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Shannon Zayas Chief Operating Officer Shannon is the hub of the wheel and the key interface between Quantum Governance’s team and all clients. Shannon is a focused, thoughtful and disciplined leader who oversees many of the operational functions of running the firm from fielding studies to staffing and financial oversight. Shannon worked at Achikian Goldsmiths, a regional retailer where she played key roles in sales, marketing, business solutions, research and accounting. She started her career in the Audit and Advisory practice at KPMG, LLP where she assisted and led audits of public companies in the firm’s consumer and industrial business lines out of both the Philadelphia and the St. Louis offices. Shannon graduated from Virginia Tech in 2001 with a B.S. in Finance and in 2004 with an M.S. in Accounting, and lives in Maryland with her family. Back

< Back Reimagining Your Board Meetings Jennie Boden Oct 27, 2020 To make your gatherings more effective and engaging, first look at the real reasons boards meet. Credit union leaders everywhere seem to be asking the question, “How do we make our board meetings more effective and more engaging?” To answer that question, I think you have to first look at the real reasons that boards meet. To convey information … sure, but information can be conveyed in an email or a report, too. To make decisions? Yes. That’s easy, and a consent agenda can often do the trick, especially when the decisions are straight-forward and non-controversial. To engage with each other? Yes, to be sure. To build trust among directors and with your CEO. Absolutely. To deliberate and plan for the future. We hope so! And we’re sure that you can identify many more reasons that your board meets… First, it’s important to know that while most credit unions by regulation have to meet 12 times a year, the regulators do not say that every meeting has to be the same . When we share this with our clients, they are often amazed, but it’s true. And knowing this alone should allow you to open your mind to the possibility of change—because we know what you’re doing. You’re likely opening up Microsoft Word, pulling up last month’s agenda, changing the date, changing a few key items and hitting “save.” But no more. You don’t have to be bound by the same old agenda that serves up the same old meeting. You can consider rotating the cadence, length, agenda and, yes, the focus of your board meetings throughout the year. In The State of Credit Union Governance 2020 , Quantum Governance, CUES and the David and Sharon Johnston Centre for Corporate Governance at the University of Toronto found that while respondents say they spend 26% of their time on strategic matters (a percentage we dispute given the number of credit union board agendas and meeting minutes that we review each year!), they think they should be allocating 36% instead. At the same time, credit union directors report spending about 17% of their time on a review of financial results (again, here we think this is largely underestimated!), and they’d like to get this number down to about 14%. But how do you go about shifting the focus of your meetings to better reflect the actual, real reasons that a credit union board meets? Particularly in the face of the great challenge that the pandemic has posed, which has greatly limited, if not completely eliminated, your board’s ability to meet in person at times. In the summer months, when everyone is otherwise focused, consider a brief, one-hour meeting via Zoom during which you can quickly dispense with your fiduciary oversight responsibilities, check on where you are strategically, vote on any important issues coming out of committee (via a consent agenda), and make it to the beach by noon. (You might also consider this during the holidays, when the pressure to get to the beach becomes the pressure to go holiday shopping or at other busy times of the year.) Then, identify those “regular” board meetings that you need to have throughout the year and revise your agendas so that they include more time for strategic discussion and less focus on financial-related matters. Remember, it’s highly likely that your credit union’s professional staff has more skilled financial folks on its team than you will ever have on your board. Your job as a board member is to trust them but verify that what they are saying is correct. Not to do their work. Then consider a few board meetings a year where you meet for a longer period of time to really take a deep dive on a few strategic matters. Maybe hold a three- to four-hour board meeting where you take care of the business first and then spend the rest of the time talking and exploring the future of the credit union or critical questions that are before you. Finally, of course, it’s important for every board and management team to spend considerable time in retreat together each year—a one- or two-day time away from it all where you can plan cooperatively, as constructive partners, for the future of the credit union. All of these count as board meetings. Developing a calendar for your board that incorporates a wide variety of meetings will increase strategic conversations at the board level, ensure that you still keep a critical eye on those important fiduciary matters and, most importantly, keep your board members on their toes and engaged. Previous Next

