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.

Committee Recommendations Hit the Table Running

Today, we need boards to act more right-brained (creative and spontaneous), and a little less left-brained (rigid and procedural). For that reason, I have been helping Chairs of boards see that strenuous adherence to Robert’s Rules can be stifling and hinder their progress.

For example, no one has to make a motion for a board to adopt the recommendation of a committee. The Board Chair can assume the motion, especially if the wording in the Committee’s report, proposal, or resolution is clear, and open the floor to discussion on it.

Since a committee has several members and a majority vote put the proposal forward, it in effect has a second that puts it on the table for discussion. Also, since boards of a dozen or fewer people are close and know each other fairly well, their rules of order only ask that someone put forth a cohesive and understandable proposal, or motion. The Chair need not ask for the traditional “second” that large assemblies require before discussion ensues. (Refer to Robert’s Rules of Order, Newly Revised, Paragraph 48, Boards; Procedure in Small Boards.)

ALso, a model rules of order for a non-profit board is available on my Website at http://www.danclark.com/articles/index.shtml.

Policies vs. Procedures: a definitive difference

What do you think? You find a couple pieces of paper each with statements printed on them. On the first sheet, one of the statements reads, "Employees will keep their work spaces efficient and neat, presenting a business-like appearance,"

On the second sheet, the statements read like this, “Select files at least seven years old. Shred the contents in a crosscut shredder. Place reusable folders in the cabinet and discard the others.”

What are those statements? They are intrinsically different. The first statement is a guide. It explains “what” is important and “why.” It is a policy statement. The second tells employees how to do a task. It is a procedure.

People accept that Boards are policy-making bodies. People also accept that people who do the work are best able to draft procedures. Somewhere along the way, a myth emerged. Perhaps this common statement best represents that myth, “boards make policy, and management carries it out.” The implication is that boards write policies, and management writes procedures. Taken a step further, one concludes that if a statement comes from the board it is a policy. If a statement comes from management, it must be a procedure.

We know better. Let us today bust that myth. The content of a statement makes it a policy or a procedure; the authorizer does not. Therefore, the first sheet of paper above could show authorization by a Board or by management. Either way, it is a policy.

We can acknowledge that policies emerge from many levels in an organization. In our context of good governance, here is a simple way to differentiate board governance policy from management’s operating policy. If the policy addresses company-wide issues, if it speaks to management, it is a Board governance policy. If the policy statement speaks to employees, it is an operating policy.

The policy example above, guiding employee workspaces, is an example of an operating policy because it speaks to employees. In some organizations, the board could authorize such a statement, but that would not change it to a “governance” policy. It clearly addresses an operational-level issue. In a large or mature organization, the board would delegate operating policies to management through its governance policies.

A model manual is available for credit unions. In the future, there will be one for other non-profit organizations. Join the newsletter now at www.danclark.com to know when it is available.

Penalty: Chair was in Motion

A director at a board meeting questions the actions of his chair. At a recent meeting, the chair made a motion, and later, seconded another motion. "Can she do that?"

The Answer is, "Maybe."

To know the answer, we need to know what rules of order govern the meeting. Many organizations' bylaws refer to a version of Roberts Rules of Order. However, if your organization's bylaws are silent on rules of order, then order is up to the elected leader of the board.

As an alternative to the often stifling, confusingly detailed Roberts, boards can and should adopt rules of order that make sense for the size and scope of their board's business. One can find within Roberts, "Rules for Small Boards." These rules make a board meeting flow more freely and easily. One example is not requiring a motion be seconded in order for it to be discussed.

Influenced by Roberts, most organizations at least adopt unofficial rules, unwritten rules, that the Chair does not make or second motions. The Chair’s role is to facilitate orderly discussion and debate. Limiting what the chair can do helps to keep a Chairperson from getting too strong, wielding too much power, and frustrating the democratic process.

An informal model of rules of order is available -- click this link -- http://www.danclark.com/articles/index.shtml

Move to Governance -- what gets left behind?

