funds are safe and the CU properly managed. Secondly, members rely on boards of directors to ensure that their credit union stays up to date with today's financial services. Boards are not able to guarantee these two important aspects unless they have leading edge governance practices. If they don't understand the business, if they don't continually ask management the "right" questions, if they don't keep abreast of industry trends, if they don't do long-term planning and if they don't keep in touch with members, their governance standards are not as good as they should be.

It is all about having the most effective, dynamic and progressive board, which is totally focused on the CU's long-term vitality.

From my experience in Australia, many directors feel threatened by the talk of improved governance practices. Some of my colleagues initially resisted many such initiatives. However, no director should feel threatened by any of these improved governance practices, if they are introduced properly. And that's the key. The process to improve board governance is just as important as the changes that need to be made. Just as management and staff feel a level of discomfort when major changes are proposed for their jobs, so, too, do board directors. This is why the change process must be handled with sensitivity and understanding.

Many board members in Australia who have been through a governance improvement process say they are glad the changes were made. In fact, many say they are now enjoying the role much more now.

Governance is an important issue that has emerged in recent years in the corporate and business world. Major high profile corporations have failed primarily because of inadequate governance practices.

One final question! If your governance practices are not up there with the best, what are you going to do about it?

Mark Lynch trains and consults on governance issues. He can be reached by e-mail at mark.lynch, or by phone at 906-632-3793.

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