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Your Budget is a Statement of Values: Treat it with the Appropriate Diligence and Respect

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The annual credit union budget is a statement of its values, the things the organization thinks are important. The values in that budget should reflect (and be directly tied to) the strategic plan that the board and senior management has developed together. It is critical that the board have a clear understanding of how the budget has been shaped, and takes pains to make sure that it’s appropriate.

Kevin Smith

I’m pretty sure that the fact that I’ve picked May to write about the budget is some sort of Freudian avoidance of trauma approach given what I’ve been through. I’ll be curious to hear about how you feel about the budget cycle. You’ve gathered some insight as to my feelings. Here we are in May, headlong into the 2023 budget but pretty far from next year’s budget development. That feels pretty safe. But come November things get a bit more messy.

Politicians from all sides and businessfolk like to spout the aphorism, “A budget is a statement of values.” And I agree with this. Where you’re putting your dollars reflects where your priorities are. But I’m not always sure how closely board members follow this idea even when they agree.

Stereotyping

Here’s my broad stereotype from lots of experiences in this area: The board and senior management do their strategic planning sometime in the fall. Then not too long after, the CEO, after some voodoo, witchcraft, and pencil chewing with the staff in a secret room, submits a draft budget to the board that they will finalize by January. The board reviews the draft budget mostly by looking at the big round numbers on the right side of the page, and the amount and percentage that they went up from last year’s number. They ask a few questions for clarifications and it’s off to ratification/approval.

For Instance

Let’s play the “for instance” game. For instance, your strategic plan suggests that the organization is going to have to build a new focus on wealth management services for your older membership to keep them at the credit union. Building that out as a new service is going to require funds. The board should make sure that’s reflected in the budget.

For instance, the strategic plan involves a shift from front line staff to a heavier call center approach, but also a focus on sales and service. I’ve seen this one play out in a variety of ways where directors completely understand the amount of $ that goes to technology for the call center, but not get why the training budget has doubled and salaries for call center staff have to be raised. (Sales and service skills require a LOT of training and proper rewards.) Here’s the curve ball – six months later one rogue director yells after a trip to the lobby, “what do you mean we don’t have any money for MSRs?!?!” Because he hasn’t internalized the values that the budget reflects and are tied to the strategic plan.

What Should Board Members Do?

The review of the budget should be an exciting event, not a perfunctory task once a year met with a yawn. (I know. Some of you are skeptical.) The board’s efforts here are to ensure that the values of the organization are given the priority that you have discussed and agreed upon. To make sure that the budget is tied to the strategic plan in a noticeable way. It sounds like I’m inviting the board into the operational weeds to nitpick. Nothing could be further from the truth. This is a call for thoughtful analysis of the budget at a strategic level.

  1. Don’t underestimate the pain and suffering that may be involved when the staff creates a budget. Respect the process and the analysis they give you.
  2. Ask thoughtful questions about how the budget is tied to the plan, not just “why did line 12 go up so much?”
  3. Reel in your rogue directors if they aren’t getting this. (I know that some of you are thinking about how you understand this but there’s that one director on your board who just doesn’t.) It’s your job to hold them accountable and make them understand, for the sake of your CEO and staff.
  4. Make sure you incorporate ranges for results. The budget is not a crystal ball. This also means that you need to know how to adjust when the environment has changed along the way.
  5. Be prudent with the members’ money, which is not the same thing as being cheap with the members’ money. Support thoughtful investment and make sure that you understand what it costs to do business these days. (Versus comparing everything to the value of your first car, house, candy bar from decades ago.)

The annual budget is as important as the strategic planning process. In fact, they are intertwined. Often the budget gets short shrift. Don’t let your eyes glaze over in the volume of numbers in the spreadsheet. Get excited about the promise of value to the members that you instill in the budget and provide support to the CEO to execute this vision.

In Camera or Executive Sessions for the Board (Without the CEO)

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It is a good practice for each board meeting to include an in camera or executive session where board members can meet privately, without the CEO present. In camera is simply Latin for “in chamber” or private. These sessions provide the board the opportunity to have candid discussions without non-board members present.

By Kevin Smith

First, let’s deal with this wonky phrase, “in-camera.” This is one of those holdover Latin phrases that, like many others, are going by the wayside. So why am I still using it instead of simply “executive session”? The simple reason is that some non-profit boards still have an executive committee of the board, a subset of the full board. This is increasingly rare I’m happy to say, but there are a few. So, to call this an executive session can lead some to think of a meeting of that committee. What I’m talking about here with the phrase in camera is a meeting of the full board without non-board members (primarily the CEO) present. We can use both phrases here so long as you know what I’m getting at. (And I’m a sucker for anachronistic phrases in non-English languages.)

Why Hold In Camera/Executive Sessions

In camera sessions provide the opportunity for board members to have a space to speak candidly, to ask questions of each other that they might not be comfortable asking in a meeting with non-board members present. Consultant Christie Saas puts it this way,

When handled correctly, an in-camera session is used for private discussions about legal matters (fraud), hiring/firing of employees that report directly to the board, annual evaluation of employees that report directly to the board, and the annual audit.