The other day I had a telephone conference with a client. The purpose was to give an overview of governance to put all the directors on the same knowledge of the subject. There was consensus that a move to a governance policy was right for them. There was difficulty, however, in figuring out how to go about it.

For a while, the Board and top management had been cleansing their existing policies of operational, detailed policies and procedural statements. This was a good thought and a good start. However, in doing it, they could be losing important statements.

The current proposal was for the board to use a model governance manual, customize it for their culture, and adopt it. In adopting that manual that Board would deregulate or delegate all the existing bodies of Board polices to management.

One issue raised by a director had to do with Personnel Policies. A director expressed the fear that statements in the present personnel policies would no longer protect the organization from legal entanglements. It helped to realize that adopting the new Governance policies did not eradicate the old policies—they would still be in place and belong to management. It is unreasonable to assume that management would make radical and dangerous changes to the policies now belonging to them. Further, the new governance policy would include ends policies for management's guidance, and help the board hold management accountable – "management will maintain personnel policies in a manner that prevents legal entanglements." In addition, a review of the personnel policies is a legitimate step in management's performance review.

Consent agenda supports governance

Today I received a couple questions that are a day-to-day, okay perhaps month-to-month issues in governance. An auditor raised an issue that the Board’s minutes did not show that the Board reviewed two typical pieces of business.

For the non-credit union reader, the Federal Credit Union Act and many state acts specify that the Board set loan rates. We will leave alone at this time that this auditor had written up something that this organization practiced during several previous audit periods.

Essentially, the first question was how can we satisfy the audit recommendation and carry on our business in the way we think proper? And, can a review of delinquent loans appear on a consent agenda? Non-credit union readers can benefit from the following discourse by substituting any high-level former Board decision, or by substituting any monitoring by the board of a substantial operational area.

Here I focus on the organization’s need to make operational decisions at the right level and by the right people in the organization. We are not here considering strict compliance with governing documents (laws, regs, policies). Consent agenda can facilitate decisions appropriately delegated by a board yet requiring action by the board. For example, if required to act on loan rates, a credit union Board can do so without debate or discussion. The Board delegates that duty to a competent executive. The executive can implement the decisions right away. The decisions receive the official blessing of the Board when it approves the consent agenda. For further information of consent agendas, see my Model Rules of Order, at http://www.danclark.com/articles/index.shtml.

Generally, there is no requirement for a Board to approve a report so, let's not put any on the consent agenda. For example, I know of no requirement that a credit union board see and review a detailed delinquency list. While providing detailed lists has been a long-time tradition and may have at times proved valuable, detail was never required. When a credit union was very small, the Board members might have known people on the list; but that's rare today.

A credit union Board may have adequately addressed its fiduciary responsibilities regarding delinquencies (substiute one of your non-profit's traditional health checks) when: (1) the summary of delinquency is a part of monthly reports (2) reports are listed as attachments to the meeting agenda evidencing distribution to the directors (3) there is evidence (trends charts, management narratives) that the board is aware of the status of delinquency (any key performance measure), knows the normal range, and directors discuss and inquire of management when it's out of nominal range.

I look forward to reading the comments of readers on this piece.

What do people think ...

if they have never been on a board? I recently spent time with my brother and his friends. While I have been on boards or committees it seems all my life, they have not. We did not talk in depth but there was no concept of how a board is constituted and what its powers might be; these are smart guys but they lacked any exposure to the world of non-profit boards.

There would be little for me to talk about to them regarding what I do for organizations. I help organizations evaluate the relationship between the board and the executive and help establish the power and authority criteria that makes it work harmoniously and effectively for them. Much of what gets done in America by volunteers is ultimately guided and decided by volunteer boards of directors.

I intend for this blog to help me flesh out my thinking on the subject of governance and, in the process, hopefully, help readers think through their own thoughts on the matter.
dc www.danclark.com