Research & Reports Research The State of Credit Union Governance, 2023 This report identifies four governing elements central to measuring good governance and what correlations exist between them. The State of Credit Union Governance, 2023 Download Report Research The State of Credit Union Governance, 2020 This report offers findings from 115 credit unions on Board structure, governance, leadership, strategy and decision-making. The State of Credit Union Governance, 2020 Download Report Research Should Credit Unions Pay Their Directors? This Report explores the state of director compensation and offers considerations when exploring paying board directors. Should Credit Unions Pay Their Directors? Download Report Research The State of Credit Union Governance, 2021 This report examines the impact of COVID-19 and increasing calls for DEI on the credit union community. COVID-19 and DEI: Revolution & Evolution in the Credit Union Community Download Report Research The State of Credit Union Governance, 2018 This report analyzes governance practices at 70 credit unions focusing on Board structure, leadership, fiduciary oversight and strategy. The State of Credit Union Governance, 2018 Download Report White Paper A New Model Based on Classic Principles This white paper presents discussion on a new approach to the credit union cooperative model. A New Model Based on Classic Principles Download Report

< Back To Pay or Not To Pay Michael Daigneault Sep 22, 2015 Deciding whether to compensate credit union and CUSO directors is a hard question. There’s been a lot of buzz recently about whether credit union board members should be compensated. For a long time, this notion was taboo. For many, it literally seemed to go against the very essence of a cooperative credit union. Then the idea of compensation seemed to shift from being taboo to being merely uncommon. Though federal credit unions can provide compensation only to one member of their board, usually the treasurer, some state-chartered credit unions may compensate more broadly. A recent study published by Filene Research Institute (and underwritten by Quantum Governance and CUES, among others) notes that there has been a new and significant shift, with many beginning to support the notion of paying their boards, “with some even believing that doing so would soon be crucial to their ability to attract and retain effective board members.” The study, aptly titled Should Credit Unions Pay Their Directors? , goes on to report that “At 145 credit unions in 12 states, directors earn somewhere between $60 and $37,597 annually.” The report’s author, Matt Fullbrook, manager of the Clarkson Centre for Business Ethics and Board Effectiveness at the University of Toronto’s Rotman School of Management shares that while “In most states, credit union director compensation is dwarfed by fees paid to directors of commercial banks …the pay trend is slowly catching on, especially among large credit unions.” On the one hand, such a trend makes some sense. Credit unions deserve engaged board members who feel appreciated and perhaps, at times, fairly compensated for their significant efforts. They bear significant burdens. They are, for example, legally responsible in ways that even the CEO isn’t. And I don’t have to tell you that there is a lot at stake: millions of dollars in assets for most credit unions and even billions for an increasing number in this age of consolidation. Credit unions need the best and the brightest board members to meet the tremendous challenges of the day, but it has become increasingly hard for many credit unions to recruit high-quality, dedicated directors. If compensation can help in that regard, perhaps it is one tool that should be utilized. Yet on the other hand …there is a rich tradition of board members serving their fellow members in a voluntary capacity. Indeed, you and your colleagues are in the business of running a cooperative credit union on behalf of your members. What About CUSO Boards? Like a credit union board member, directors of credit union service organizations are tasked with providing good governance, effective oversight, strategic vision and the like. But unlike credit union board members, they are guiding for-profit entities. And therein lies a very significant difference. CUSOs were created as “outside-of-the-box” business solutions – creative ways for credit unions to effectively address effective business needs. One argument for compensating a CUSO board certainly is that in order to attract and retain the most creative, “out-of-the-box” thinkers, compensation is a must. But as in the credit union community, there are also cons to the practice of compensating CUSO board members, many of whom are credit union CEOs themselves. That con list includes: the argument that the CEOs are already handsomely compensated by “the community”; that while the CUSO is a for-profit entity, it exists to serve a cooperative community and should, therefore, follow cooperative principles; and that it may send the wrong message to credit union members or the community, among others. The long and the short of it is this: There is no simple answer to the question for either credit unions or CUSOs. The notion of compensating a CUSO board (despite its for-profit status) can be just as perplexing. What I can tell you is that for both credit union boards and CUSO boards, answering the compensation question does require a board that doesn’t shy away from asking the hard questions. All of us should consider the long-term implications, as well as pros and cons of compensation at the board level, and dig deeper to find common ground on this challenging issue. Previous Next

< Back Did You Dust Off Your Old Pandemic Plan? Michael Daigneault and Jennie Boden Mar 24, 2020 Key ideas about response oversight and future strategy If you’re like most in this world today, you likely feel like you’ve lived a lifetime in just the last week. I know that we have. As we write to you safely from our home offices, we send well wishes to you and everyone in your circles that you are safe, well and doing what you can to “flatten the curve.” But we also know that you all have immense responsibilities. Personal responsibilities to your families and your loved ones. And professional responsibilities to your employees who are looking to your credit union for stability and, yes, a paycheck. Responsibilities, too, to your members who are counting on you to keep your doors open—or at least your drive throughs and your ATMs—so that when they need access to their funds, you are there. And eventually, they may need even more from you. In 2005, the White House, through the Homeland Security Council, issued the