Posts

Boards Behaving Badly

We’re doing things a bit differently this month. It’s time for some audience participation. Click on every example of board bad behavior that you’ve experienced. And fill in any that we missed below or in the comments. We hear about a lot of these privately. But we don’t hear about these being called out and addressed. That’s a problem. 

Make sure you click the “Vote” button at the bottom. You’ll be able to see the results as well. 

 

So, how do you tackle these behaviors? Yes. Some of these are worse than others. This is a governance issue … for the whole board. Sure, we’d like to see the chair handle some of these with private, one-on-one conversations. But you’ve heard me harp on it before: written policy to address norms and expectations requires the board to discuss, then vote. It’s then easier to talk to an individual about these issues. (But I’ll also point you to last month’s episode about being too nice in the board room, which can be deadly.)

One of our readers suggested this approach should address things like the definition of a “prompt” response to an email or voicemail. Yes, these things sometimes need to be spelled out. People have different definitions. Our characters above, like Ivan Idea and Mum’s-the-Word Mary, don’t see a problem with what they’re doing. Calibrate!

The Board of Director’s Education Policy

Ad hoc or lassaiz faire approaches to director education are no longer good enough. The board must have a formal approach, codified into governance policy. The benefits are many: transparency, higher expectations, tracking and accountability among others. The credit union world is complex, requiring directors to have ongoing education to keep up.

By Kevin Smith

Do you have a formal, written policy that covers the education requirements for directors and committee members? (Some of you do. I’ve seen them. Great! But you’re not totally off the hook yet.)

Tone in the Room

At one credit union, I asked about director education. There was no written policy and the approach was only verbal, “If there’s a conference you’d like to go to, just come and ask.” And I never quite got clarity about who was asked. The chair? A committee? And it felt a little like a kid coming to ask a parent to go to the movies. As a result, some people went to conferences, others never did, and never asked. And that was the end of it.

At other credit unions that I have visited, I’ve witnessed a “culture” of training and education, and a general “expectation” that directors and committee members would attend training. Which was working out okay, because people talked about it regularly and that set the general tone of the organization. But the only formal part of this approach for many is the conference fee and travel budget allotment. This is better, but not good enough for our times.

Write it Down

It’s time for boards to have a formal, written governance policy that addresses the training and education expectations for the directors. Directors should discuss this, like everything else, and come to agreement about what this means, beyond a dollar amount.

The education policy should set the expectation that every director or committee member will be required to do some training and education each year as part of board service.  Ideally, this program is customized to the experience and background of each director. But it is also a good idea to establish a standardized curriculum for new members. This approach helps guide their entrance into the industry, speed their onboarding process, and it takes some of the decision-making complexity out of the rookie’s hands, making this easier.

Getting Buy-In

By writing this down, the board must have discussion and buy-in, enough to get the motion passed. This buy-in is very important in establishing a standard and expectation. The written piece then becomes a way to hold each other accountable for doing the work of professional development. A verbal, and cultural “expectation” is not enough. Too often this can be sidestepped, ignored or misinterpreted.  

This is also valuable for new directors. This establishes the tone formally. Newbies know clearly what they are expected to do. The alternative is generally that new directors spend a year or more “absorbing” the prevailing culture and fuzzy expectations. (We don’t have time for that anymore.)

Setting Expecations

So what are the expectations? Well, like all fun things, the answer is “it depends.” And it needs to be customized. I’ve seen this handled in a variety of very effective ways.

It could be:

  • Everyone goes to at least one conference, local or national.
  • A minimum number of directors go to GAC every year.
  • Requirements to go to the state league annual meeting, or acceptable substitute.
  • Require a certain amount of course work online to “earn” the travel and training budget for conferences.
  • A standard list of sanctioned credit union related events as options. (Pre-approved)
  • Events beyond the pre-approved list need to have a clear rationale and an outlined benefit to the director’s service. (Don’t overly limit what a director can pursue, but ensure the connection and value. For example, I’d love to see more chairs taking courses in facilitating difficult conversations, which is not on the CU conference agenda. But the local university or training group may be offering outstanding options.)

This list could be endless. But the bottom line is that each director should pin down what training they will pursue each year. It can be flexible.

I’d like to say that credit union directors everywhere understand the importance of ongoing education and training. But I can’t. It’s great to go to conferences and to speak to directors about these topics, but often I’m preaching to the choir. There are too many directors who don’t think they need to do this. Many who “learned everything” 20 -30 years ago when they started and don’t keep up. Some who simply don’t know what they don’t know. It’s dangerous for organizations and for the movement. What we do is far too complex and dynamic these days. We must have educated and curious strategic visionaries at the board level. A discussion and a formal written policy can be enough to nudge things in the right direction.

