3 Governance Models For Credit Union Boards

Today’s financial services marketplace requires more from the board, and the roles and responsibilities of its members are expanding.

Every board has responsibilities it must uphold. Directors represent the membership’s interests to management, review and guide the strategic plan, monitor the institution’s financial performance, and provide a face for the credit union within the community. Those fundamentals remain; however, today’s financial services marketplace requires more from the board, and the roles and responsibilities of its members are expanding.

Boards today represent diverse fields of membership. Additionally, they must understand complex products, services, and technology. The global reach of financial services and the corresponding increase in regulation requires board members to have specialized knowledge to monitor risk. In many institutions, the board’s role has evolved from monitoring the financial performance of the credit union to providing strategic guidance on complex issues.

The ultimate goal of credit union governance is to link the member-owners to the organization and establish accountability, and the following five elements of good governance can help boards operate in a way that delivers results:

  • Boards must have ground rules (policies)
  • Boards must establish parameters (boundaries) within which management can operate.
  • Boards must maintain accountability. The CEO must be accountable to the board, the board must be accountable to the member-owners, and the board members must be accountable to one another.
  • Boards must identify a clear set of performance targets.
  • Boards must actively monitor the performance of the credit union.

Three Governance Models

There are three models of board governance that apply to any institution or field. Each model has a different focus and requires different interaction between the board and management team. In reality, boards often operate under a combination of these models, which allows them to vary their governance focus depending on the topic of discussion.

1. Fiduciary

In the fiduciary model, the board has stewardship over the tangible assets of the membership and ensures the credit union uses resources effectively and efficiently. The board tracks the credit union’s results against its strategic plan, which aims to minimize risk against a set of performance expectations. Leadership is hierarchical and asks, Is anything wrong? The board decides by reaching resolution on issues.

How it monitors performance:

The board primarily relies on institutional performance metrics to assess if management is on track. These include traditional measures such as return on assets, capital adequacy, delinquency, and efficiency. The board might set these measures relative to historical performance, it might target a new level of achievement, or it might compare its performance against peers (e.g. top 25% of ROA).

2. Strategic

In the strategic model, the board has a partnership with management that addresses how the organization should evolve. This type of leadership is visionary and asks, What is the plan? Board members make decisions by reaching consensus. They know they have arrived at an answer when all the pieces fit together.

How it monitors performance:

Under a strategic governance model, the board develops a plan based on a SWOT (strengths, weaknesses, opportunities, threats) analysis. It measures the success of the plan against member relationship metrics such as average balances, services per member, and member satisfaction. The board pays a lot of attention to whether the credit union is making progress on the strategic initiatives identified in the annual strategic plan.

3. Generative

The generative model is a lesser-known but critical source of organizational leadership. It poses the question, What problems should we solve? This reflective leadership plays a sense-making role that focuses on the credit union’s external environment. The board makes decisions by grappling and grasping with tough issues; members know they have the answer when it all makes sense.

How it monitors performance:

Under a generative governance model, the board maintains an external view of the world and looks at market-based measures to understand whether the credit union is successful. These might include measures such as SEG penetration, market share metrics, and member value created. Because these metrics are harder to move on a shorter time frame, the board typically reviews performance quarterly rather than monthly.

How To Determine The Board’s Governance Role

It is management’s responsibility to successfully execute the credit union’s strategic plan. The board’s role in the process is to oversee and monitor performance. How the board will interact with the management team is an important governance decision that can vary depending on the tenure of the board and management team as well as the circumstances under which the credit union is operating. For example, the boards of some sand state credit unions have operated with a fiduciary bent in recent years, tracking the credit union’s monthly or even weekly performance.

Board members need to discuss among themselves how they should interact with management and then establish that as a shared expectation. In the context of the three models described above, board members should ask themselves the following questions:

  • How would we define our primary role today fiduciary, strategic, or generative?
  • In which role are we most effective?
  • Ideally, how should we allocate our time among these three governance roles?
  • In which role can we provide the most value to the organization and management team?

There is no one correct answer to these questions, answers will vary by credit union, but the questions will spur conversations that will help the board determine whether it is fulfilling its role in positioning the credit union for long-term success.

Are You Ready For Strategic Planning?

The most effective planning sessions require prep work, sharp focus, and a true understanding of your credit union’s place in the market.

Use this set of essential performance ratios for strategic planning to make the most of your team’s time together.



August 1, 2017

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