MADISON, Wis. (7/20/12)--Credit union governance can be likened to finding that elusive pivot point on a playground teeter-totter, the sweet spot that balances three different dimensions--the interests of members/owners, the oversight responsibilities of directors, and the operational role of management, according to a new Filene Research Institute report.
Using another metaphor, the governance literature refers to these three dimensions as a three-legged stool, according to the report, "Corporate Governance in Canadian and U.S Credit Unions."
What are the credit union implications?
The findings compare major and minor details of different (and often not-so-different) approaches to governance in the three systems and among different-sized credit unions. Some differences emerged. For example, as a federated system, Desjardins excels at some aspect of board development and system governance in ways that the more atomized U.S. and Canadian credit union systems do not, said the report.
Other implications for credit unions include:
- Most respondents in the U.S. and at centrally affiliated Canadian credit unions reported that management--not members or boards of directors--was the most important body in driving the change process at credit unions. Desjardins credit unions point to members as predominant initiators of change.
- There is little evidence that the board holds itself or its individual members accountable for performance. Without such self-scrutiny, the only the only realistic check on governance competence is market failure or regulatory intervention--which, despite recent activism, should not be considered an integral part of healthy board governance.
- Effective boards cannot be built through the activities of a once-a-year nominating committee appointed by the board. Credit unions should consider replacing the nominating committee with a member-elected governance committee or augmenting the role of a nominating committee to function as a full standing committee that embraces board development, improved board performance, and member engagement/education as an ongoing, year-round priority. Fully empowered supervisory committees also can play this role.
- The cooperative philosophy and ideals, together with the credit union ethos, are the basis of cooperative governance. However, few members seem to acknowledge that basis, and without the endorsement of the membership, the validity of this governance structure must be questioned, said the report.
The report, a collaborative effort between Filene and the Credit Union Central of Canada, with participation from Quebec's Desjardins Group, follows up two recent Filene governance projects: "Tracking the Relationship Between Credit Union Governance and Performance" and a three-part series by Professor Bob Hoel about how boards can add more value.
The study includes an in-depth review of financial institution governance research and calls out the differences between credit unions and other firms. Also, the authors conducted a dozen interviews with credit unions of all sizes across all three major North American credit union systems.
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