When handled incorrectly, an in-camera session is used to gossip, socialize, or to intentionally exclude non-board members from being part of meeting procedures.

I agree with these comments, but would take this a bit further and suggest that these sessions are valuable beyond discussion of problems, like fraud or hiring/firing. They can be helpful places where are director can say that they aren’t comfortable with something, or if they have sensitive questions to ask, or simply to get a candid “temperature check” of how the full board is feeling about a topic.

What Happens if This is Rare

Let’s be clear – if the board only uses in camera sessions very rarely, or only for the difficult topics that Christie Saas suggests above, then the CEO is going to get the jitters as soon as its called. In these circumstances the session is going to appear to be a giant red-flag to the CEO. In our experience, it’s not uncommon for other senior leaders of the credit union to come and go from board meetings depending on the needs. They generally don’t see that as unusual. But on the other hand, we see CEOs who are involved with every minute of every board discussion. In many ways that makes sense given the complexity of our industry. So when the board calls an in camera session the hairs on the back of the CEO’s neck stand up in warning of trouble ahead. That’s not a healthy scenario, and the sessions shouldn’t always be about difficult or negative topics.

Some Guidelines to Consider

  • Add an in-camera session to every board meeting agenda. It can be short or uneventful. Or it may delve into significant topics. This regularity makes this an expectation that everyone gets comfortable with. It may also draw out more candid commentary from quieter board members.
  • To start the session, a director makes a motion that the board must pass to do so.
  • Take minutes in the session including deliberations and reasoning behind motions and votes. But these minutes are not included in the general board meeting minutes.
  • The general topic of the in-camera session should be in the board minutes; however, the content specifics are confidential.
  • The board can approve the in-camera minutes at the next open board meeting, but only by those who attended the sessions.

This approach will provide that transparency expected of a not-for-profit board while maintaining the confidentiality needed for the sessions.

And do yourselves a favor and give the CEO a heads up that you are going to take on this process and explain why. That way when it shows up on the agenda, they don’t immediately scream, “Are you firing me?!”

Who’s Doing the Talking in Your Board Meeting?

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Who’s Doing the Talking in Your Board Meeting?

Here comes the new “talking” audit.

It’s not unusual for the CEO to do the most talking in board meetings. But it’s critical to get the right balance of voices and to have input from everyone in the group. Paying attention to this balance and making some intentional changes can move the board and the organization towards greater strategic focus.

By Kevin Smith

Let’s do another poll and see what comes from the question, “Who’s doing the talking in your board meeting?” See below. You have to take the poll before you read on. Ok? Pinky-swear? And be honest. There are only three questions.

Okay, now that you’ve taken the poll, I’m willing to bet that it’s the CEO who does the most talking in most board meetings. It seems intuitive, doesn’t it? Let’s examine that more closely. Why is the CEO doing all of the gabbing? There are reports to give, detailing updates to projects, updating the numbers from last month, last quarter, last year. This is the person that the board entrusts with the operations of the credit union and the execution of the strategic plan. So, the CEO has the most to say. And if the board has questions, generally they go to the CEO (or a delegate thereof).

If you take this as “matter of fact”, then you’re probably asking yourself why I’m bringing this up. High performing boards and organizations spend their most precious limited resource – time – on strategic stuff, on strategic discussion. That’s not effective if there’s one (or two) voices that take up the largest chunk of the speaking opportunity.

The Common Scenario(s) That We See

What I gather all too often is that the CEO spends an extraordinary amount of time preparing for board meetings (another topic to dive into), where they are mostly reporting out about status and updates. Don’t get me wrong. This is work that needs to get done. But too often directors view the board meeting as simply a place for those reports and updates. Updates can be handled in other ways. Focus on the strategic, the future oriented and the discussion.

So, if you didn’t say that the CEO talks the most, then the next guess is the chair, or perhaps one misguided director who can’t help but talk constantly. At TEAM Resources, we look for those poignant board chairs who ask the right questions, quickly, and then spend more of their time listening and drawing everyone out.  And for that one offender with verbal-diarrhea – it’s up to everyone to let them know when to shut-up … respectfully. (We’ve all seen it one time or another, but too few of us will speak up to make it stop. Some of you have heard me railing on the problems of “Midwest Nice” lately and know what I mean.)

How To Deal With This

There are a lot of ways to get after this problem. (Yes. It’s a problem.) The first thing to do is take an audit of who’s doing the speaking and for how much of the time. You could do this secretly, I suppose. That way no one would modify their behavior knowing what’s going on. But that feels a bit sneaky and sly.

Next, you address any processes that are in place that reinforce the static unbalance of voices. This is all of the “this is how we’ve always done it” features that may not be obvious until you dig in and look carefully. This may be as simple as how the board agenda is structured to give all of the air time to the CEO.

Now, you talk about this as an issue. Give it air time and acknowledge that it’s going on and suggest that it could change for the better. This can be the chair, or any director, or the CEO. Anyone who notices. It may take a bit of gumption to bring it up.

