Credit Union Board Succession: A Process Guide

A board, as a governing body, has certain responsibilities defined by laws, industry rules and regulations, and general policy. Board members are assessed and held accountable via elections and regulatory oversight for their performance in relation to these responsibilities, which commonly include:(1)

  • Ensuring the basis for an effective corporate governance framework
  • Preserving the rights of member/owners and key ownership functions
  • Ensuring the equitable treatment of member/owners
  • Preserving the role of stakeholders in corporate governance
  • Ensuring and engaging in disclosure and transparency
  • Carrying out the functional responsibilities of the board, which include:
    • Managing an effective board composition
    • Evaluating board and CEO effectiveness
    • Managing CEO compensation/oversight
    • Strategic planning
    • Establishing and maintaining board procedures
    • Engaging in board interaction
    • Reading and understanding board information
    • Establishing and maintaining organizational policies

Beyond the responsibilities required by regulation, rules, and policy, boards also have responsibilities related to the framework of board values and culture.

Because values and culture are unique to individual institutions, there is no “common” list of board values/culture responsibilities. This presents a major challenge to board effectiveness mainly because as values and culture are not easily identified, many boards do not fully understand (or cannot clearly communicate) the responsibilities associated with their culture. As a result, new board members are often chosen because of their skills relative to legal or regulatory requirements, but without much regard to the “cultural” skills they possess (or don’t possess, as the case may be).

For boards to be truly effective, board members must have skills that support the institution’s cultural requirements as well as legal and regulatory requirements.

When nominating candidates to run for available seats on the board of directors, a board must clearly communicate to all potential candidates during the nominating process or during regular credit union updates not only the skills required to live up to formal (legal/regulatory) board requirements, but also informal (values/cultural) requirements.

As a general rule, then, to ensure leadership continuity, a board must:

  • Clearly define the board’s values and culture;
  • Clearly define required formal and informal board skills;
  • Ensure that the nominating committee both knows the required skills and is capable of evaluating candidate qualifications in light of such skills;
  • Ensure that nomination criteria are regularly and effectively communicated to the membership.

The process Glatt Consulting recommends, outlined above, ensure two outcomes. First, the board of directors will develop a clearly defined catalog of the formal and informal skills required to be a functional, fully-engaged board member.

Second, the board itself will have a better understanding of its values and culture, an understanding intuitively known by long-serving board members but that is not formally documented in a way that makes for effective communication to potential board members and members of the nominating committee.

The following section includes additional information designed to guide boards through the succession plan decision-making process.

Succession Plan Decision Points

Board Values/Culture

Culture is defined as the “attitudes and behavior characteristic of a particular group.” Values is defined as “one’s judgement of what is important in life.” It is the shared values of the members of a group that combine to define the group’s culture.

Most boards have a unique culture, evolved over many years through the collective decisions made by its members. It is critical that a credit union board formally define, to the extent it can, what truly makes up this cultural.

Examples of board cultural identity defined by other Glatt Consulting clients include:

  • Ethical behavior
  • Consensus seeking (versus unanimity)
  • Professional skill diversity
  • Concern for members
  • Moral values

For clients, these types of cultural touchstones were further explained in one or two paragraphs to ensure clarity of meaning for both active board members and potential board recruits.

Board Skills

The board as a whole body must posses certain skills to be effective in carrying out its many responsibilities. Some skills are required by regulatory authorities, while other skills are specifically related to the unique values and culture of the organization.

It is important to note that every member does not necessarily have to possess each skill directly. Rather, it is the combined skill set of individual members that must equate to the full skill set required for effective governance.

Boards must identify the high-level skills that the board as a body must possess to be effective at governing, and to live up to both regulatory and cultural requirements.

Examples of board skill requirements defined by other Glatt Consulting clients include:

  • Prudence
  • Business Sense/Business Practices
  • Financial Knowledge
  • Interpersonal Excellence
  • Adaptability to Change
  • Critical/Analytical Thinking
  • Listening Skills
  • Political Savvy/Advocacy

As with elements defining cultural identity, these types of skill requirements were further explained in one or two paragraphs to ensure clarity of meaning for both active board members and potential board recruits.

