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A Direct Line Blog

Honing in on Board Effectiveness

August 10, 2022 7:30 am

By Donya Parrish, MCU VP- Risk Management

Effectiveness is defined as “the degree to which something is successful in producing a desired result.” As the board for a credit union, how do you measure success? You might have financial ratios and growth plans for the credit union that are being tracked regularly. It might include an expanded field of membership, retaining key staff, or achieving a positive balance sheet by the end of the year.

I would challenge you to ask — are those success for you as a board or success for your CEO and management team? It might be both, but the board should be setting some metrics to define your own success. The Federal Reserve Bank issued guidance for financial institutions over $100 billion on board of directors’ effectiveness [noted by NCUA in their recent proposal for credit union succession planning] that has some good insight, even if it was not directed at credit unions.

The FRB guidance noted the five areas of board effectiveness, including the following

  1. set clear, aligned, and consistent direction regarding the firm’s strategy and risk appetite;
  2. direct the CEO regarding the board’s information needs;
  3. oversee and hold the CEO accountable;
  4. support the independence and stature of independent risk management and internal audit; and
  5. maintain a capable board composition and governance structure.

On the last one, they went further to note, “Consider whether the board’s composition, governance structure, and practices support the firm’s safety and soundness and promotes compliance with laws and regulations, based on factors such as the firm’s asset size, complexity, scope of operations, risk profile, and other changes that occur over time.”

As you plan for growth and changes, don’t forget the board’s education, structure, and possible changes need to be taken into consideration too. No employee would be expected to take on additional responsibilities without training and education, and your board shouldn’t either.

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