When everyone agrees that this could be more balanced, you decide how it’s going to be addressed. Keep in mind that not everyone who is typically quiet is going to speak right up. It may take time to work up to this. Remember that introverts do NOT like to be put on the spot. They like to have time to think things through and craft a response. So issues may need to be teed up before the meeting for people to prepare. (Do you know who on the board are introverts, ambiverts, or extraverts? Or do you just presume? You might be surprised.)

The Elephant in the Room

Now, I might get some blowback on this, but here goes nothin’. I’ve seen some, and heard about plenty of CEOs who intentionally take up all of the oxygen in a board meeting. The goal is to stall, deflect, divert, obfuscate, all in order to keep directors away from hard questions, or things going awry. It’s a well-known tactic. By monopolizing the time, they can control, well, pretty much everything. I didn’t say this was ALL CEOs, nor is it even a LOT. But if I’m here to educate, then I have to relay the red flags so you know what to watch out for. 

Shake Up the Status Quo

Now – all of those CEO updates and reports: Consider how those might get handled in a different way. They could be written, or recorded. And for cripe’s sake, if they’re written out, don’t make the CEO go over them again at the board meeting! Set the expectation that everyone will do the necessary preparations and come with thoughtful questions. [Please don’t mistake this as an effort to shut down the CEO and shut them up. This is about the balance of voices.]

These steps help you to influence the culture of the boardroom, to move out of the status quo, to move towards the strategic. Directors have a job to do that is more than just oversight; it’s about setting strategy and having good discussion. That can only happen with a multitude of voices. Are you willing to take a closer look at who’s talking in the board room (and for how long)?

What am I missing on this? What do you want to argue about? What’s your “yeah, but …”? I wanna hear. I wanna discuss.

When I Worry About Credit Union Board Members …

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Credit union board members are dedicated volunteers for the credit union movement. They are the embodiment of the CU adage, “People helping people.” As the job gets more difficult and more complex, it’s my job to worry about directors and to figure out where they need help and how to help them. I look around to get help in this endeavor myself.

By Kevin Smith with a little help from some trusted friends.

I worry. I’m a worrier. It got so bad in my early days of grade school that my mom set an ultimatum. She told me, “You’re not allowed to worry about something unless I tell you to.” It didn’t really take, but she was trying hard. Those lines on my forehead (that I try to hide in my pictures), showed up very early in my life. So, yes, I’m a worrier. And naturally, since I care so much about credit unions and credit union board members, I worry about you.

Now … this blog post comes off as negative here. And some of you are going to get your feathers ruffled and clap back with, “I/we don’t do that! How dare you?” Please keep in mind that I’m painting with very broad strokes. I’m generalizing. I’m not calling you out specifically. But I spend time with hundreds and hundreds of board members each year, and some things show up as trends. If my worries below don’t represent you, huzzah! Celebrate. But keep your eyes open, and don’t get complacent.

You’ll also notice that I have included some other people’s worries as well. I reached out to a handful of people that I like and respect to see what they had to say on the topic and have included them (with their permission) as well. (I don’t want you to think that Worry-wart-Kevin is the only one who thinks about this and has concerns.)

When I worry about board members, I worry that …

  • They’re not always honest with each other about performance.
  • They aren’t willing to have difficult conversations (see above).
  • They don’t understand the financials and business models of credit unions well enough.
  • They underestimate the challenge of CEO succession planning.
  • They will judge their members’ use of credit and other products rather than serve the actual needs of the membership. (“I would never overdraft, or let my credit score drop, so why would they?!”)
  • They don’t put in the appropriate effort to do the job (because they’re just volunteers).
  • They don’t have a clear enough understanding of the complexity of the business.
  • They don’t separate their own professional backgrounds that are sometimes less complex than CU business.
  • They undervalue ongoing education about the industry.
  • They don’t make enough, or the right targeted effort when trying to recruit new directors.
  • Sometimes the response to problems is “we’ve tried absolutely nothing and we’re all out of ideas. (see recruiting)
  • They don’t spend enough time on the job (that gets more complex everyday).
  • They don’t share the absolute passion that they have for credit unions far enough.

Tim Harrington, TEAM Resources

  • They don’t get the urgency for change.

(I don’t need to introduce you to Tim. But he was my first mentor in the credit union governance space and I owe an awful lot to him.)

Don Arkell, CU Lending Advice, LLC, https://culendingadvice.com

  • That coming into an economic downturn, they will overreact to ordinary credit losses.
  • That they will come back from a conference and derail a plan for the business that was previously agreed upon with management.
  • That they will look to the wrong metrics to measure success.

(Don is our “go-to” guy when we have questions about lending or if we need to refer people who need some help. He’s fantastic. He really knows his stuff. He’s been tremendously generous with his knowledge.)

Steve Rick, Chief Economist, CUNA Mutual Group (And credit union board member) www.cunamutual.com

  • That as the baby boom generation of board directors retire, the turnover/churn rate of directors is rising.  The new board members do not possess the same level of institutional memory of the credit union nor the commitment to the credit union that the prior generation may have exhibited.

(I used to work with Steve at CUNA and he was instrumental in my learning and understanding the complexities of the CU movement and the greater economy. I can’t tell you how much I learned from him while working with him on the CUNA Economics & Investments Conference and then bullying him into doing a monthly video series.)