New Rules and the Board’s Role for Succession Planning

New Rules and the Board’s Role for Succession Planning

New Rules and the Board’s Role for Succession Planning

The NCUA has proposed new regulations for succession planning in credit unions. These would make explicit the tasks that credit unions must do at the board, committee and leadership levels. This includes formal, written succession plans for board leaders, committees and the operational leadership of the credit union, which must be tailored to the size and complexity of the organization, and be updated at a minimum annually.

By Kevin Smith

Yes. I know. We don’t like new regulations or for people to tell us what to do. But there are new (pending) rules and the board’s role for succession planning will be impacted. So let’s not just have a knee-jerk reaction to the fact this has been proposed and take the time to examine what’s going on, and why. After all, we acknowledge that not all regulations are bad. After all, we’re pretty happy to have the NCUA insure our deposits up to $250,000, not being eager to revisit the great crash of 1929, right?

What the Proposal Says

Here’s what the NCUA has written (emphasis mine):

(e) Succession planning. (1) General. A Federal credit union board of directors must establish a process to ensure proper succession planning to include officers of the board, management officials, executive committee members, supervisory committee members, and (where provided for in the bylaws) the members of the credit committee, as described in Appendix A. 
(2) Board responsibilities. The board of directors or an appropriate committee of the board must: 
(i) Approve a written succession plan that covers the individuals described in paragraph (e)(1) of this section; and 
(ii) Review, and update as deemed necessary, the succession plan and policy in accordance with a schedule established by the board of directors, but no less than annually
(3) Succession plan contents. The succession plan must, at a minimum, identify key positions covered by the plan, necessary general competencies and skills for those positions, and strategies to identify alternatives to fill vacancies. 

*Full language of the proposed rule is here.

What I’m Paying Attention To

It may not always be the case, but the NCUA is giving some pretty clear guidance about what they expect from boards. It establishes who’s covered, that it must be written and updated at least every year. And it is item (3) above that’s most interesting to me, and clarifying. This is explicit direction: identify key positions, the necessary skills and competencies, and strategies for alternatives. These are marching orders and the work to be done if you haven’t already. (I know from personal experience that many of you have not. Don’t try to con me!) The first, to ID key position is pretty straightforward. But let’s look at the other two.

Necessary Skills and Competencies

The regulators are making sure that the succession plan is thorough enough, by making sure that the planners are looking at the capabilities needed for the organization to thrive. The next logical step is clear development and training plans. Your candidates don’t necessarily have to currently have those skills, but you need to make sure that they will. This is growth and learning, and isn’t revelatory in its approach. Let’s use a “for instance.”

For instance, perhaps you’ve identified your CFO as a candidate for CEO in a couple of years. Forgive me for insulting CPAs, but the bean counters are always know for their impressive communication and human leadership skills. (I know I’m stereotyping. After all my colleague, Tim, is a CPA and one of the best leaders and communicators I’ve ever met. But you can see some truth, n’est-ce pas?) Perhaps this candidate’s development path requires the leadership training to get to the next level. Too often, board members are satisfied with the achievements of a candidate thus far, without thinking ahead to the gaps for a higher-level position. This can (and does) have severely negative consequences.

For Instance, perhaps you’ve identified the CMO, chief marketing officer, as the candidate for CEO. She’s shown remarkable strategic thinking and success. But here we might have the flip side, where she needs to buffer her knowledge in the financials, and in the work of the asset-liability committee to make sure she’s ready for the top spot.

These examples hold true for the board planning for its own future. It’s critical to identify the skills that you have, the skills that you want and then the gaps between. Board members and candidates can level up or you can recruit those with the skills. But paying attention to competencies and training not only important but the difference between competence and incompetence.

Strategies for Alternatives

By requiring that succession plans have strategies for alternatives, the NCUA is making sure that it’s harder for you to cop out on a plan with one candidate or approach. Let’s face it. There’s a war for leadership talent. It’s a tough hiring environment and your perfect candidate might get poached, or simply change course. This is far more common today. You need to be ready to pivot and have options available. Yes. This is work and it’s complicated.

Why Is This Necessary?

According to the NCUA, “analysis found that poor management succession planning was either a primary or secondary reason for almost a third (32 percent) of credit union consolidations” (emphasis mine). I have encountered this myself: boards that have dropped the ball on succession planning (typically for the CEO) throw up their hands and accept merger as their exit plan. Too many healthy, vibrant credit unions, and those with unlimited potential are going away because of absent succession plans. That I’m not a fan of. There are always legitimate reasons for merger, but this isn’t one. For that reason, I support this proposed regulation, a position that’s rare for me. The trades, predictably, don’t support a new (or any) regulation. I disagree in this case. Their argument is that the NCUA already has mechanisms for handling this, but the evidence and the data suggest that this in not enough.

Short Term and Long Term

In the short term, the recommendation is to look to your disaster recovery program and not to recreate the wheel. Use what you’ve already developed. The interesting twist to this is the suggestion that CUs consider mutual assistance plans for emergency situations. I love this. The sixth cooperative principle: cooperation among cooperatives. But this will need some substance to the plan.