National Strategy for Pandemic Influenza —which addresses the threat and potential impact of a pandemic. At the time the experts issued that document, they were focused on a pandemic resulting either from a flu strain that existed then in birds or another influenza virus. The National Strategy is still very relevant, and it outlines how the government prepares, detects and responds to pandemics of all kinds. It is still in use today. “It also outlines the important roles to be played not only by the federal government, but also by state and local governments, private industry, our international partners and most importantly individual citizens…” It states that the “private sector should play an integral role in preparedness before a pandemic begins and should be part of the national response.” A few short months after the federal plan was released, the National Credit Union Administration issued a guidance letter in March 2016 stating that “credit unions and their service providers supply essential financial services and, as such, should consider their preparedness and response strategy for a potential pandemic.” It went on to say, “The National Strategy addresses the full spectrum of events. The main components of the National Strategy address: Preparedness and Communication; Surveillance and Detection; Response and Containment.” In 2007, the Federal Financial Institutions Examination Council issued its own guidance through the Interagency Statement on Pandemic Planning , which was just updated earlier this month due to the current COVID-19 Pandemic. If you’re like most credit unions, in response to all of this guidance and these recommendations, someone at your credit union prepared a pandemic response plan back then, and put it on the shelf, thinking that you’d never in a million years need it. Well, a million years has come to pass. We spoke just a few days ago with the CEO of a $500 million credit union who remembered that her staff had developed a pandemic response policy some time ago, and they “dusted it off” (her exact words) and put the policy into motion. To her relief, so far it has been working well for her credit union. Some of the specific elements of that credit union’s implementation plan include: Any employee who has remote work capabilities is required to work from home until further notice. (This includes at least one employee from every department, as well as multiple call center employees). All branch lobbies are closed until further notice, with only drive-thru options open. Additional deep cleaning services have been contracted for all facilities. Additional technology has been purchased to support increased remote capability. New member products and services have been created including a new short-term loan product, a low interest rate, no down payments, no documents required, reduced restrictions on skip-a-pay loan program, etc. A communications program has been implemented to reach members via email, social media, website and on-hold messages. The credit union has contracted with CUES Supplier member CO-OP Financial Services , Rancho Cucamonga, California, to provide overflow call center support, if needed. An emergency sick leave policy has been created and enacted. If you don’t have a pandemic response policy, you are likely developing the components of your policy as you respond each and every day to the mounting issues that confront you. Ensure that someone is memorializing the good actions that you take as you move through this crisis so that you can thoughtfully, when we all come out of the pandemic on the other side, translate your actions into a comprehensive, cohesive policy. And very, very importantly, ensure that the overarching framework and strategy of your plan is developed in constructive conversation with your board of directors. Does this mean that the very detailed elements of your plan, i.e., what does deep cleaning mean or which individual employees should be designated to work from home, should be approved by your board? No. But it does mean that the overall, strategic approach of your plan should be developed in discussion with your board and that your board should ultimately approve the key principles underlying your pandemic response plan. If it’s been a while since you “dusted off” your pandemic response plan, consider this template that we’ve crafted and take a look at the National Strategy, both of which we hope will provide some support and direction to you and your credit union’s leadership (board and management alike). Stay well and stay safe. P.S. Be sure that you and your Board are staying up to speed on all of the regulatory updates regarding COVID-19, including those impacting annual meetings and board elections! Previous Next

< Back Fiduciary AND Strategic Thought Needed Michael Daigneault Mar 5, 2014 Finding the right balance between operational oversight and visionary dialogue in your boardroom is worth the struggle. I’ve long said that being a CEO of an organization is one of the hardest jobs in the world. I’ve had the opportunity to help lead a number of organizations myself and have found myself being challenged to find the right balance between fiduciary and strategic agenda items at board meetings. Having formally observed a number of credit union board meetings in recent years, I have realized that this struggle is shared by many credit union CEOs and board chairs. And the proof of this difficulty goes well beyond the anecdotal. In recent assessments of credit unions throughout the United States, a surprising number of credit union board members reported a lack of genuine strategic dialogue at their monthly board meetings. Finding the right balance between operational oversight and strategic dialogue is a real struggle. But one that is very much worth fighting. There are a number of reasons why such a balance is difficult to achieve, but I’d like to focus on one reason in particular: Many credit union leaders get “stuck” in one mode of thought. What do I mean by that? CEOs and board members frequently lack a