Matt Fullbrook, Ground Up Governance, https://groundupgovernance.substack.com

  • That they don’t all walk into the boardroom with a clear and common understanding of what good governance even means, let alone how to be a great director.

(I stumbled across Matt’s name in a report by Filene.org years ago and made it a point to follow him and read as much as he would print. He’s helped me add tremendous layers of nuance to our governance approach and my understanding. Matt has a new thing going with Ground Up Governance. You HAVE to check it out. It’s tremendous, and often very funny! Who knew you could do that with non-profit governance? And BTW … he’s a hellva bass player. You need to look up his band too!)

Mark Arnold, On the Mark Strategies, https://www.markarnold.com

“When I worry about credit union board members, I worry about three issues:

  • Alignment—do they believe in the direction senior leadership is taking the credit union? Please note there is a difference between consensus and alignment. A healthy board does not agree 100%. But a healthy board is aligned.
  • Clarity—does the board know where the credit union is going and does the board know what makes its credit union different (without using the words service, member or community). If the board does not know the return it is getting from marketing, they should consider conducting a marketing assessment. 
  • Communication—how well does the board communicate with each other and with the CEO? And how much time are you spending communicating about strategic rather than tactical items? Successful boards communicate about strategy and don’t spend much time discussing minutia.” 

(I’ve known Mark since way back. I hired him a couple of times for CUNA programs and quickly learned how sharp he is. He’s the kind of guy that I’d ask for an email with a couple of sentences of advice and he’d set up a call and talk to me for an hour. When it comes to marketing and branding, that’s who we turn to and refer to. He’s a mensch. I hope that as a Texan he knows what that means. 😉 )

What do you worry about when you worry about credit union board members? We want your input as well, those of you who are out there in the trenches experiencing this on the daily. Share your stories, because we will learn from it. We will help each other to get better all the time.

Don’t Go Back: Boards Returning to In-Person Meetings

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After Covid forced boards into virtual meetings, directors learned to adapt. But just because we can, doesn’t mean we should require everyone to meet in person again. There’s value in keeping flexible with virtual and hybrid meetings. Make sure you’re doing what it takes to make them work effectively.

By Tim Harrington and Kevin Smith

We recently received several questions on the topic of hybrid, in-person and remote board meetings. Running a two-day governance workshop recently, this topic popped up and became a lively discussion in the room with 36 directors. Coincidentally enough, we received the same question from a director via our website almost at the same time. It’s certainly bubbling about in the air these days and our approach to this may surprise you.

What We’re Seeing

Here’s a synopsis of what we’re seeing:

  1. A few boards are moving back to in-person only. But they are the minority.
  2. Most boards are using hybrid meetings where members can choose how they attend: in-person or virtual. This requires the board meeting room to have cameras, screens, microphones and speakers that allow all to hear and be heard. 
  3. Some are moving most meetings to in-person with several, scheduled virtual meetings per year.
  4. A few are moving to mostly virtual meetings with a few in-person per year
  5. We don’t know of anyone who is remaining totally virtual.

The most common we see is the hybrid option. Along with this method, boards are adding a policy requiring directors to be physically present for several meetings during the year and at the planning session. This is to allow for the human interaction that can only occur in near proximity. 

A few boards who are going hybrid have actually scheduled several required, in-person meetings. This means that at two or three meetings per year, all of the directors are present in-person.

This is the Modern World

We strongly recommend that the boards go hybrid. This is the way of the modern working world where employees meet regularly via virtual meetings. If you want to attract and retain younger directors, we believe this is a requirement. Otherwise, they will see the board as not meeting their needs. 
Digital and virtual are the new norm in the world. It is important for boards to recognize this and embrace it.

How to Make This Work

Don’t misunderstand us. We know that as the world has worked, in general, face to face meetings generally yield better results. We agree with that. But as a practical matter going forward, hybrid meetings offer a lot in the way of flexibility for board members. This is good for diversity, for recruitment and for boards in general when you can make it work.

And here’s the deal – you have to make some effort to make this work. It’s not going to happen by accident. And you know very well by now that simply plopping things into Zoom or whatever hybrid approach you’re taking, and running things like you did in the “good old days” of the beforetimes is a recipe for failure. Hybrid meetings require adaptations so that everyone can get the most out of them.

Considerations for improving hybrid meetings

  • Spring for decent equipment: cameras, microphones, displays, etc. (Don’t simply “make due” with what you have or get the cheapest options held together with duct tape.)
  • A great big monitor in the boardroom (or at your desk) can let you continue to see body language and facial expressions from participants on camera.
  • Set expectations for learning and using technology. No, it’s not perfect. But we’ve all been in the meeting with the one guy who still can’t find the mute button and know how frustrating it can be. Everyone must take the time to know how to do this smoothly.
  • Part of these expectations are about giving your full attention to the meeting as if you were there. We’ve heard too many stories of people making dinner during the hybrid meeting, or having people in and out of the room. These are unacceptable.
  • Adjust your approaches for having discussions –
    • Hold up a post-it note if you want to talk (and avoid talking over each other)
    • Get a sense of the room with 0-5 hand votes. (“How comfortable are you with this proposal? 0-5. Everyone votes on the count of three.”)
    • Make sure to bring in the voices of those not there in person. Being hybrid is not a license to be silent.
    • Participants – be broad with your head nods for yes and no, you’re thumbs-up or down, and your palm to the camera for “wait.” Don’t be subtle here.
    • Get presentations done before the board meeting in writing or on video and set the expectation that everyone will be prepared and submit questions ahead of time. Be efficient with your meeting time.
    • Be flexible in the time of day for meetings.

