By Jeff Rendel
“Let’s get back into the business of taking risks,” said one credit union CEO as he described his petition to his board while discussing ways to grow the top line. “Our members – our owners – deserve a balance of service (read, taking risks on their behalf) and safety and soundness. We’ve become more attentive to minimizing risks than grasping opportunities.”
It’s no bombshell that boards place risk management at the tops of their agendas. Increasing regulations, enlarged governance issues, and daunting new sets of risks (cyber, reputation, enterprise, etc.) create challenges for boards. While boards’ fiduciary requirements are significant, those obligations shouldn’t crowd out equally vital dialogue around strategy and long-term operations.
The vice chair of a statewide-FOM credit union in the Northeast shared his take on risk and a board’s responsibility: “As a board, we should ask our CEO what risks we should be taking to support our vision for the credit union and provide guidance for him as he designs and executes a plan. Our role is to oversee a well-managed, risk-balanced portfolio of service to our member-owners.” This vice chair is also a corporate CEO, who reports to a board that expects long-term results.
Many credit union planning sessions involve much discussion around service to members and financial measures of progress and success. But, to paraphrase many a volunteer and executive, “How do we generate more revenue with 1.49% loans to 800-plus FICO scoring members?” The answer is risk, and risk-focused conversations begin in the boardroom. It’s an extension of service to your members and an opportunity for your CEO to deliver on your vision for your credit union.
A recent piece of financial research described how boards for publicly traded companies were more focused on short-term issues than assertive, sometimes activist, investors (2.5 times more focused, to be exact). Blame it on quarterly earnings expectations and near-term costs that come with risk-taking. But, looking closely, we see that the investors in it for “the long haul” were most interested in long-term strategic risks for substantial strategic rewards. If we look at our member-owners as those long-term strategic investors, perhaps members’ strategic interests are centered on their long-term financial returns – personally and as an owner in their cooperative.
Planning season will be upon us soon (when is it not planning season?), and boards will be looking to contribute to and discuss the long-term direction of their credit unions. This year, as a board, ask your CEO two questions: “Are we taking enough risk?” and “Are we taking the right kinds of risk?” Then, allow your conversations to consider refinements and variations from current strategies, all the while remaining consistent with your long-term vision for your credit union.
Jeff Rendel, Certified Speaking Professional and President of Rising Above Enterprises, works with credit unions that want entrepreneurial results in leadership, sales, and strategy. Each year, he addresses and facilitates for more than 100 credit unions and their business partners. See more at jeffrendel.com.