The importance of a credit union’s board of directors cannot be overstated. The board is critical to the financial success of the institution and its primary role is to protect credit union members’ financial interests. Collectively they bear the legal responsibility to govern the organization.
In my experience as the former CEO of Citizens Bank of Canada and COO of Vancity, Canada’s largest credit union, the credit union board of directors’ duties and responsibilities should be clearly defined. If you don’t know what the job entails, it’s impossible to do it well.
In this practical guide, get up to speed with everything a credit union board of directors is responsible for, what skills they should possess and how they work with credit union management.
You can also skip ahead to specific sections:
- Who are the board of directors in a credit union?
- What are the credit union board of directors’ responsibilities?
- What skills should a credit union board of directors have?
- How does a credit union board work with management?
- Who is more powerful at a credit union, the CEO or the board of directors?
- How does a board portal support credit union management?
Who are the board of directors in a credit union?
A credit union board of directors is a group of individuals who represent the members or stakeholders of the credit union. Often, the board of directors is elected by the membership such as at the Annual General Meeting. The board acts as the managing executive of the credit union and also represents the credit union on all levels, including in courts of law.
Credit union boards meet regularly to ensure the credit union’s missions are pursued, company goals are met, and all legal requirements and ethical standards are followed. The board decides the direction of the credit union and establishes guidelines on the financial risk the credit union is willing to take.
The number of board members in a credit union ranges between 5 and 12 members, with an average of 7 members. Positions typically include a president, vice-president, secretary, treasurer, plus additional directors.
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What are the credit union board of directors’ responsibilities?
The credit union’s primary purpose is not to seek the biggest possible profit or return on assets, it’s to provide quality, low-cost financial services that members need. As credit unions are not-for-profit cooperatives designed to provide financial services to their member owners, board directors must always focus on the best interests of the membership as a whole.
At its core, credit union boards are responsible for providing leadership, oversight, and accountability for the organization.
Responsibilities of a credit union board include:
- Hire and oversee the work of the Chief Executive Officer. It’s the board’s responsibility to manage CEO recruitment, performance and succession planning.
- Provide oversight to how the credit union operates by establishing policies, approving plans and budgets to ensure the institution is operating with effective management and business strategies. Some of this work may be delegated to senior management.
- Oversee and protect the credit union’s financial assets to ensure the organization’s long-term success and that member funds are protected. This includes reviewing financial statements, reviewing external auditor reports, and establishing policies to regulate fees, rates and overseeing loan risk.
- Develop policies for products or services and ensure compliance with bylaws and any applicable state, provincial or federal laws.
- Assess the board’s own performance, composition and succession planning. Boards should acknowledge both areas of expertise and areas where they are lacking skills to identify candidates to fulfill any missing competencies.
For US Federal Credit Unions, the National Credit Union Administration (NCUA) outlines the requirements and duties in full detail.
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What skills should a credit union board of directors have?
Credit union directors must have a base level of financial skills that aligns with the size and complexity of the credit union operation they serve. At a minimum, directors must be able to read and understand the credit union’s balance sheet and income statement.
A director must also understand the specific activities in which his or her credit union engages in, including how these activities generate revenue and the potential risks that could lead to financial loss. This may include credit, liquidity, interest rates, compliance, strategic transactions, and reputation risks. It’s also essential that directors understand the internal control structures at the credit union that limit and manage these risks.
In addition to financial literacy skills and strategic thinking, credit union board members need to have a genuine curiosity and a growing understanding of the members served by the organization. Depending on where the credit unions operate, the needs of the community can vary greatly. From low-income neighborhoods where supporting financial literacy and fair access is key, to credit unions in urban business hubs where networking with entrepreneurs and rapid decision-making around loans may be essential.
Lastly, having high ethical standards and working collaboratively with others are also key characteristics of a good credit union board of directors. According to the Filene Research Institute, credit union boards with various perspectives, experiences, networks, and opinions are better equipped to engage in strategic planning and effective decision-making.
Filence recommends encouraging a culture that promotes trust and accountability with ongoing communication and transparency between CEOs and board directors. Credit union boards can also help enhance board participation and decision-making by encouraging members to be open-minded and support a willingness to speak out.
How does a credit union board work with management?
While a credit union board provides general direction for the credit union, it delegates management functions to senior management. The board also has the authority to hire, fire, determine duties, set compensation, and discipline senior management. To help guide management in the execution of their duties, the board must also ensure the appropriate policies are in place.
Directors need to be informed about what is happening in the credit union to properly direct the credit union. This means it’s important for credit union boards to review information from a number of sources, not just rely solely on the reports of senior management. For example, directors should consider reports from supervisory committees, internal or external auditors, consultants or even request information from credit union employees.
If there’s anything I learned in the credit union board trenches, it’s to communicate, communicate, communicate. Keep your board members very in the loop with shifting financial realities, member needs and risks.
Who is more powerful at a credit union, the CEO or the board of directors?
The CEO is the top senior executive in a credit union and has a major impact on the success or failure of the institution. But the credit union board of directors arguably has more power than the top chief executive. This is because the board is ultimately responsible for reviewing the performance of the CEO and if a new candidate is needed, they are responsible for vetting and selecting the candidate.
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Frequently asked questions
What are the main responsibilities of a credit union board of directors?
The board sets policy and strategic direction, hires and oversees the CEO, and is accountable for the credit union’s safety, soundness, and regulatory compliance. Above all, it represents the member-owners, since a credit union is owned by the people it serves. The board oversees management but does not run day to day operations, and keeping that line clear is one of its most important jobs.
Are credit union board members paid?
In most cases no. Credit union directors are typically volunteers who serve without compensation. In the US, the rule for federal credit unions generally allows only one board officer to be paid, so the rest serve unpaid. Canadian credit unions are mostly provincially regulated, and provincial rules tend to allow more flexibility on director compensation, so practices vary by province.
Who regulates credit unions in the US and Canada?
In the US, federal credit unions are governed by the NCUA, and director duties are codified in its rules, including the duty to act in good faith and in the best interests of the membership. In Canada there is no single federal credit union regulator. Most credit unions are provincially regulated, for example by Ontario’s FSRA, while a small number of federal credit unions fall under OSFI.
What is the difference between the board and management at a credit union?
The board governs and management operates. The board sets policy, approves strategy, hires and evaluates the CEO, and holds management accountable for results. Management then runs the day to day business within the direction the board has set. Problems usually start when those two roles blur, so spelling them out in writing helps everyone stay in their lane.
What duties do credit union directors owe to members?
Directors owe a duty to act in good faith and in the best interests of the membership, not in their own interest or the interest of any one group. In the US this is written directly into the NCUA rules for federal credit unions. The same principle of acting honestly and putting members first applies in Canada, where it is shaped by provincial credit union legislation and the regulator overseeing each institution.
How is a credit union board structured?
A credit union board is usually made up of volunteer directors elected by the membership, led by a chair, and supported by committees such as audit and governance. Each director shares the same fiduciary responsibilities, while committees take a closer look at specific areas and report back to the full board. Writing down who sits where, who chairs what, and which decisions belong to the board versus management keeps the whole structure clear.