The Chair’s Job

Much of this is under the heading of meeting facilitation which we generally put on the shoulders of the board chair. This is appropriate. Chairs – this is the job you signed on for and it takes a bit more work in this setting. However (comma) we don’t believe that ALL of this HAS to be on the chair’s shoulders even if technically that’s where it lies. ALL directors should take on some responsibility for holding each other accountable and for making an effort to make this work.

Removing Limitations

We believe that with a little effort that hybrid meetings can be just as effective as your old-school in-person events. We caution you about rushing back to strictly enforced all in-person events simply because it’s what you know and are comfortable with. Your adaptability will have an impact on who you can recruit for the board and flexibility for how you get things done.

Playing the Dandelion Card, or Keeping Meetings Out of the Weeds

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Staying at the strategic level and avoiding operational micromanaging is a significant challenge for most boards. This can and should be addressed with systems to prevent it from happening and wasting valuable meeting time.

By Kevin Smith

Some of you have heard me talk about the E.L.M.O. card. If you haven’t, you can go here to catch up. But essentially the acronym is for: Enough. Let’s Move On. It’s a way to stop conversations that are repeating and no longer useful, that are simply taking up time. By playing a card with our furry red friend’s picture on it, you inject some humor into the process and (hopefully) not hurt anyone’s feelings. It keeps things moving.

I’ve been thinking about this and I think it’s time to add another card to our repertoire, and to our board packets: the dandelion card. You see where this is going, don’t you?

An Issue for Most 

A significant issue that many (most?, all?) boards face is the slippery slope where conversations migrate from the strategic and the big picture to the operational and into the “weeds.” I’ve been to my share of board meetings and I facilitate a lot of strategic planning sessions as well as board training sessions. And I’ve yet to attend one that didn’t drift into the weeds at some point. Some dramatically worse than others, but every one of them at some point or another. It takes a great deal of diplomacy and gentle directing to keep things on track. It’s not easy, because board members head that direction very quickly.

Board members and CEOs, and committee members, and staff members, and board liaisons all warn me about it ahead of time, and complain about it during breaks. And some groups are more self-aware of it than others, acknowledging that they have this tendency “on occasion.” I can respect that and work with it. It’s the groups that tell me that they never get into the weeds that I watch out for, because they are usually the worst offenders. They don’t recognize when they’re doing it.

Playing a Card

That’s where the Dandelion Card comes in. Much like the E.L.M.O. card, everyone on the board would get one laminated card with a picture of a dandelion on it to go in their board packet. When the conversation takes its slide into operations, a member can throw the card to call that out. And I’m going to make a controversial addition to this by saying that the CEO should have one (or six) to throw as well. Why is this controversial? Because many CEOs I work with tread lightly on this territory, never wanting to step on any director’s toes with this, even though they desperately want to. It takes a lot of trust in the room for the CEO to be able to do this.  

If there’s an issue, then the people involved need to do something to address it. Things don’t just go away on their own. Most that I deal with take this slide into the weeds as just something to grit their teeth and suffer through, taking it as inevitable and the cost of doing business with a weird group known as a “board of directors.” But it shouldn’t, and doesn’t have to be that way. I’m encouraging YOU to do something about it. Put systems in place to address the circumstances.

No Magical Solutions – But Progress

Now, a laminated card with a dandelion on it is not a magical solution that will make these conversations dissipate and go away. I’m not that naïve. But what it does is bring the topic to the table for discussion. It gives you permission to talk about this as something that can be or is a problem. You push for agreement about what the parameters are for strategic versus operational. Write this agreement down and use it for reference. This goes a long way towards improvement. And hopefully, using a silly card will bring some levity that makes it easier to deal with. I see too many people who are unwilling to say anything about topics like these for fear of hurting the feelings of their colleagues, which is very nice and noble, but not very helpful for the efficiency of the organization.

It also won’t go away overnight. It will take some time. But it moves you forward.

(BTW – I had to stick with the word “dandelion” here rather than weed. You can guess what happened when I did an image search for “weed.” 😉 )

Now, let’s do a poll to see how we rate on this topic!

Cognitive Bias in the Boardroom

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Cognitive bias in the boardroom is a danger to decision making. Boards can (should) mitigate the effects of this by understanding it and calling attention to where it can and does come up in the board room. As a group, directors can hold each other accountable and address bias. A learning board will create systems to counter heuristics that can introduce “sever and systematic errors.” 

