MADISON, Wis. (8/30/10)--Credit union directors are unreliable judges of their own efficacy, and there several areas ripe for governance improvement, according to a recent Filene Research Institute survey. When asked to self-judge the quality of their governance and the strength of their credit union’s performance, the directors who considered their governance practices good also said that their credit unions performed well. But when the directors were matched with their credit unions’ actual returns on assets (ROAs) over seven years, there was no statistical correlation to above-average ROAs. Volunteer credit union boards display a broad range of competence and engagement, according to Tracking the Relationship between Credit Union Governance and Performance, sponsored by the Credit Union Executives Society. The report is the latest in a string of Filene research into credit union governance practices. The research identifies several best practices that allow credit union leaders to improve both governance and performance. The research shows areas that could be improved:
* Time management--Effective meeting management is a challenge, and boards seem to have only a vague sense of how their meeting time is spent. To improve, boards must know how their time is currently spent and then prioritize agendas to spend more time on strategy. * Director evaluations--A lack of board introspection means board chairs and other directors need to be proactive in formally evaluating their own contributions. They should consider implementing annual board effectiveness surveys, formal peer feedback, formal reviews of the chair, and feedback from management. * Continuing education--One way to encourage better governance is to demand individual improvement. Surveyed directors who ranked their boards in the top decile of governance performance all had formal continuing-education policies, while those in the lowest decile rarely did. * CEO evaluations--The board/CEO link drives financial performance. The only governance practice that yielded a strong positive correlation with actual credit union ROA performance was whether boards felt they had an effective CEO evaluation in place.
“Credit union governance is one of those issues that never seems urgent, but thinking about it and improving it just might be a more important issue than anything else we face right now,” said Mark Meyer, Filene CEO. “As a credit union director myself, I can vouch for the importance of holding ourselves as accountable as we hold management.” Using in-depth interviews and survey tools, researchers from the Rotman School of Management at the University of Toronto plumbed credit union board practices in areas, such as time allocation, decision-making processes, board composition, director selection, board performance measures and credit union performance measures. The study provides other insights. Time management and meeting inertia are hard to overcome. Credit union directors mirror the feelings of their counterparts on publicly held boards in saying their boards need to spend more time on strategy and risk management, and less time on operational matters and routine items. Most directors agree that attracting and retaining younger, more diverse directors with a broader base of backgrounds is a priority. Yet, many respondents said they feel challenged to find qualified volunteers who are willing to commit. Many boards seem to be adopting a wait-and-see attitude rather than emphasizing more rigorous recruiting practices such as evergreen lists, Filene said. Several interviewees stressed that it is hard to remove underperforming directors--even when their terms are up--for fear of hurt feelings.