framework or vocabulary to ask the full range of questions necessary to effectively carry out their governance responsibilities. As such, and often by default, many credit union boards spend the majority of their time in the fiduciary realm of thought. Frequently, this notion of fiduciary is paired with the word “oversight.” As credit unions, we’re very good—and often most comfortable—with providing oversight. We are stewards of our members’ hard-earned money, and so we are traditionally strong at reviewing the financials, ensuring legal and regulatory compliance, instituting appropriate financial controls, conserving the organization’s resources and even mitigating key risks. As we should be. I would imagine your credit union spends a great deal of time talking about (or reporting on) fiduciary items at your board meetings. In fact, I’ve had clients who issue monthly board packets -- some 100, 200 or even 300 pages long -- and then spend the vast majority of their board meetings simply reviewing those written reports. Don’t get me wrong. Fiduciary thought is absolutely necessary, and it has a vital place - especially in the credit union community. The problem is that while fiduciary thought is necessary, it is certainly not sufficient if you desire a governance culture operating with excellence. Yes, more is needed. But the extra effort yields significantly greater rewards. The “more” that is needed is to begin incorporating strategic discussions into your board meetings regularly . Please note that I am not talking about “strategic planning.” It is highly likely you already incorporate some form of strategic planning into your meetings annually - or every few years - when your board undertakes the review or revision of your strategic plan. I am, however, suggesting that the board and senior management exercise their “strategic thinking muscles” very regularly. If you don’t, you won’t be able to adapt to changing market conditions. Nor will you improve at identifying, planning and executing high-impact strategic initiatives. (It’s a lot like my golf game. I know how to hit the ball reasonably well, but playing only once or twice a year, my game has seen no real improvement in 20 years.) By modifying their regular meeting agendas, boards and senior management teams can work in constructive partnership throughout the year to create the credit union of the future, craft thoughtful dashboards of strategic success, find ways to innovate, experiment and learn on an ongoing basis. They can also work diligently together to scan the internal and external environments surrounding their credit union, identify evolving member needs, analyze competitive benchmarks and see key marketplace trends long before others. Begin to think of “strategic planning” as an ongoing process of strategic discussions and learning opportunities throughout the year -- not a discreet occurrence with a start and a finish. And so the question is: What’s on your next board meeting agenda? Previous Next

< Back Many Board Problems Boil Down to Communications Challenges Michael Daigneault and Jennie Boden Jan 22, 2019 Directors need to ask good, hard questions—to ‘trust but verify’ in a respectful and professional manner—all toward the good of the credit union. A great number of the governance challenges that we come across in the work that our firm, Quantum Governance, L3C, undertakes with credit unions can be boiled down to matters of communications. Are your board members crossing over into day-to-day operations? Well … have their roles and responsibilities been clearly defined, updated and effectively communicated to them? Are there two or three members of your board who are coming to meetings ill-prepared each and every month (or even just one)? It’s probably time for your board or governance committee chair to have a heart-to-heart, one-on-one conversation with those directors. Is the relationship between your board and CEO riddled with micromanagement, executive sessions and a lack of trust? It’s possible that you stopped having authentic, open dialogue far too long ago. After years of surveying credit union board members, supervisory committee members, CEOs and senior staff members, Quantum Governance, along with CUES, recently published The State of Credit Union Governance 2018: Five Data-Driven Recommendations for Future Success . In it were three key findings relative to the need for more open, trusting communications that both surprised and troubled us. We encourage you to take notice of them and discuss these key findings with your board. If your credit union is struggling with any of these issues, it might be time to polish your own communications skills—individually and as a group. Key Finding No. 1: More than a third of respondents surveyed reported that their board does only an adequate or less than adequate job of asking the hard questions that need to be asked. Key Finding No. 2: Thirty-nine percent of respondents reported that their board is only adequate or less than adequate at holding each other accountable. Key Finding No. 3: And only 25 percent of CEOs and 27 percent of senior staff reported that their boards are very effective at building a leadership culture of trust—compared to 53 percent of supervisory committee members and 44 percent of board members.So , what’s happening at all of these credit unions? We were recently working with a credit union that received what we would term below average scores on survey questions regarding “accountability” and “asking the hard questions.” “Where do we begin?” they asked. Luckily for them, their score on the “trust” question was particularly high—a good starting ground and a place from which to build. They were quick to say that they all got along and worked well together—maybe too well together, perhaps? How many of your board votes are unanimous? Are your board members held accountable when it’s appropriate? And, how many hard questions are you asking in your board meetings? The mark of a good board is not unanimity or harmony 100 percent of the time. Your job as a board member is to ask good, hard questions. To trust but verify. In a respectful and professional manner. All toward the good of the credit union. Be authentic. Be direct. Be open. Keep your promises. Keeping promises builds trust, and you’ll need to rely on strong relationships of trust while you’re holding each other accountable in the boardroom. Speaking of accountability: Hold each other accountable as board members. Ask the hard questions that need to be asked. It’s among your most fundamental roles as board members. Previous Next

