Governance and Strategic Planning

I’ve heard this and other questions like it over the years: “If we have a board that is ‘passive,’ and resistant to doing more, what can management do to help them become more active or engaged?”

Some readers may wonder why it’s up to management to do anything. It’s true the board should do its own work and do it best it can, but if the Chair is oblivious to the board’s sloth, or ineffective at leading the directors to change, management cannot sit idly by and do nothing or she becomes an accomplice the board’s failure (an accessory to the ‘crime’). As partners, each challenges the other to contribute effectively. If that doesn’t happen, the partnership is broken in spirit.

Perhaps management is innocently part of the problem. In a complex world, a volunteer board relies heavily on professional management. It is easy to imagine that a board could feel inadequate or not needed.

Here are two issues. First, passivity suggests that the fiduciary duty of care is being ignored and that puts directors’ personal assets at risk. Second, the organization needs active oversight of management; that’s part of the model for protecting an organization’s assets and using its unique talents to treat the community’s ills. A board that does not direct/guide and oversee management has abdicated its responsibilities – an indefensible position.

To transition a board from passivity to engagement:

• Find ways to have directors feel their importance by having the board discuss big-picture issues.
• Have the executive sincerely seek the board’s wisdom from time-to-time before taking action using given authority.
• Bring to the surface some case stories of failed organizations where the cause or symptoms included a board asleep at the controls; the closer to home the better.
• Have the organization’s legal counsel make a presentation on fiduciary duties. As an alternative, have a board governance consultant in to do it.
• Hold stimulating discussions and debates about board news, local politics related to your mission, and the impact your organization has on the community.

In a recent speech to the Wisconsin CU League’s  Annual Convention, NCUA Chair Debbie Matz talked about upcoming new rules. In part she said, “[the new rules] will raise eligibility standards for corporate board members, aiming to elevate their level of experience, expertise and motivation.”

Ms. Matz was referring to the rules related to the corporate credit unions. There’s no reason to ignore those ideas for “natural person” credit unions and other nonprofits. NCUA is a Federal regulatory agency for credit unions; many nonprofits experience similar influence and control from their national or international home offices and/or accreditation agencies, the latter being voluntary.

Over the years it seems that finding good volunteers is increasingly difficult. Perhaps for that reason alone, organizations have allowed standards to stagnate as the world and the organization have become more complex and requiring a more expertise to maintain a board’s oversight capabilities.

Since the early eighties, my model of governance policies has contained standards for recruiting volunteers. Even if the approach is to suggest volunteering for a board won’t take up much time, an unfortunate ploy because it makes the job also seem perfunctory or unimportant — below reality — the prospective volunteer needs to assert that certain conditions are true for them. Among them includes not being currently employed or volunteer for a “competitor,” having no criminal convictions and other criteria that make sense. Your organization should revise or create recruiting standards that are right for your mission.

Then, provide orientation training to shorten the learning curve, and find ways to keep the education moving. A Michigan credit union just approached me to provide governance training; it seems they retreat twice annually to maintain board teamwork, build capacity, and plan. The motivation to continue learning and to make excellent decisions comes from knowing the mission and knowing the vision your organization has adopted for the communities served. Those compelling notions are all that most volunteers need to work diligently and to care.

Dollars for continuing education are often hard to come by. Whether you spend a few or big bucks on education, here are three ways to get the most from them:

1. Plan what you will attend. Since I work at numerous conferences each year, I see how often conferences include breakout sessions. By having concurrent sessions, many more topics get delivered. Determine ahead of time what sessions you want to attend. I’ve talked to groups of people from the same organization who have a plan. They have decided ahead of time who will attend what; they cover the courses the organization needs and those that interest the attendees. So much more knowledge is acquired this way.
2. Network. Even we shy types can decide to make the most of the opportunity by introducing ourselves to new people and learning from them in addition to the talent presenting the sessions. And what about networking with the presenters, too? Networking goes easyest when you share something, find common interests and ask open-ended questions.
3. Debrief upon return. As a former CEO paying the bills for conference attendance, I expected employees (and persuaded directors) to ‘download’ the key points, their top takeaways. That way they spread the learning experience around so we could get more for our money. I chose written reports; verbal is also valuable.

Continuing education assures your organization of a future. We’ve got to keep up. Invest money always in learning and get the most out of every dollar, in every economy. Write what you expect into board governance policies and into operating policies.

Something unexpected arrived in my mail. It was something simple and meaningful. The cost was low, but it made me feel good. It acknowledged that volunteers are not paid, not because they are worthless, but because they are priceless.

It went on to thank me for my volunteer service and refered to National Volunteer Week, April 18-24, 2010.

It is a certificate appreciating my service on the Advisory Board of Consumer Credit Counseling Service, A member of the CredAbility Network.

This is the first formal thank you I have received in about twenty-years of service to that organization. I’ve been happy to, and will remain committed to serve without any recognition. (I helped open a local office in Tallahassee about that many years ago.)

