I recently received some interesting questions from someone who has taken an interest in the movement of credit unions to banks.

"Mr. Clark:

"In recent months, I've developed a bit of an avocational hobby writing about the credit union movement, from the perspective of an outsider. Many of my items have been posted at Bruen's Credit Union Blog (http://www.cbruen.com/blog/) Much of my interest in credit unions stems from concern about the bizarre phenomenon of CU-to-bank charter conversions.

"Credit union governance has been a puzzling topic. In the day and age of the World Wide Web, information, misinformation, speculation, conjecture, and hidden secrets can be disseminated much farther than in the pre-Internet era.

"From my lay person's perspective, I'm puzzled at some of the following:"

Q. Unlike most institutions we think of as "democratically controlled", like our local water district, sewer district, or city council, very few credit union boards allow their member/owners to attend their meetings. The only one I've found in my research so far has been [a California] Federal Credit Union. While one can argue the merits or legality of a private-sector board conducting its meetings in private, credit unions put themselves out there to the public as "member owned, democratically controlled" cooperatives.

A. There are variations on democratic control. Since credit unions deal with people’s money, their life savings, their borrowing, and their delinquency, and historically credit union boards have dealt with those things at board meetings, the movement respected member’s privacy by keeping board meetings closed. Maybe that will change because those details rarely come into the board meeting today where a board practices good governance. However, in the various non-profit organizations in which I have held office, the board meetings were in effect closed, not open as your experience has been. Florida has a ‘sunshine’ law. For example, advisory boards to local governments must meet “in the sunshine,” meaning that the principals publish meeting times and locations to the public so anyone can attend.

Q. Unlike most "democratically controlled" organizations, very few credit union boards post minutes of their meetings on their web sites or even on a message wall inside their CU lobby. Again, Los Angeles FCU is one of the few I've found which publishes their minutes.

A. In my experience no boards post their minutes; there are many more non-profit organizations than there are municipal government and quasi-government agencies to list. I wonder what it is you hope to learn by reading a board’s minutes. I found the board’s minutes on the Web site consisted of twelve pages. Rather than reading like a corporate record of essential actions, it reads like the intent is to disseminate insight to the members. It is a unique approach and perhaps is ahead of the times. The same could be done, however, in a newsletter and much less in the corporate record. This being a governance blog, I must add a comment. It appears from the minutes that the Board spent a great deal of its valuable board time, the value being its face-to-face time with management, dealing with details and not taking on the future very much.

Q. Unlike most "democratically controlled" organizations, CU boards can impose major changes to the bylaws without notifying their membership of such proposed changes. There is no mechanism in place for member/owners to submit written comments or to present live testimony for or against such changes.

A. Bylaws help define what powers the owners are delegating to their elected boards. I wonder what you think memberships would want in the bylaws beyond what is in them now. In the early days of the movement, before the 1970s, most credit union memberships made bylaw amendments at their annual meetings. Some regulators provided model bylaws as do Florida and the National Credit Union Administration. I believe all the regulators stand in to represent the memberships when boards adopt non-standard amendments. Perhaps the credit union movement is unique among all other non-profits in that memberships have deferred to regulators or, when they weren’t looking, had the regulators take over that function on their behalf.

Q. If the decisions by the Washington State Court of Appeals for Columbia Community Credit Union are true statements of the law, CU board members actually have no fiduciary duty to the member/owners who elected them to office; apparently their only fiduciary duty is to the (current) credit union as an institution, i.e. its current management team.

A. Since the board of directors cannot represent individual members by sheer numbers, they act as trustees. Members benefit from the care and loyalty exercised by the board of directors for the entity. Since the members vote to let the institution change form, the essential question for all of us — the community and the regulators who in-part protect the community of consumers — is this, do they know what they are doing and understand the impact of their choice? I do not share your definition of the entity as “the current management team.”