< Back The Importance Of A Truly Independent Supervisory Committee Michael Daigneault and Jennie Boden Feb 25, 2020 If you’re shifting to an ‘audit’ committee instead, be careful not to sacrifice independent oversight at the altar of efficiency. We’ve seen an important trend relevant to a good number of state credit unions nationwide. It’s one of those quiet trends that we believe could—in the long run—have significant governance consequences, perhaps for the entire credit union community. It is the transition of a good number of supervisory committees to the form of an audit committee. And with more state regulations allowing such a transition, more and more credit unions are taking the opportunity to make it. While federally chartered credit unions are still required to maintain a supervisory committee, many state regulators have allowed the credit unions they regulate to operate with an audit committee made up entirely of board members, and the number of states (and credit unions) moving in this direction is growing. Further, some federally chartered credit unions, for various strategic reasons, are converting to state charters, thereby opening up the door to even more credit unions making the shift to an audit committee. The difference between supervisory committees and audit committees can at times be significant, and those differences often come down to two key factors: the scope of authority granted to such committees who is appointed or elected to them—that is, their composition Committee Authority Supervisory committees at federally chartered credit unions can exercise certain types of authority over credit union’s leadership, and the National Credit Union Administration’s Supervisory Committee Guide for Federal Credit Unions outlines two key actions a supervisory committee can take, namely: Suspending by unanimous vote any board member, executive officer or credit committee member Calling “a special meeting (by a majority vote) to consider any violation of the: a) FCU Act; b) Rules and Regulations; c) Charter; d) Bylaws; e) Any practice considered unsafe or unauthorized.” This can result in a board member officer or credit committee member being removed. The reality is, of course, that very few supervisory committees take either of these actions—even when perhaps they should. (Sadly, we have witnessed instances when we believe a credit union’s supervisory committee should probably have suspended or meaningfully investigated a board or committee member but didn’t.) The important thing to remember here is that they could take such actions in the interest of the credit union and its members if supervisory committees were properly charted, effectively trained as to their responsibilities and courageously led. The power to suspend or initiate a process to remove “any board member, executive officer or credit committee member” is a rarely used but still meaningful check on credit union leaders from engaging in acts that are unauthorized, unsafe or contrary to established laws and regulations. It is a far from a perfect means of deterring such misconduct, but when carried out thoughtfully and courageously by a determined supervisory committee, it can help save a credit union and its members from disaster. To be fair, some states give audit committees the same authority to oversee board activities as a federal supervisory committee, but some don’t. What happens when an audit committee does not retain the authority to oversee the board? Then one leg of the credit union’s three-legged governance stool has essentially been removed. Only two “legs” now remain: (1) the board (of which the audit committee is now a part); and, (2) management. In such instances, the three-part system of governance-related checks and balances has simply disappeared. This unique authority in the credit union realm to oversee the board may not, however, be the essential differentiator between the two types of committees. The real difference may lie in their composition. Committee Composition Traditional supervisory committees (both federally and state-chartered) that follow the federal credit union model are almost exclusively composed of members of the credit union who are not board members. The exception to this is that federal credit unions may have one board member appointed as a member of a supervisory committee. We find that this does happen sometimes but is not particularly common. In contrast, audit committee rosters are almost always composed of board members. This is often seen as efficient, more harmonious and certainly much simpler. What it gains in efficiency, however, it may lose in objectivity and independence. One must ask, for example, how likely it is that a committee composed of fellow board members will find fault with their own board’s governance efforts or even that of their individual board colleagues. Yes, in extreme cases it may still take action, but remember that’s if—and only if—they are in a state that still grants them the authority to do so. If one of the primary goals of both supervisory and audit committees is to serve as part of a system of checks and balances on board and management, it is little wonder that outright eliminating or even psychologically constraining such a role would result in significantly greater efficiency, harmony and simplicity. Therein, of course, lies the very danger traditional supervisory committees were designed to protect against! Effective supervisory committees play a vital role in the overall governance of the credit union and an adequate degree of independence must be a cornerstone of their design. Be careful not to sacrifice one of the foundation stones of the credit union governance system at the altar of efficiency. Previous Next