Individual Board Member Skills

Individual board member skills can be classified into two categories. The first is generic governance skill, defined as the skill-set required for a board member’s active participation in credit union governance processes. The second is functional skill, defined as skill in a specific discipline that benefits or enhances the board’s overall capabilities. Each category is further defined below.

Generic Skills

Generic skills are those skills required for active participation in credit union governance processes, meaning skills or experience that every board member should possess.

Examples of individual generic skills/experience defined by other Glatt Consulting client’s include:

  • Experience in or knowledge of credit union business model/philosophy/history
  • Proficiency in general financial statement analysis

With regard to financial statement proficiency, most clients define that while it is preferable for prospective board members to possess required financial knowledge at the time of nomination, financial knowledge/skills for new directors will usually be trained during new board member orientation processes.

Functional Skills

Functional skills are a reflection of the skills from the previously-referenced listing of board skills that the board believes need reinforcement, or are necessary to further enrich the board, at the time of nomination of new board members. For example, if a board has defined Political Advocacy as a critical skill-set and at some point finds that no one on the board has defined experience in the inner-workings of political advocacy, then it will determine that the board’s collective knowledge is not as strong as it should be. The functional skills required, then, during the nomination process could be “current or past experience in political advocacy.”

Examples of functional skills other Glatt Consulting clients have deemed necessary to have represented by at least one board member include:

  • Human Resource Management
  • Finance
  • Business Management
  • Negotiation
  • Strategic Planning/Visioning
  • Political Relationship Development/Lobbying

Supplemental Factors

In addition to the cultural and skill components defined as critical requirements for board service, many Glatt Consulting clients also define other factors that might be used to supplement the evaluation and nomination process when multiple candidates are equally qualified according to the cultural and skill requirements defined above. These factors have included:

  • Board member geographic distribution;
  • Board demographic diversity;
  • Diversity reflective of the field of membership.

Boards must be careful in their implementation of such factors, and work to ensure inadvertent discrimination does not occur due to such factors.

Recruitment, Nomination & Orientation

Recruitment

Boards can engage in board member recruitment in a number of ways. The most common way credit union boards call for nominees is to issue a broad request for candidates. This process, however, tends to result in few, if any, candidates. When no one responds, boards tend to come to the belief that there are no willing volunteers within the membership ranks. When candidates do respond to such a broad call, they often lack appropriate or relevant skills – leading to the belief that the only choice is to maintain incumbent board members and/or approach “friends” of board members for service.

A more targeted, thoughtful approach to locating and nurturing potential board candidates does exist. Rather than issue broad calls for candidates, a board can maintain active awareness of, and documentation on, a broad listing of suitable candidates, and turn to these candidates for nomination to open board seats. In the interim, during such times when no board seats are open, these same individuals can be engaged with special projects and other advisory responsibilities as opportunities arise.

Process Steps

In order to maintain such a broad, informative listing of suitable board candidates, boards should engage in the following activities on a regular basis:

  • Regularly communicate clear expectations regarding board service to the membership, including include the basic components of board culture, required skills, and specific job responsibilities.
  • Regularly identify/solicit potential candidates.
  • Develop and maintain candidate/volunteer dossiers.
  • Regularly update candidate dossiers, amend candidate listing as necessary.

Process Responsibilities

A board must decide how to assign general recruitment responsibilities. For most Glatt Consulting clients, the following groups have some degree of process responsibility:

  • Credit Union Staff
  • Board of Directors
  • Nominating Committee

It is important to clearly delineate process responsibilities to ensure the process runs smoothly. In addition, boards will be wise to not over-delegate board member recruitment responsibilities to staff.

