Tuesday, 7 August 2007

How Does a Director Define Their Role?

The fiduciary responsibilities of a director, whether they are a volunteer or salaried, are alike for the most part. It's true that almost all credit unions do not pay their directors and almost all banks do pay a per meeting stipend, giving the bank's committee members strong incentive to meet as often as possible.

In my career as a credit union CEO, I invited our legal counsel to attend one board meeting each year for the express purpose of reviewing the fiduciary duties and responsibilities of a director and reminding the board of the legal consequences of not fulfilling them. In his elegant and simple message, this is what he said are the responsibilities of a director:

1. Approve operating policies and articles of incorporation (bylaws). 
2. Hire a competent CEO. 
3. Evaluate the CEO's performance regularly and formally. 
4. Replace the CEO if results are unsatisfactory.

That is as simple as it gets. Yet, after 29 years in credit unions, plus the past five facilitating strategic planning and executive coaching in credit unions, the CEO's with whom I have the privilege to work are crooning an unchanged song. That is, their board members don't understand their role; get too involved in the daily operations; ask for too much or impulsive financial projections and are the root cause of the CEO and his/her team not advancing the credit union's vision, mission and critical goal categories. I have heard that same issue as it relates to ncua (nobody cares understands or appreciates) field examiners.

Let's get one important truth established: YOU are the CEO and if you play someone else's game, it serves only to frustrate, increase stress and divert your attention from the vision, mission and critical goals that your autonomous board approved. The board may need a gentle reminder that you are doing that which has been approved by them and your performance is evaluated every 30-days at the board meeting via the balance sheet and income/expense statement. Point them back to their role; get your own attorney and/or consultant to educate them. Here are some talking points for you and the board.


• Describe the fiduciary role of the board and how fiduciary responsibilities apply to specific functions in the credit union. 
• List specific responsibilities of the board. 
• Name common traps that hinder effectively meeting fiduciary responsibility. 
• Describe the key risk management functions of the board of directors.

Lead with vision and purpose:

• Discuss governance models and what works for your board 
• Cultivate a positive, cooperative relationship between the board and CEO 
• Develop a team-oriented approach to board governance.

Additionally, the credit union's bylaws and state and federal regulations/statutes specify the duties and responsibilities of a director and the board. There are resources, e.g.: BoardSource.org, CUNA, CUES, the World Council and more that provide lists of duties, skills required, roles, etc. All can provide director education and certificate programs. There is no excuse in 2015 for a director not to be trained and informed, or to act outside those parameters.

If I may condense it:

a. A director should have:

- Cognitive capacity: can the director recognize he/she is responsible for the membership and recognize clues/alerts that unsafe risk is imminent. 
- Behavioral capacities: the director not only knows what must be done and recognizes unsafe risk, but will also act. 
- Emotional capacity: able to bond with a team; empathize with others and their differing opinions.

Everything you do in a credit union involves risk. You risk or you rust. Every loan to a member and every investment choice is a transaction with risk. Every new hire is a risk. Each action step is accompanied by some risk and reward. The CEO has a role and so does the board. They are different. Respect those differences and the strengths each brings to the credit union.

An informed board of directors is the CEO's greatest partner. Invest in director development; get the board to network with other credit union boards; consider executive coaching for individual directors to develop leadership talents. Leaders are made not born.

If your board is open, get the chair to start a discussion on term limits, both for a director and the position of chairperson. Many abuses and potential problems are solved when a director may not serve indefinitely, or serve as the chairperson more than one term. You may define the length of a term, e.g.: one (1) term being three (3) years, or one (1) term being five years, with two or three terms being the maximum. Likewise, with the position of chairperson, rotate that annually to avoid having a person build power and authority that can lead to issue.

Often the best time to introduce term limits is when there is a problem director. The rest of the board is fed up and looking for a way to get him/her off the board or the chairperson's position. The dissident director is one (1) vote. If the rest of the board wants to take action and protect future boards, they can get the votes.

Likewise, if everything with the board is picture perfect, that's a great time to discuss term limits. Some credit unions have age limits for a director. Get those issues settled when everyone likes each other as a deterrent to problems in the future.