< Back Moving Beyond The Strategic 'Moment' Michael Daigneault and Jennie Boden Sep 27, 2016 Incorporate strategic planning and thinking into your routine discourse. When more than 30 percent of our clients describe themselves as “less than effective” at something, we sit up and take notice. And that’s exactly how (and how many) of the board members and CEOs we work with describe the challenge of articulating a compelling future vision for their credit unions. Not having a future vision for your credit union is a genuine problem, but one that can be overcome (though not easily, or a third of our clients wouldn’t be struggling with it!). Is your credit union challenged with crafting or updating the foundational components of your overall strategic plan—vision, mission and strategic goals—as well as the more specific strategic objectives and metrics undergirding them? It's worth the struggle to get your future vision right. This is much more than just a convenient tagline or agreeable-sounding statement in your annual report. The conscious or unconscious future vision that a board and senior team hold in their heads has real consequences. Crafting a clear and effective path forward that will truly benefit members is among the most critical and nuanced challenges you will collectively undertake. Yet many boards and executive teams spend less time thinking about the consequential strategic issues facing their credit union than they do on small changes to the loan-loss ratio, car loan volume or even on a single member complaint suggesting that the carpet needs to be replaced in a branch. We recently facilitated the CUES Director Development Seminar in Santa Fe, New Mexico. When we asked the 100-plus attendees who included strategic discussions regularly on their board meeting agendas, one brave soul posited, “Well, we have an agenda item called the ‘strategic moment.’” Though the room spontaneously filled with laughter, the speaker was quite serious, and everyone knew it. Many other attendees may have recognized that by including such a “moment” on the agenda, their colleague was likely well ahead of their own routine meetings typically filled with data-intensive, financial and fiduciary oversight reports. Veteran directors may recall the days when their credit union was just forming and their role was to pour over financial statements, do cash counts and fill the void that a lack of professional staff created. Today the director’s role is quite different. Unless your credit union is very small or in start-up mode, you rely on professional staff to brief you on financial and fiduciary reports. You need to provide effective oversight, hold staff appropriately accountable—and then move effectively to your strategic responsibilities that will help propel your credit union to flourish into the future. In that spirit, we recently developed a list of sample strategic topics for directors to discuss in board meetings, even just for 20-30 minutes. Not all of them are applicable to your situation, but they are the types of questions that can help you regularly exercise your strategic thinking muscles: What criteria would you use in considering—or rejecting—an offer to merge your credit union into a larger one? What types of risks does the evolution of payment systems foreshadow for your credit union? How is your credit union growing? How might you need to grow differently in the future? Even if your credit union is growing, is it genuinely improving members’ financial lives? What would the “ideal” board for the credit union you envision in the future be like? Do you have the right blend of directors for that future? What would the future focus be? What committees would the board have? What type of relationship would it have with your CEO and executive team? What type of relationship would it have with your members and the community? How does your credit union define its risk tolerance or philosophy? Are you too risk-averse? How does your credit union’s risk profile compare to peers? How should you balance ROA, risk and stewardship to members? How do you leverage your cooperative culture into a competitive advantage? Are there other success measures you should be looking at, beyond financial performance? We strongly encourage the board to work hard to fine-tune a strategic plan that includes clear vision and mission statements, strategic goals, objectives and metrics in constructive partnership with your committee leadership, CEO and executive team. After reaching a consensus on the features on the accompanying chart shown in blue, challenge your CEO and executive team to develop their organizational work plans to meet or exceed your agreed-upon strategic goals. But don’t stop there. Include regular and ongoing strategic thinking, discourse and potential changes to your strategic plan, if necessary, in board meetings throughout the year. Insist that your CEO and management team report regularly on the strategic metrics of success as you march toward achieving your strategic goals and objectives. Consider changes in the marketplace or your business environment regularly to assess whether anything needs to be fine-tuned, adjusted or even eliminated. Strategic planning and thinking are continual processes. Off-site sessions annually or every few years may be helpful to recalibrate your leadership’s thinking, but they’re not the end-all. The real work of strategic planning should be a regular feature of the discourse and thinking of the board and executive team—day in and day out, moving beyond the “moment” (though that’s a good start) to become the central focus of your most important deliberations. Previous Next