As dedicated as I am to CCCS, I had not thought about the organization in the last week or ten days, or so. When I looked at the mail I did think of it. For a moment I wondered if I’d done enough for CCCS lately. For a moment I felt appreciated for the hours, the little bit of travel, for whatever small sacrifice I had made. In truth, I have all along felt appreciated; Rick Skaggs, our Regional President freely shares those thoughts. But this, bearing his signature, puts a little icing on that cake.

My efforts have not been to acquire any physical evidence of those efforts, but, no matter how any things I accomplish, no matter how many “thanks” I hear from anyone, this certificate made my morning. And, it added a little umph to my sense of commitment to CCCS.

For all those in leadership position on boards and management teams, National Volunteer Week should not be our trigger for an annual “thanks.” But consider its value as a reminder , just in case you’ve forgotten to thank often, or even if so, the impact it might make anyway.

The Premise:

Fiduciary duties and our own consciences require us to make good decisions, to direct the organization toward success. While boards do not insure success (any more than management does), all board actions should engender confidence in our entity by our staff, our beneficiaries, and our regulators.

Knowledge derives from information. Information is a form of display or writing that arranges data in a format that promotes understanding and practical value. For example, the books of account are data. The financial statements are information. Presented with ratios, trend charts and narrative reports, we are able to digest it and become knowledgeable about the organization’s status and performance.

Excessive information – too much information and irrelevant information – makes less likely a strengthening of our knowledge. We should avoid being distracted by what we do not need to know in order to direct effectively. Nor should the board thirst for something essential to its role.

Questions for the board to consider:

Is the current diet of information just right, or is there something essential to our governance role that is missing and risks loss of confidence?

What do we receive regularly that has not helped us discuss our future? What has not provided a sign that there’s a weakness we should address as a board?

Are you confident the board can tell management what it wants to receive regularly? Do we need an outside resource to help us decide? What are the risks of continuing to receive what we do now?

If we could have the ideal diet of information, what would that look like and include?

Possible Actions:

Do we stand on what we have now or make a change?

What steps do we need to take now?

The brief is encouraging and surprising. Given that most consumers know little of and care little for the difference between credit unions and banks, pricing often becomes the consumer’s primary decision tool. Forget for a moment that my former credit union’s free share draft account was not enough to convince many eligible consumers to switch from a regional bank their parents had done business with forever. A dose of reality hit me when another regional bank, Barnett, mocked by CU employees for its long list of fees, was able for a time to beat many local CUs on car loan and CD rates. It became apparent that their fee income enabled them to beat us on core business. (Barnett became Nations, then Bank of America.)

The challenge for today’s credit union leaders is to develop strategies to remain competitive on pricing while establishing the kind of differentiation that resonates with and captures the hearts and wallets of qualifying consumers. Simultaneously, CUs need to continue the tax exemption to ensure a small amount of price difference. A single regulator will further erode if not obliterate CU and bank differences. There may be a chance to shine under the proposed national consumer protection agency.

U.S. consumers’ lives will be adversely affected by a lack of credit unions. Becoming indistinguishable from banks or going out of business entirely will be the same for consumers. Filene followers and other leaders need to see beyond the economics and issues of 2009 and 2010 to ensure that future generations will know and appreciate the credit union difference. The continued presence of a viable credit union choice is necessary to keep down and reasonable the costs of consumer and small business banking, and to assure the presence of a nonprofit commitment.

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The link to the full article:  http://filene.org/publications/detail/whatpeoplepay

I read a call to develop a cell phone policy: if a company provides cell phones, there’s personal use to consider, and there’s potential liability if the employee has an auto accident attributable to being on the cell phone at the time.

I read recently that companies ought to have a social media policy. Management concerns range from worker efficiency to “tweeting” something that will embarrass the company, or expose its new strategy.

To avoid company policies becoming a patchwork of individual provisions to meet the latest specific concerns, take the time to see if existing policies may cover the issues.

For example, here are a few statements you could already have in your code of ethics:

• To do one’s job to the best one’s ability, efficiently and effectively, such that one contributes to the moral and financial success of this company.
  
• To promote and protect the best interests and reputations of this company and the industry and avoid and resist influences and practices detrimental to it.
  
• To display the highest standards of personal conduct at all times.
  
• To uphold and comply with the laws, rules, regulations pertaining to our operations.
  

(Those are excerpts from my Board Governance Policies model manual for boards of credit unions, adaptable to nonprofits.) You can see that many of the concerns over the use of company cell phones are covered in the code. Your Personnel or H.R. Policies are also likely to address acceptable and unacceptable behaviors.

A company providing cell phones may also provide long distance lines accessible from every desk, company cars, cameras and other company equipment that can be used personally. A company will already have addressed personal use of company property including tax implications.

If you find that in this case, cell phones are adequately covered, rather than write a new policy, leadership can choose another means to ensure that employees know how their use and not use their company-provided cell phones. When legal risks are significant, have the employees sign the interpretation sheet evidencing their understanding.

