Committee work on credit union boards is a slippery slope into operational territory. Boards should limit committees to as few as possible and maintain their focus on governance work. Committees of the board should not include staff, but only directors. We recommend the following four: Governance, CEO Relations, Nominating & Recruiting, and Supervisory/Audit.

By Kevin Smith

You might not think it possible, but I’ve gotten into some very interesting, and sometimes slightly heated discussions recently regarding committees. I know, I know. There are only so many governance nerds in the world willing to get fired up about committee work, but it does happen on occasion. And it’s usually because Tim Harrington and I push very hard that credit union boards only need four committees, at most. (Some boards can get away with fewer.) We recommend Governance, CEO Relations, Nominating & Recruiting and Supervisory.

Why So Few?

John Carver, the creator of Carver Policy Governance^TM argues that committee work is a slippery slope into operational work and that the board should remain at the strategic level of governance and not meddle in the weeds. We tend to agree. This is why we suggest with a very heavy hand that board committees should include only board members as no staff. If staff are included, the committee has already slipped into operational territory which should be avoided at all costs. It’s not where the expertise of the board members’ lies. For you dear readers who are about to demand that I explain what to do about the Asset-Liability Committee, please have patience. I will get to that forthwith.  

With the average credit union board being seven to nine people, in general, you should be able to get things done with the whole group. And indeed, having the full board should bring in an adequate number of voices and points of view on most topics, which really is the point of having a board in the first place.

The Reason for Committees

The reason to have committees on the board is to get more “stuff” done. When there is too much work to do, or there is a topic that needs research and a proposed governance/policy solution, then a committee of board members is appropriate. The committee’s work results in a summary presented to the full board along with a recommendation for action to be voted on by a quorum of the board.

Committee Recommendations

Governance Committee

The TEAM Resources approach is that of strategic governance that the board manages via written policy to establish the values of the board and the credit union, driven by a strategic plan with measurable outcomes. This policy-based approach requires some significant work, particularly when you first implement it. The governance committee:

• Develops Governance Policies for board approval
• Keeps Governance Policies up to date
• Ensures board members obtain necessary education
• Ensures board evaluations and self-evaluations are completed annually
• Maintains Governance Calendar and keep board on schedule
• Holds directors accountable for their self-improvement

CEO Relations Committee

 This committee is necessary because of the increased complexity and ongoing evolution of the CEO’s role in credit unions. I’ve heard too many stories of credit union board who start to sweat and panic about Halloween because they suddenly have about three weeks to gather a full year’s worth of data and come up with a CEO “annual review” and raise. And I still hear from CEOs who have never, that’s NEVER, had an annual review. This is unacceptable. At the organizational level, employees are well past the age of once-a-year annual reviews. The HR world recognizes that regular check-ins (quarterly at a minimum, or monthly) with feedback and measurable goals are state of the industry. This should apply to the CEO too, and the board is the “boss” here. This suggests ongoing work throughout the year in order to make this manageable. The committee:

• Remains in touch with CEO on important issues
• Ensures the board evaluates the CEO at least annually
• Monitors and plan CEO Compensation issues
  • Salary via comparison or other process
  • Retirement
  • Deferred Compensation – Golden Handcuffs
  • Incentive compensation – best if linked to Strategic Plan
• Works with CEO on Annual Strategic Planning Process

Recruiting & Nominating Committee

We used to call this simply the nominating committee, but that’s not enough these days. Succession planning at the board level is critical and more complicated than it used to be. The emphasis here is on a recruiting plan that will involve the whole board to some degree. Our approach also suggest that a sitting board member must qualify for re-nomination. It’s not automatic. (See the blog and downloadable checklist on renomination here.) The committee:

• Actively identifies and recruits potentially qualified candidates
• Reviews evaluations of board members
• Annually review potential board candidates
• Recommend qualified candidates to the board for nomination
• Responsible for orientation of new board members

Supervisory/Audit Committee

Federally chartered credit unions are required by regulation to have a supervisory committee. Some states require this as well, but even if it isn’t, it’s a good idea. This is the watchdog function for the board and the organization. And this isn’t a committee that is made up fully of board members with the same mission as the committees discussed above. So, we won’t go deep on this here. It does need acknowledgement however.