Nomination

At any given moment, and for many reasons, a board may be faced with an open board seat. The challenge for all boards and nominating committees in this situation is to ensure that the position is not only filled by an individual possessing the many skills required for service, but by an individual who is equipped to interact with the boards culture in positive, constructive ways.

If a board has defined the variety of skills and cultural requirements unique to the credit union’s board, and if it has also defined a methodology for maintaining broad knowledge of qualified candidates, then the board will be in position to use its knowledge to ensure that the best candidate(s) is nominated to serve when a seat on the board becomes available.

The following defines an effective nomination process, with consideration to utilizing the recruitment processes defined in the prior section:

Process Steps

  • Define skills required to fill outstanding board skill requirements. This step ensures that nominated candidates possess the appropriate/needed skills required for the board to function at its highest level. It involves having the board define for the nominating committee the functional skills the board requires at the exact moment new directors are to be nominated.
  • Review candidate dossiers (and unsolicited bids for board seats) to identify candidates possessing required skills. This step involves reviewing the up-to-date dossiers on potential candidates, seeking those with skill-sets that best match those defined in the prior step.
  • Schedule and hold interviews with prospective candidates to gauge interest, cultural fit, etc. This step involves discussing with potential candidates their interest and experience, as well as the credit union’s own expectations regarding board service.
  • Nominate candidates for board position(s)/engage in ballot process (utilize current credit union balloting procedures).

Process Responsibilities

A board must decide how to assign nomination process responsibilities. For most Glatt Consulting clients, the following groups have some degree of process responsibility:

  • Board of Directors
  • Nominating Committee

Nomination Scenarios

The responsibilities defined above are general, and not necessarily reflective of the “flow” of a nomination through the process. Nominations for board seats and other volunteer positions come about either through “normal” means, such as the end of a board member’s term or the creation of a new ad hoc committee, or through unexpected circumstances such as a sudden resignation. The flow of a volunteer candidate’s nomination for each scenario can be managed as follows:

  • Normal…
    • Board: The board recognizes the opening(s), defines its current functional skill requirements, and then informs the Nominating Committee of the opening and the Board skill requirements.
    • Nominating Committee: The Nominating Committee reviews the position skill requirements, and pulls from its dossier of candidates those that match the skill requirements.The Nominating Committee evaluates candidates, selecting the candidate(s) suited for the open position. The candidate(s) are then submitted to the Membership for review and vote.
    • Membership: The membership votes for the candidate(s).
  • Unexpected/Interim…
    • Board: The board recognizes the opening(s), defines its current functional skill requirements, and then informs the Nominating Committee of Board skill requirements.
    • Nominating Committee: The Nominating Committee reviews the position skill requirements, and pulls from its dossier of candidates those that match the skill requirements. Candidates are then passed back to the Board for review.
    • Board: The Board reviews and selects a candidate to serve as an interim member of the board until the end of the term/annual meeting. At that time, the interim member is incorporated into the “normal” nomination process.

Bylaws should be consulted to ensure this process is in accordance with credit union requirements.

Orientation

Though this process defined above will likely result in the selection of a board member already suited to the board’s cultural and skill-set requirements, it is nonetheless critical that incoming board members be formally acquainted with the board’s cultural and skill-set expectations/requirements.

Other Glatt Consulting client efforts have ranged from a simple meeting between the new member and the Chairman of the Board to more elaborate orientation programs that include some degree of training on financial statement analysis. In most cases, clients have wisely decided against delegating orientation to credit union staff.

##

Glatt Consulting offers assistance to boards interested in establishing the process and procedures defined in this document. Most often this assistance involves facilitating the discussions that lead to key decisions regarding culture and skill requirements, and documenting these decisions in a board policy format. In some cases, we will also assist credit union boards by managing the initial process of collecting and cataloging credit union member dossier submissions.

Fees are based on the scope of our assistance.

For additional information contact Glatt Consulting at (888) 217-5988 or via our online contact form.

(1): The principles outlined in the document are excerpted from the Organisation for Economic Cooperation and Development’s Principles of Effective Governance

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s