By Kevin Smith

Boards of directors are not immune from the effects of cognitive bias any more than any other humans. In fact, the group dynamic of the board room of equals my just up the ante on this issue. Do you know where you’ve had cognitive bias in the boardroom? It’s time for some reflection. 

What is Cognitive Bias

Here I’m going to use the definition from Gleb Tsipursky, PhD. (There are many similar definitions with nuanced differences in this fairly new area of science.) Cognitive bias is “a predictable pattern of mental errors that result in misperceiving reality and, as a result, deviates from reaching goals, whether in relationships or other life areas.” This comes from The Bind Spots Between Us (2020).  This is different than social bias, which is learned and is between different groups and is specific to societies. Cognitive bias is common to all of humankind. It’s hardwired in our brains.

The idea of cognitive bias was introduced by Amos Tversky and Daniel Kahneman in 1972 and grew out of their experience of people’s innumeracy, or inability to reason intuitively with the greater orders of magnitude. Tversky, Kahneman, and colleagues demonstrated several replicable ways in which human judgments and decisions differ from rational choice theory. This discovery grew and developed the science of Behavioral Economics. It’s a relatively new and still unfolding.

https://en.m.wikipedia.org/wiki/Cognitive_bias

The Benefits … may have mostly wanedCognitive Bias Codex

The mental shortcuts, or heuristics, developed as part of our brain’s evolution. In simpler times they helped us make quick decisions that kept us from dying. But that was a different environment than our very modern and complex societies. Nonetheless, our brains are still wired this way, which can push us to decisions that are not supportive of our goals.

There are How Many Cognitive Biases?!

As of a 2020 Wikipedia page, there’s a great illustration of 188 cognitive biases. (Included here. Click it to make it larger.) There are surely more by now. Rest easy. We’re not going through all of them here. But this demonstrates the wide way that these biases can impact our lives and decision making. And studying these can provide great insights to decision making issues in every facet of our lives. Understanding these can help you to counter their negative effects.

What Do Directors Need to Pay Attention To?

So, what is it that directors need to pay attention to in the context of the role of the board of directors? Well, if you listen to Matt Fullbrook of Ground-Up Governance (and you certainly should!), his definition of good governance is “actively creating conditions that are likely to result in an effective decision.” So directors need to examine these biases, understand them and then reflect on how they have, or could, or will, come into play in the board’s decisioning. Identify where you may have already been guilty of succumbing to bias. Then ask what can be done to prevent this going forward.

A Truncated List of Cognitive Biases

Of course, we can’t go through every cognitive bias here. And some of them will be more relevant than others or not relevant at all to the credit union board space. But I’ve identified a short list here that I invite you to review and reflect on. These are things that I see coming up regularly as issues in the credit union space based on the number of board rooms I’ve been in, the number of planning sessions I’ve led, and the number of directors I’ve talked with over the years.

Anchoring Bias

The inability of people to make appropriate adjustments from a starting point in response to a final answer. It can lead people to make sub-optimal decisions. Anchoring affects decision making in negotiations, medical diagnoses, and judicial sentencing.

The Bandwagon Effect

The tendency for people to adopt certain behaviors, styles, or attitudes simply because others are doing so. (Fashion trends are a good example; or remember the GameStop stock event?)

Blind Spot Bias

Recognizing the impact of biases on the judgment of others, while failing to see the impact of biases on one’s own judgment.

Confirmation Bias

The tendency to search for, interpret, favor, and recall information in a way that confirms or supports one’s prior beliefs or values. People display this bias when they select information that supports their views, ignoring contrary information, or when they interpret ambiguous evidence as supporting their existing attitudes. The effect is strongest for desired outcomes, for emotionally charged issues, and for deeply entrenched beliefs.

The Framing Effect

Where people decide on options based on whether the options are presented with positive or negative connotations; e.g. as a loss or as a gain. (Think of marketing that says “95% Fat Free!” rather than “5% Fat.”)

Frequency Illusion (Baader-Meinhof Effect)

After noticing something for the first time, there is a tendency to notice it more often, leading someone to believe that it has a high frequency of occurrence. It occurs when increased awareness of something creates the illusion that it is appearing more often. Put plainly, the frequency illusion is when “a concept or thing you just found out about suddenly seems to pop up everywhere.” (It’s happened to everyone who’s bought a car and now sees that car everywhere!)

Sunk Cost Bias

People demonstrate “a greater tendency to continue an endeavor once an investment in money, effort, or time has been made.” Such behavior may be described as “throwing good money after bad.” (This bias plays on at least five other psychological factors at once.)

Zero Risk Bias

A tendency to prefer the complete elimination of risk in a sub-part over alternatives with greater overall risk reduction.

This last one plays heavy on my mind as I work with credit union boards. We are a very risk averse movement. But sometimes we don’t help as many people as we can because of this aversion.

And I have my favorites: the frequency illusion or Baader-Meinhof Effect. This fascinates me. I also think that the Dunning Kruger Effect is a big deal. No. That’s not on the list above. I’m going to make you look that one up.

What to do About This

Awareness is key. Simply knowing and understanding these can mitigate the effects. But you can also put structures in place for your board meetings and decision-making processes to call attention to these. Before making a big decision, call some of these out and make a conscious check that you are not falling prey to your minds subconscious heuristics.