Yeah, but … what about?!

I know where the argument is going, and thanks for your patience. The question is about the Asset-Liability Committee (ALCO). It seems to fly in the face of everything I’ve said so far: It’s got board members and staff members, AND the NCUA seems to want to see the board’s heavy hand on this. You’re certainly not shocked to hear that I don’t agree with everything that the NCUA does or suggest. But frankly, they have waaaay more authority than I do. Take that into account. I follow Tim Harrington’s wisdom on this (and many other) fronts. He suggests that one or two board members attend the ACLO meetings … as guests there to learn. He calls ACLO the “rocket science” of credit union work. As such, it needs the most expert involvement that the credit union can muster. This is not what director’s bring to this committee most of the time. It is, though, a great place to get an education and understand the complexity of the credit union more thoroughly, which board members should pursue enthusiastically. Listen to the experts and their recommendations. The NCUA wants you there to keep an eye on risk, and directors tend to be pretty risk averse in this industry.

Ad Hoc – If You Insist on Others

Like I said, there are some who are adamant that there is other committee work that’s appropriate for the board. I generally disagree, but I’m not willing to carve that in stone. If the right reasons arise for board work that you will accomplish via committee, then please make it an ad hoc rather than a permanent committee. Write into its charter the goals of the committee and a general “sunset” clause for disbanding the committee when you meet the goals. Many of you out there have admitted to me that there are ongoing committees that only really exist because “that’s the way you’ve always done it.” Committees should have strategic/governance goals and should be made up of board members. If your committee just “reviews” things, but never has any other goals, really ask yourselves, “Does this need to happen?”

Charters

All committees, permanent or ad hoc, should have a charter that establishes the purpose of the committee, its measurable goals, the scope of its authority, and, if appropriate, the end of the committee. The charter maintains the good governance practices of the board by providing clear, written guidelines and prevents mission/committee creep.

IT Committees (or any other hot topic committees)

Recently at an event, I was almost persuaded by a director of the value of an IT Committee with board participation. I said “almost persuaded.” My first question is always, “what value do you bring to the committee?” He indicated that he does, in fact, have an IT Security background and that’s partly why he was recruited to the board. (Kudos to the board for getting that kind of expertise represented. But here’s where it gets tricky.) It can feel like this is a good idea. But it’s not the board’s job to do staff work. His argument to me is that he needs to participate on the committee so that he can translate to the rest of the board and make sure the board understands that the staff are doing what’s necessary. He also admitted that this is a way to help rationalize the high IT budget to the board, by having an expert voice. This is what almost convinced me, because I really value the board understanding and supporting what’s happening there for the security of the organization. But here’s where it feels like it echoes our advice about the ALCO. He is “participating” in the committee meetings, not simply learning, which means he is doing staff work under the guise of translating to the board. You can fill in any hot topic that’s very complex and make this argument. (Is the A.I. committee next?) This feels like a communication and a trust issue rather than real “stuff” that board members need to do. Directors have enough to do. Stay in your lane and be efficient there.

(Not) Executive Committees

Here’s another sticky area where I’ll put my two cents in. For the sake of redundancy, I’ll remind you that we like the four committees listed above. We don’t see the need for an executive committee. But here’s where it gets more complicated. Many boards that I have dealt with have an “Executive” committee, but the role that it serves is almost a perfect overlap of what we call the governance committee. Naturally, I don’t have an issue with that. The roles and the goals are most important. Names matter though. The reason this is significant here is that, historically, the executive committee of a board consisted of the officers. Beyond that, this committee was given significant power and authority to wield in the absence of the full board. It was a concentration of power. This is problematic these days. Boards needed this historically when there were emergency decisions for the board to make, but it was difficult to communicate with the full board (and that might be 25 or more people). These issues don’t exist for us now but there are still some boards that have aggregated power in the executive committee. It’s a recipe for problems. Make sure you’re reviewing the charter and the bylaws to make sure they are up to date and there’s nothing that the board is taking for granted.

There. I’ve said it. I’ll step off of yet another soap box.  But Tim and I believe that this approach works best for the board and for the CEO. It allows more time for strategy and learning. As always, I’m eager to hear your thoughts and approaches. I’m always up for a scrappy argument. I learn a great deal when I do.