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?