A signed interpretation could be a single sheet. On the other hand, a full-blown policy addressing cell phones might be several pages and contain many of the same provisions as for the other things previously mentioned; the only difference being the name of the object.

That duplication presents a couple of problems. A greater number of pages increase the chance for non-compliance when employees fail to read or remember policies. Repeated policies need to be worded the same to remove the potential for different interpretations.

When policies are the same for cell phones and other stuff, it’s better to have overriding policies addressing the concerns, and include a list of example objects that are covered by it.

Whether you add a whole new policy or take my approach, have your attorney review policies periodically to be sure of your legal footing.

What then is strategic?

Being strategic is finding a borrowing niche less likely to have payment issues.

Being strategic means choosing a particular underwriting or collections process, over others, because you see a unique position, or to reinforce your brand.

Being strategic is about positioning your company to take advantage of trends that will result in a new market place.

Being strategic is not about current commitments (like the loans you’re trying now to collect) but seeking a new set of commitments that will make you more competitive, make you more money, or satisfy a craving for success.

Being strategic is about finding needs no one else is filling and planning to fill those (a Blue Ocean Strategy).

While improving one’s ability to conduct operations effectively is important, being strategic is more about reinventing operations because the outside world has changed fundamentally, or you anticipate it will change forever and you intend to be in the right position when it does.

There are fads on one end of a continuum, cool ideas tried by many and abandoned because the results are not consistently positive. On the other end of the continuum we find sea changes. The move to governance is more a sea change that alters the nature of the Board/Executive relationship.

In the beginning, there was a board to take care of everything because the members would not or could not. Everything. Treasurers are known to have carried a notebook with members’ loans and payment in it; there was a cigar box locked in an office drawer with cash for the next loan, typically under four-figures.

The Treasurer/Manager, having a full-time job in a vocation, needed help with the credit union avocation. Staff was hired to help. As memberships grew the board hired more people to help. Eventually, the Treasurer/Manager could no longer manage the day-job and credit6 union office staff so the Board hired an office manager. As the institution progressed, the position became General Manger, President, and now most commonly, CEO.

From my point of view, Examiner and state Administrator (Florida), CU Director, Consultant and CEO, titles in the top positions in credit unions have much less to do with the expectations of the job than the status, the sound of the title. The growing complexity of the business environment and the speed of change surrounding credit unions have the most to do with the transference of decision making power out of the boardroom.

The Board holds the power until delegated. While it first delegated personnel hiring, nurturing, managing and firing to its first string of managers, other authorities remained in the boardroom. The power tipping point was 1970, the advent of share insurance, share drafts, economic volatility in the 1980s and increasing complexities associated technology, expanded competition, increased regulations, including some with fines for lack of compliance, and ever-changing investment options.

The fiduciary duty of care means that a board ensures the viability and longevity of the institution. Since it could no longer make an increasing number of decisions fast enough, a board needed to find competent people it trusted and transfer decision-making to them. In 1980, the term “governance” gained the attention of nonprofits in John Carver’s seminal book, Board That Make a Difference.

Governance means a Board transfers it powers to its competent and trusted chief executive and provides guidance on how to use that power through its policies. The policies that speak to the CEO we call Governance Policies. A Board’s previously written policies: products and services, personnel, and others, now called Operating Policies, become the realm of the chief executive, among other delegations in Governance Policies.

In this sea change, a board recognizes that if it intends to keep the institution safe, sound and vital, it must find a capable person to drive that success (http://www.danclark.com/products ). In addition to the chief executive, it hires audit firms, and allows the CEO to hire other C-Level executives in areas such as finance, marketing, human resources, services, facilities and information technology. Those specialists deal with ever-increasing levels of complexity and can more quickly research alternatives than a group of volunteers have the time or expertise to do.

Governance is the right idea for our times, four decades in the making. Directors who care about the institution entrusted to them will recognize what they cannot adequately do, and find and empower that expertise to work for them. Governance is a big part of fiduciary duties today.

The purchaser of my model Board Governance Policy Manual for credit unions asked about the legality of the provision that requires a credit union member to be a member two or more years before being eligible to run for the board.

Of course, any user can remove a membership requirement to qualify for nomination or appointment. I put the requirement in there to prevent people from becoming a CU member just to become a committee member or director; what is their purpose and intention?

As a part of the Board’s efforts to make the CU successful, it needs to attract the best talent and the most dedicated people it can to lead the CU. If the Bylaws contain sufficient processes and protections, then Governance Policies do not need to address it.

What about the legality? It is not illegal, best I can tell, to introduce reasonable processes to assure the Board is the best it can be. Members can follow the Bylaws to the letter and circumvent Governance Policies that are more restrictive. Therefore, the Board is not mitigating or taking away any membership power. People who have the best motives will not want to circumvent the criteria for doing so may place a cloud over their intentions.

When the Board or the Recruiting/Nominating Committee finds a non-member it desperately wants on the board, the board can adopt a resolution allowing for a one-time waiving of the length-of-membership criteria. The resolution will outline the compelling reasons for its actions, and preserve the integrity of the written policies.