< Back A Cautionary Tale of Risk Management in This Time of Bank Failures Gisele Manole Mar 30, 2023 Defining roles and responsibilities and continuing education help ensure appropriate coverage. While the news surrounding the failings and futures of Silicon Valley Bank and Signature Bank remains in the headlines, we are learning a great deal about the role that rising interest rates, cryptocurrency and governance played in each organization’s demise. The federal government reacted quickly to minimize panic that might have destabilized the entire banking industry, and National Credit Union Association Chairman Todd Harper was quick to assuage the fears of our nation’s credit union members, saying “No one has ever lost a single penny of insured share deposits within the credit union system.” And while there is much debate about who or what is ultimately at fault, there are important lessons to be learned from these examples about the risk management responsibilities inherent within your own credit union’s system of governance. The International Organization for Standardization defines risk as “the effect of uncertainty on an objective”—a direct correlation to a credit union’s strategic plan. A secondary definition of risk is simply, “managing uncertainty.” This perspective brings front and center the human dynamics at play in measuring and managing risk. And while enterprise risk management can be clearly defined by the Committee of Sponsoring Organizations of the Treadway Commission, each individual credit union must have its own understanding of risk, or more specifically, its appetite for organizational risk. Ensure that your board, in constructive partnership with your CEO and senior management, has defined an explicit risk tolerance statement that indicates the level of risk your credit union is willing to take. Who’s Responsible for Risk Management? Remember that risk management is not the responsibility of just one entity within your credit union; it should not solely fall upon the shoulders of your internal auditor or your supervisory or audit committee. It is a function of your board, CEO, internal auditor, senior management, and the supervisory or audit committee working in constructive partnership. The board approves the credit union’s risk profile and oversees its ERM program. However, the risk profile itself is developed by the credit union’s board, CEO and senior management during the strategic planning process. Address risks in your strategic planning process by scanning your credit union’s internal and external risks. Does your credit union have a charter for its board-level risk management committee and a job description for its members? Like all best practices, this one is essential. Clearly defining roles and responsibilities around risk management ensures appropriate coverage and a system of checks and balances that won’t leave the credit union unnecessarily exposed. Additionally, a job description will ensure you have the right talent with a collective finger on the pulse of what is happening in our world that will impact the credit union and present opportunities for growth and failure alike. Uncertainty about whether your credit union has the right people in the right seats may indicate a need for a director’s skills assessment that can recommend further education and training. Look to Committees and Director Development Allen DeLeon, CPA, founding partner of DeLeon & Stang , and adjunct consultant with Quantum Governance, advises boards to ask whether their management-level asset/liability committees and board-level finance committees are meeting regularly and having robust conversations about liquidity and asset/liability management. “Make sure that both members of the board (through your finance committee) and senior management (through ALCO or ALM committees) are knowledgeable and experienced and that you are monitoring your rates during this time while the banking sector is under some level of instability,” he says. Lastly, once you have the best and brightest serving your credit union, ensure that you have continuing education requirements and resources at the ready to help your ERM committee stay on top of the shifting sands of cybersecurity, cryptocurrency, regulatory changes and interest rate hikes. To help you in your risk management efforts, you can purchase Quantum Governance’s ERM Policy , which is part of our library of policies, charters, procedures and job descriptions. Previous Next

< Back A Case for Reaching Higher Michael Daigneault and Caitlin Hatch Sep 26, 2017 Musings on the Federal Reserve’s proposed guidance on supervisory expectation for boards In August, the Federal Reserve published its Proposed Guidance on Supervisory Expectation for Boards of Directors and invited comment and discussion on the subject of better performance though better governance—a topic near and dear to us at Quantum Governance . These proposed guidelines, which apply directly to the boards of directors of banks and savings and loans (not credit unions), seek to “establish principles regarding effective boards of directors focused on the performance of a board’s core responsibilities.” These proposed guidelines are inspired largely by the 2007-2009 financial crisis and are designed around supporting “safety and soundness.” While we applaud any effort to improve governance, we are concerned that these guidelines are too focused on the oversight or a “supervisory” role for the board. That is, they are concerned largely with mitigating exposure to risk and, as such, promote a narrow view of the board’s role in governance. Even though the proposed guidelines do not directly apply to credit unions, we think it is vital to comment, as there are natural parallels to credit union governance. The Fed’s proposal seeks to better distinguish the role of the board from that of management by encouraging the board to focus on its core responsibilities: (1) setting clear, aligned and consistent direction; (2) actively managing information flow and board discussions; (3) holding senior management accountable; (4) supporting the independence and stature of independent risk management and internal audits; and (5) maintaining