What is bizarre to me is that, in the face of conversions of credit unions to banks, bank trade associations and bankers continue to spin the story that credit unions have advantages over banks. Could you explain that apparent contradiction to me?

Boards Need to Design Their Information

You know the feeling, how some statements or phrases stick with you forever? I heard some words many years back, outside of this context. Now I can see, and maybe you will too, how they relate.

Have you ever thought how simple life could be to have one basic form of information to give to anyone? But, “No.” If you want to join a club, you fill out their form. If you want to borrow money, you fill out that lender’s form. Their forms are user based. And that’s ultimately right because each has their own information needs. In a computer foundation class in college, I learned that, “An information system has to be user based.” It was a reminder to programmers that they should not control the form of output, but the user of the information should.

However, 999 out of 1000 of today’s boards of directors receive information that someone else decided they should have. What would it be like to turn that around?

My challenge today is to have your board take some time to think about what it needs to know and request that in a form it not only understands, but can easily and quickly digest.

I just completed a seminar in which we talked about how overweight board packets get over time. That's why I offer a service to help out(find out more). One board has taken the time to workshop the information. The director described going through the packet one page at a time. Any page that didn’t get at least one director’s vote was removed from future packets. That’s a great start. They plan on another such exercise.

The next step for them could be the top-down approach. Ask the directors what they have to have in two categories. First, based on the type of organization, what are the ubiquitous and primary few measures of organizational health and vitality? Directors need to receive those simply and regularly. Second, based on the organization’s plans, what does the Board need to track performance against the plan?

Like the dashboard on your vehicle, you get just what you need to be safe and know when to get it repaired.

Need a Governance Committee?

Why have one? The last ten years or so, there’s been a great governance movement among non-profits. Carver’s 1990 book, Boards That Make a Difference, was the spur. In the land of credit unions, my books, Reinventing Credit Unions, 1990 and Who’s Driving Credit Unions?, 1997, both offered similar stimuli moving credit union boards to a more pure governance position.

Many in the business of being a volunteer director did not realize that they have been practicing some level of governance for a while. Now they have projects to examine policies and board/executive power relationships, in order to rewrite the relationship. Some organizations establish a Governance Committee. It is quite common, when a Board establishes a committee, to make it a standing committee. What about making it ad hoc?

When governance is no longer a project, the GC may evaporate. Governance is what every board begins to do when it stops doing everything by itself, and starts getting things done through others. The next stage in the life of a Board is pure governance -- no operational duties, only setting ends and limitations. Once the Board achieves that level of governance, it's no longer a project but a way of accomplishing success for the organization and its beneficiaries. Then, let the committee go.

Policies Serve Two Masters

A governance policy manual serves two masters. First, it is of greatest importance and value that the operators of an organization find what they need easily in their policies. Second, accreditation reviewers and auditors should be able to find what they need by reading through it when they need to.

Those ‘external’ reviews happen only annually or only once in several years. It is more important to organize the policy manual for the benefit of the operators because they are likely to pick up the book or search the e-file much more often.

In addition, in a recent policy review and enhancement, the directors of a board I was working with all agreed that if they pick the manual up to read cover to cover, it should read with continuity. If that is the desire, and it’s a reasonable one, then organizing governance policies to suit the external reviewers’ checklists makes no sense.

There is a way to assist in accreditation and audit reviews. Take the accreditation standards, for example, and one by one find the provision in the policies. Note the policy reference next to the standard, and note the standard next to the policy statement. If you can get a copy of the auditor's checklist, do that comparison as well.

In the process, you establish that the policies cover all the standards (of course, fill any gaps before the next review). Also, what you have then is a cross reference the reviewers can use to get through their work. In addition, amend the policies to include a parenthetical reference to the standards. Here’s an example, (Ref. COA V.4.02) where COA stands for the Council on Accreditation. Making that notation will avoid an inadvertent deletion later by a board that doesn't know its relation to accreditation.