For the longer term, that advice is more detailed and practical:

  • ID Key Positions – more than just the CEO, also key contributor, specialized skills, size, complexity, location
  • Conduct Position Analysis – location, services, relationships, culture, mission, competencies (for future), written job descriptions, identify the gaps
  • Develop Succession Plan – strategies to overcome gaps, ID candidates, assess skills, training to reduce gaps, write down plan: training, with whom, resources, timeline, report to board
  • External candidates – Where, budget, timeline. Should CEO be involved? Do candidates have right experience? Outside firm?
  • Monitor, Evaluate, Revise – everything changes. Annual review (minimum)

Boards: Take Care of Yourselves and Monitor the Rest

Let’s be clear – the board isn’t involved in creating the leadership succession plan, but it does have to make sure that it’s being done carefully and that it’s written. But be clear on the wording from the NCUA, “The Board envisions that the examination program would confirm the existence of a succession plan and training.” The inclusion of “training” here is significant.

The board does need to take care of itself. This is real work for the board that is more difficult than it used to be, as credit unions are more complex. I appreciate that the NCUA is recommending the use of associate director programs. At TEAM Resources we are big fans of these. This is a training program where the associate director can get training and education about board governance and the industry before they have to vote. It’s a better way to onboard and to find out if the associate is a good fit for the board. We can no longer afford to have new board members without any experience waiting for a year or two to learn before they add their voices. But the associate director program is but one tool of many that you can use.

I haven’t said all that I’d like to on this topic. But I believe that I have covered the significance of the pending regulation. There is a great deal of complexity and challenge in this area for our movement. I implore you to dig in, to learn, and to do what’s required necessary.

Engagement on the Board (and Committees)

Board Engagement

We can do hard things.

When there’s no boss in a group of peers, and there’s no paycheck tied to performance, how do you maintain engagement on the board (and committees)? Peer directors must hold each other accountable for the work that they do. But the real key is making sure that the work is meaningful and participants understand the impact they are having on the organization to fuel excitement.

By Kevin Smith

It hasn’t come up in a while, but recently at a board training engagement, I heard an old question. “Why do we use the term ‘volunteers’? Doesn’t that make this sound less important?” I’ve been through this debate a hundred times with people trying to name products and services for this audience. If you only say “board” it leaves out the supervisory and other committee members. So “volunteer” is the catch all term. But doesn’t this feel a bit like we’re filling boxes at the food pantry, or building houses with Habitat for Humanity? This is by no means any disparagement to this kind of work. It’s valuable and fulfilling work. But it really is a different kind of volunteering. Food pantry volunteering doesn’t have an oath and legal fiduciary duties.

What does it mean to be a "volunteer" at a credit union?

Sidebar: Unpacking the word “volunteer.”

And why am I bringing this up? Well, I’ve been approached several times recently to talk about how to get unengaged directors and committee members to step up their games. I’m hearing about volunteers that are not coming prepared, not being fully engaged, and worse.

So, what to do? After all, doubling the pay doesn’t have much kick. And there’s not really a boss. (No, the board chair has no more authority than any director.) You can, of course, remove a director, or ask him or her to step down. But let’s be honest, very few want to go this route. This requires a board vote that can be awkward.

There are rarely quick fixes. Here’s what we recommend you try:

Outline the expectations for the position in writing.

Make sure there are clear repercussions for not being engaged. This is a cultural issue. When the expectations are clear and written down it’s easier to hold each other accountable. And this doesn’t have to be confrontational or in front of the group. It’s usually up to the board chair to take on difficult conversations, but it doesn’t have to be. Have this discussion one on one. Empathize with the person. Find out if there are circumstances that are causing the disengagement and how the board can assist. But ask about and confront the situation from a place of caring. This helps to avoid anyone becoming defensive and angry.

Utilize board self-evaluations.

Self-evaluations set a tone that the board should always be improving, learning, and that you need to hold each other accountable. Set ground rules for this process: it’s not a “gotcha” session; the focus is improvement; and in general, when one or more directors says that they want to hear how they can improve, others will follow suit.

Be active and vocal about creating the right culture in the board room. 

The culture of a group will be absorbed by the participants. Don’t take anything for granted, and don’t let this be a passive element. Put it on the agenda and talk about it.

Remember:

  1. You may get what you tolerate.
  2. You have to have hard conversations sometimes. Keep it framed as the good of the credit union and the membership.
  3. The regulators are going to see this and it can be a problem for the credit union.
  4. Recruiting new directors should have a high bar with clearly written expectations. (And sitting directors must be living up to those expectations. No lip service!)

Unengaged volunteers are why the subjects of term limits and paying credit union directors comes up. These are two roundabout attempts at a solution for this problem. Both of these approaches can be problematic and very divisive. Create the culture that you want. It will not happen overnight, but the sooner you start, the sooner you’ll get there.

© Copyright 2022 - Site design by Sprout Studio in Madison, WI