Boards serve as the backbone of credit unions—they secure decisions, set values, and map the path forward. As credit unions encounter shifts both internally and externally, including leadership turnover, evolving member needs, heightened regulatory pressures, the rapid digitalization of financial services, and an increase in merger activity, boards bear the responsibility for guiding necessary adjustments in people, processes, and protocols as needed to uphold the credit union’s mission and relevance.
Effective board governance situates the credit union board as the locus of dependability, even in times of crisis and change. Therefore, it is essential to the sustainability and health of the credit union to think critically about board governance, including board evaluation practices, renewal processes, and board composition. Filene has resources highlighting opportunities for credit unions to strengthen their approach to governance.
Foster a learning board
Our research has identified two opportunities for enhancing your board’s functionality and ability to learn. The first is board performance evaluations. Board directors benefit and grow from regular, formal evaluations. Some examples include annual effectiveness surveys, formal reviews of the chair, feedback from management, and even dedicated sessions during board meetings to assess what is working and ways to improve meetings. These processes ensure that boards are learning, growing, and identifying opportunities for improved effectiveness.
The second opportunity involves the CEO-board relationship. Regular, effective CEO evaluations are positively correlated with financial performance. Moreover, there are also ways to address the inherent tensions in every CEO-board relationship that are better when actively managed. Credit unions should encourage a culture that mitigates tensions and promotes trust and accountability. Ongoing communication and transparency between CEOs and board directors are key.
Develop renewal and succession planning
Board renewal and succession planning are always concerns, but these have come to the fore in recent years. Credit unions are vulnerable during changes in board directors and CEOs; failing to transition smoothly and successfully could negatively impact organizational continuity. The board’s responsibility to recruit, develop, retain, and prepare for the departure of key personnel is essential, and can affect the credit union’s performance.
Formal board renewal processes are not common in the credit union system—60% of credit unions do not perform any type of evaluation and 25% have no process in place for removing underperforming directors. The National Credit Union Administration recently approved a proposed rule that would require boards of directors to establish processes for succession planning. The proposed rule serves to ensure that credit unions have plans to fill the positions of officers of the board, executive and supervisory committee members, and management officials. All credit unions should endeavor to develop and implement protocols for renewal and succession that best serve their needs and develops clear guidance for planning and execution.
Our research reveals that instituting formal board renewal processes are important. A structured approach often includes formal board evaluations and a process for removing underperforming directors. One fundamental step a board can take to ensure effective board renewal is to delegate responsibility for renewal oversight to an independent committee. The committee can undertake unbiased skills assessments of board members, identify gaps and opportunities for improvement, develop continuing education opportunities for directors, and deliver orientation processes for new directors.
Diversify board skills and clarify roles
Board renewal processes also open the gates to allow for improved board composition that can better optimize the skills that each director brings. Many credit unions do not recruit based on specific skills. One exercise to monitor board skills is building a skills matrix that helps illustrate areas of strength, redundancy, and emerging gaps. In terms of roles and duties, some credit union board directors might not have full clarity or understanding. There are opportunities to define duties and align skills with the credit union’s needs, and to invest in educating and training board members.
Beyond skills, our research found that certain character traits have proven to be more valuable in the boardroom than most credit unions realize. More than any other skill or trait, board directors benefit most from independent mindedness. Additionally, willingness to speak out and an ability to change one’s mind also help enhance participation and board decisions. Boards can intentionally create opportunities to support these traits. Typically, boards with various perspectives, experiences, networks, and opinions are better equipped to engage in strategic planning and effective decision making.
Board composition should reflect member composition
Nearly 40% of credit union boards admit that their current board renewal processes have not led to effective board composition. Boards can best serve and protect the interests of members when they reflect member composition. Additionally, demographically diverse groups are more likely to make effective decisions. There is evidence that the presence and relative proportion of women on boards are positively related to firm valuation and performance.
Currently, the typical credit union board is over 90% white and averages over 50 years in age. Board composition does not often represent the changing demographics of credit union membership. There is room to grow in terms of increasing diversity and building boards that more accurately represent members.
Click the learning topic below for a curated list of resources for leaders seeking to learn more about key insights and strategies to improve board governance.