Five steps credit unions can take to build a better board of directors

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SEATTLE–Credit union consultant and former NCUA Chairman Dennis Dollar has nothing but respect for the volunteers who serve on credit union boards of directors. He noted they make a significant commitment of time while taking on legal liability, all for – in most cases – no monetary compensation.

“Yes, they might get trip to a conference in a great city such as Seattle, but they could pay own way to that city and avoid the liability,” he quipped.

During a breakout session at NAFCU’s 51st annual conference here, Dollar asked the audience to raise their hands if they have been on their credit union’s board for 20 years – a significant percentage went up. What about 30 years? Still a good number of hands.

“There are not too many industries where you see that,” he said. “But if you’ve given us 20 or 30 years, you probably don’t have 20 or 30 more years to give us.”

Credit union board members tend to understand their job is to hire one executive: the CEO, Dollar continued. But he said the board also needs to identify and develop the next generation of CU volunteers.

“This is a non-delegable board responsibility,” he declared. “Asking someone to be a director can be a tough sell. Post-Enron and the financial crisis, laws have increased fiduciary scrutiny and responsibility. Directors have been found in court to have a Duty of Care, a Duty of Obedience and Duty of Loyalty. These are sobering challenges to recruitment. You need to find someone who is willing to take on all of these and be able to defend the credit union tax exemption.”

Will there be compensation for directors? Dollar said CUs cannot depend on Congress to handle the issue. “These guys let the budget expire a couple times a year because they can’t agree on something they know they have to do. I don’t think it is going to happen before the next generation of board members comes in.”

Five solutions

Dollar offered five practical solutions CUs are using to bring in next generation of board members: branch advisory councils, branch leadership surveys, board advisory councils, a board member emeritus position and supervisory committee alternates.

1. Branch advisory council: CUs can use branches to seek out candidates to be future directors. Dollar said the branch manager should be tasked to find five members who regularly use the branch. Those folks are asked to come up with better ideas for the branch at meetings twice a year.

“I know one credit union that calls this the Outback Committee, because they meet at Outback Steakhouse,” Dollar said with a laugh.

At the meetings the CEO and the sometimes the full board meets with the council. Dollar said a percentage of the people will show up just for free food, but many come up with good ideas. After a couple of meetings, a few can be identified as future board members.

“The model has been very successful for this credit union,” he said. “At a minimum, you will come up with good ideas for the branch. Any of the elements can be adjusted for your credit union – you can meet once a year rather than twice a year, or you can call it the McDonalds Committee.”

2. Branch leadership survey: This can be used in conjunction with a branch advisory council or by itself, Dollar explained. Create a questionnaire and give it to at least a dozen members at each branch. Rather than a form to check boxes, ask them to write out an idea or two (or more) to improve the branch. “This can lead to an eventual Outback Committee. The con is fewer people participate, but those that do show they are committed.”

3. Board advisory council: In cases where a CU’s board is full and no one is retiring soon, it can create an advisory council. Dollar said this should be the same size as the board, and can be composed of people chosen from branches or the supervisory committee. This helps create a pipeline of qualified director candidates.

4. Board member emeritus: Ask if one or two of the CU’s longest-serving board members will agree move into this position. Dollar described it as a means of creating a vacancy or two to fill with newly developed talent. These folks can travel to conferences, do training and speak at board meetings, but they no longer vote. “This protects the historical perspective of the board member,” he said. “Some will do it, some will not. Don’t force anyone to become emeritus, and keep it to one or two.”

5. Supervisory committee alternates: Supervisory committees have a five-member maximum, per the Federal Credit Union Act, but Dollar said CUs can have voting alternates, which enables up to 10 members of the credit union to be involved in and learn about the CU. “Again, this is a place to put some of the folks you have identified by other initiatives. Find some way to find a place for these folks you develop through the branches.”

The biggest flaw in these solutions – besides the time to set up and a few dollars for lunch – is it tends to skew toward a given CU’s oldest members, Dollar acknowledged.

“So ask your branch managers to identify some of the younger members who use the branch. The CEO doesn’t know who they are, but branch manager does,” he said. “You want ways to increase diversity on your board: diversity of gender, race, age and profession. This is especially important for community chartered credit unions, or credit unions that serve so many SEGs they are a virtual community credit union.”

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