Here’s my challenge to you: At the start of the next board meeting, ask the room, “have you ever heard of Sunk Cost Bias? Do you think we’ve ever been caught by this?” Then have a conversation.

Resources

I refer to Dr. Tsipursky’s book above.  He makes some recommendations for De-baising Techniques:

  1. Identifying cognitive biases & making a plan to address them
  2. Delaying our decisions & reactions
  3. Probabilistic Thinking
  4. Making predictions about the future
  5. Considering alternative explanations
  6. Considering your past experiences
  7. Reflecting on the Future & Repeating Scenarios
  8. Considering Other People’s Points of View
  9. Getting an External Perspective
  10. Setting a policy to guide your future self
  11. Making a Pre-commitment

And I follow Graeme Newell (Better Decisions Through Brain Science). He does a great job of explaining these things in a way that helps you take action. Check out his work here.

 

Protect Your Board Meeting Time & Agenda Like a Mama Bear!

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The time at the board meeting should be carefully thought out and protected as the limited and valuable resource that it is. Boards that meet once a month for about two hours need that time focused on the most strategic and the most valuable items. Not on operational details, updates and review (rear view mirror) items. 

by Kevin Smith

That’s right! Like a mama bear protecting her cubs. That’s how fierce you should protect your board meeting time and agenda. Modern credit union boards that I work with generally meet for a couple of hours once a month. That’s not a lot of time. Boards need to use that time very wisely. It’s a scarce resource. The idea that things have become more complex is so commonplace that it’s an overwhelming cliche now. But it’s true, which makes the need to protect the agenda and the time all the more critical. Don’t let “busy work” get in the way of “important work” and discussion at the highest level.  

What Happens a Lot

When we survey boards about board time use (“Do you focus on what’s important and strategic?”), we get a regular “oh, yeah, sure we do.” But what we observe, and what the one-on-one conversations tell us is about the amount of time spent on the trivial, the operational, or on the distractions. We witness it first hand often enough, too often. There’s a lot of good intention here. But also a lot of slippery slopes about what’s important. 

Many board meetings are taken up with updates on projects, or extensive reviews of last month’s or last quarter’s numbers. There’s time spent reviewing policies and updating them. All of this is required by the board, and it’s necessary work. But does it need to happen during the limited time of the board meeting? (Pssst… the answer is “no” unless there are concerns or discussion needed.) CEOs and CFOs spend an awful lot of time giving verbal updates during board meetings, taking up valuable time for strategic discussion. (See below.) 

Often, board members aren’t as prepared as they should be for meetings. This results in people needing to rehash or explain things, taking up valuable time for strategic discussion. 

What Should Happen

First things first: adopt the consent agenda if you haven’t already. It seems like most have done this. It’s a huge time saver and it keeps things focused. However (comma) this only works if everyone does the preparation and the pre-reading. If members aren’t fully prepared for the consent agenda, then in reality you are just skipping things. You must hold each other accountable for coming prepared. 

Do as many pragmatic things as possible in between board meetings. Use your board portal and electronic tools as much as possible. (Again, hold each other accountable for doing this.) There’s a lot of review that directors do via the portal electronically before the board meeting. 

Have the CEO and any other staff members giving an update record these updates via video. (No, don’t have them write these updates because it will take them too long and you’ll doze off while reading them.) Make sure that you communicate to them that these videos should be casual, that they don’t have to be rehearsed or take too long. This should be the same thing they’d do in the meeting, just done ahead of time. Board members MUST review these and send their questions before the board meeting. (Accountability!) 

Structure your agenda so that the strategic discussions come early and have time allotted for them. There’s nothing worse than having several updates, or pragmatic issues “run long” and take up the time of a strategic discussion and cut it short (so that the meeting can be done “on time.” 😕 )

What Isn’t Going to Happen

Things aren’t going to get easier. They’re not going to get less complex. They aren’t going to suddenly take less time. But you CAN protect the meeting time and the agenda for the best work. 

If this all sounds like a lot of work or too much work, I’m not going to mince words: then this isn’t the right job for you. (Yes, it’s a job, even if it doesn’t pay anything.) Credit union board work is harder and more complex than it used to be, requiring the right kind of skill, focus, and, yes, time. We can not expect things to be like they were in the “good old days.” 

Let’s face it – strategic discussion is the most rewarding work of the board. You can structure things so that they’re as efficient as possible. You can hold each other accountable for doing the work in the best time and place. And you can improve the performance of the board. We all need to aim high. It’s a fabulous job worth doing. Our members need us. 

P.S. 

Check out the interesting results from last month’s poll about Boards Behaving Badly! It was interesting to see how spread out the results were. None of these personalities seems significantly more pervasive than the rest. As of this writing we had 96 respondents. Go ahead and keep adding to it! Make sure you check as many as you need and click the “Show Results” button on the bottom. 

As always, we encourage you to leave comments. 

Boards Behaving Badly

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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!

