Governance Outside of the Bowls

Board Members – What do You Know? And how do You Know You Know? ‘Ya know?

(Better Title: Governance Outside the Bowls)

Tim Harrington and Kevin Smith, TEAM Resources

Yeah, yeah, we all know (or should) … the board of directors has fiduciary duty in the operations of the credit union:

From the federal regulations:

(a) General direction and control of a Federal credit union. The board of directors is responsible for the general direction and control of the affairs of each Federal credit union. While a Federal credit union board of directors may delegate the execution of operational functions to Federal credit union personnel, the ultimate responsibility of each Federal credit union’s board of directors for that Federal credit union’s direction and control is non-delegable.

(3) In discharging board or committee duties a director who does not have knowledge that makes reliance unwarranted is entitled to rely on information, opinions, reports or statements, including financial statements and other financial data, prepared or presented by any of the persons specified in paragraph (d).*

[*These are only excerpts that serve my purpose right now. You should know the full text.]

(Source: http://www.ecfr.gov/cgi-bin/text-idx?SID=013383e49e8441a7f1826edcb8acf395&mc=true&node=se12.7.701_14&rgn=div8 )

The board has oversight of the credit union. And the board has to know what’s going on inside the credit union in order to have proper oversight. So where are you getting your information? What do you read that tells you what’s going on? Surely you’re not hanging around in the CEO’s or the CFO’s office watching thrilling data stream across the computer screen. You get information in your packet once a month, right? (Electronically by now, I hope.)

Board governance includes oversight.

And you read these packets. Which means you know. But how do you know, you know?

Layers of policy create the area where the CEO has the authority to execute the strategic plan.

I know. I’m being obtuse. Let’s cut to the chase.

Credit union directors should have a range of feedback/reporting systems in place to ensure proper fiduciary oversight of the credit union. Your information should come from a variety of sources and should line up to paint a consistent picture. At TEAM Resources we call this “governance outside of the bowls.”

The set of nesting bowls is your board’s policies. They start broad and only get as narrow and detailed as is absolutely necessary. The area inside the bowls is the territory of the CEO and his/her staff. Within the bowls are operational issues that
the board should not get involved in. These are executive limitations, and statements of value expressed as policy by the board. The board’s role is oversight of the bowls, and it’s crucial that the board stay outside of the bowls. “Noses in, fingers out.”

This works when the board has reporting systems that are reliable, coming from a variety of sources. Let’s look at what kinds of sources:

1. Internal information provided by the CE

  • Monthly reports
  • Dashboards of Key Ratios
  • Other Reports
  • Competitive analysis

2. Required Reporting

  • External Audit
  • Internal Audit
  • Regulatory Exa

3. External Sources

  • Member Survey
  • Staff Survey
  • Mystery Shoppers
  • Fraud Hotlines

If you’re relying only on information filtered by the CEO and the staff, I will ask you again, “How do you know, you know?” Information provided only through internal sources can get you in trouble. Let’s hope that you trust your CEO and staff. You should. That’s a good thing. However (comma) you need to “trust but verify.” In this scenario, it’s too easy for the information to be manipulated, hidden, or worse. By having a wider variety of sources for your reports, you receive information that paints a clearer, broader picture. You see more perspectives. The information should also complement other sources, and reinforce other data to confirm the picture is accurate. Then you know, you know!

A confident, competent CEO and senior management team will encourage this approach. That’s what transparency means. They are happy for you to find receive such variety. It actually helps them to do their jobs. We all want to assume the best of people, but we’ve all read stories of boards who had their heads in the sand, who were not fulfilling their duty, or who were simply lazy in checking their reporting and information. They were caught unawares by data that someone had manipulated. Unfortunately, when things aren’t going well, people will do desperate things.

A thoughtful set of reporting systems are an important part of governance, governance outside of the bowls.

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