“Nice” Can be Deadly for a Board

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Nice Can Be Deadly to a Board

Midwest Nice, Board Culture & What to Do with Evaluation Results

Great board culture is more than simply having everyone “get along,” and having good discussions. It requires mutual accountability, a culture of ongoing learning, and increased complexity. Boards that want to thrive must move past old school habits of collegiality and evolve to higher performance.

By Kevin Smith

 

When I ask board members how things are going in the boardroom. Mostly I hear about how well the board members and the staff get along. Now, I presume that everyone is familiar with the concept of “Midwest Nice,” but just in case you’re not, or you need a good refresher, have a look at Charlie Berens’ work here. I grew up in Ohio and live in Wisconsin. I’m steeped in Midwest nice, which has many, many wonderful aspects. But here’s another truth: Nice can be deadly for boards.

The Irony of Collegiality

Yes, there’s a healthy dose of irony here to deal with. Of course we want and need directors to be collegial, and to get along, and to enjoy working together. But this goes too far when the result is a lack of accountability.

The Boardroom is Tricky

We already know that the boardroom can be a tricky space. There is no hierarchy in this space, no boss. (I’ve talked to a few of you board chairs that really believe that you are the monarchs of the board. Consider this a less than gentle reminder that you’re wrong about that.) The board is a group of equals set out to represent the membership, to set strategy, and provide oversight. No individual director has any authority outside of the collective decisions made by the board. This is our superpower, but not without some kryptonite. Most of us don’t come to this setting with great experience in governance and collective decisions. Most of us come from backgrounds with ingrained hierarchies. This can be a problem in holding each other accountable. This is where my struggle with Midwest Nice comes in.

Two examples that I’ve come across:

  • At ABC Credit Union, everyone on the board and management team knows that board member X is not up to the task. But board member X will continue to be on the board because it’s an issue that no one has confronted or dealt with.
  • At XYZ Credit Union, the board is dedicated to improving board diversity, they have a strong set of policies and high expectations for directors for engagement and ongoing education, etc. The problem is that “many board members don’t know when it’s time for them to step down of their own accord.” But they don’t want to have term limits. They just want people to “know.”

I could write down dozens more examples. Directors who fall asleep. Board members who are clearly not prepared. Those who ask questions that are waaaayyy off topic and cannot be reigned in. (Feel free to comment or to send me your versions. I love these stories. I believe in the power of the cautionary tale!)

Too often, it’s the wonderfully human “nice” in us that prevents these circumstances from being dealt with. That coupled with the structure of this group of peers makes us not to deal with anything that feels like confrontation, particularly among equals. This version of “nice” also prevents people from speaking up, and for festering groupthink. Nice can be deadly to a board.

This isn’t about confrontation. This isn’t about being mean. This doesn’t have to sour the tone of the boardroom and make people less friendly. This is about accountability and making sure everyone is doing the job to the standard that is required for a modern board, to the board’s expectations. And in the board setting, that means putting systems and policy in place to create the guardrails.

How To Do This

Written Policy. You’ve heard me say this before, and I’ll keep harping on this: write it down as policy. The board has to ratify policy with a vote. When it’s codified, everyone has a tool for holding each other accountable. It’s not personal; it’s about the policy that we agreed upon.

Board Evaluations. Again I will repeat myself. Annual board evaluations can be a tremendous help in this regard. I’ve been beating this drum for years. Still there aren’t enough boards incorporating evaluations. Part of this is that it can feel like confrontation and a lack of “nice.” I also have a word of caution for those of you who ARE using board evaluations. (First of all, kudos to you for doing it. Really!) Make sure you’re doing something substantive with the results. Evaluations are not just for patting yourselves on the back for a job well done. This is for finding ways to improve and identifying those areas. Ergo, you must follow up the evaluations with an action plan for improvements.

(True story: I once went through a stack of almost ten years of evaluations from a single board. Without fail, one board member is highlighted year after year for his lack of preparation, his constant comments about operations, sleeping in board meetings, etc. Yet, he’s still on the board.)

Evaluations don’t mean anything if you don’t use them for improvement. But the tendency is to use defer to “hope” in the evaluation report. That is, to “hope” that particular board members will see themselves and their failings in the report and self-correct. That does happen, occasionally, rarely. The better approach is to use the evaluations as the tool, the catalyst for human conversations in the interest of improvement. “What can we do to be better?” Which must be followed with a written action plan.

There’s a lot of talk about culture in organization and in board rooms. Creating culture is an ongoing effort with no finish line. My experience tells me that the culture in board rooms is entrenched and slow to change even with the most strident of efforts. It can be done though. My struggle is with wanting a too vague notion of “culture” and hope to solve problems that arise as part of “nice.” And for people to just “know” (as a result of that robust culture) when it’s time for them to step down, or to change their habits. Again, it can be done. What I’m saying is that tools like written policy, and evaluations with action plans, among other things are part of that culture building process that provide guardrails for accountability. This approach can maintain the “nice” while pushing the board forward.

The expectations for credit union boards is not going to go down. Our responsibilities are too significant and increasing in complexity. This requires evolution and progress from everyone including the board.

And finally, before I sign off, make sure to tell your folks I says “hi.”

Dedicated to YOUR Success . . .

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