a capable board composition and governance structure. While all of these are admirable goals, they tend to cast the board’s work in the more traditional role of fiduciary oversight, focused on monitoring performance and mitigating risk. While these things are certainly important and necessary for preserving the safety and soundness of a financial institution, they only address one aspect of what makes a board truly effective today. Governance today is not, as the proposed guidelines imply, simply a matter of carving out areas of responsibility and levels of oversight. To foster a highly effective governance culture, a board must create a genuine, constructive partnership with the CEO—and in credit unions, with the supervisory or audit committee as well. This constructive partnership, we believe, is the true foundation of good and effective governance. A well-conceived constructive partnership is one in which the duties and responsibilities of all parties are clearly communicated, understood, respected and mutually supportive of each other. The board knows not to get involved in day-to-day management (indeed, this is one of the desired outcomes stated in the Federal Reserve’s Proposed Guidelines), but its role goes far beyond this basic standard. The proposed guidelines do acknowledge a situation that bedevils credit union boards as well as bank boards—the overly burdensome amount of information a board is expected to review. These requirements consume so much time that a director is, ironically, actually distracted from properly fulfilling what we believe are the higher principles of governance: setting the long-term strategic vison and direction of the credit union; defining “success criteria” which do not necessarily have to be financial in nature; encouraging genuinely diverse ideas and discourse; and, as mentioned above, constructively partnering with the CEO and staff to further the credit union’s mission. In short, we are concerned that the Fed’s proposed guidelines are grounded in an outdated governance model that may foster boards to move back in time, not forward. They appear to be based on a set of legal requirements that focus on a minimum standard. We advocate for all boards to “reach higher” and to put into practice governance principles and skills that are holistic and proven to lead to truly exceptional leadership and ultimately mission success for their credit unions. Caitlin Hatch previously served as a senior consultant with Quantum Governance and has worked with credit unions for the past eight years, focusing on governance and strategic planning. Prior to that, she served for 25 years as general counsel and corporate secretary for the largest anthracite coal company in the United States. Previous Next

< Back Un-Cage Your Thinking Michael Daigneault and Caitlin Hatch May 24, 2016 Good Credit Union Performance Doesn't Equal Good Governance Board members and CEOs frequently ask us: “Do we really need to focus on governance?” Before answering, we ask: “What’s behind your question?” The most common response we receive is, “If it ain’t broke, why fix it?” That is, many assume their governance is effective largely because the credit union’s “numbers are good.” When we suggest “just because a credit union is performing well financially, it doesn’t necessarily mean the credit union is being governed effectively,” we get a lot of blank stares. Our perspective comes as a surprise to some. If the credit union is “doing well” and the board is responsible for the credit union, then doesn’t that mean the board is doing its job effectively? In a word…no. Without a much deeper analysis, simply equating “good credit union performance” with “good board performance” or general “good governance” is leaping to an unwarranted conclusion. Of course, to many board members, it feels perfectly natural to make the leap. That’s because it is a result of how we, as humans, are designed to work. In some situations, making a quick analysis is perfectly appropriate. In others, it can lead to flawed decisions. So, why is the “natural conclusion” unwarranted here? Well…it could be the credit union is blessed with a great CEO and management team who are doing a terrific job – dare we say it? – despite the board! Or, it may be the credit union is fortunate enough to be benefiting from a strong economy. Or, it could be there is a long lag effect and decisions made five years ago are what improved performance. And, yes – it could be the board’s leadership is actually contributing to the credit union’s performance. It’s just that “good governance” is too complex a conclusion to simply reach from “good financial results.” So why do we do it anyway? We instinctively try to create some type of order out of our environment and our experiences by finding meaningful patterns and connections in acts, decisions, and the results that flow from them. We do this because we are designed to do so. Only by being more conscious of (1) how our own minds work, (2) being more aware of what connections we are consciously or unconsciously making, and (3) determining what facts are truly related and relevant to the issue at hand, can we avoid some of the thinking traps. Below are just a few of the tricks our brains regularly play on us while we are trying to “make sense” of our world. They are so subtle and so ingrained we are frequently not even aware of them. By calling them out, by asking each other the hard questions that must be asked at the fiduciary, strategic and generative levels, credit union leaders can together minimize the impact of the tricks our brains can play on us and, thereby, make better decisions. Seeing connections that may not be there . We can all take a little bit of information and build a story linking the bits of information into a simple explanation for what may be a very complex reality. But we don’t always have enough facts, and sometimes we aren’t even asking ourselves the right questions. Is good financial performance the same as good governance? How is the board directly contributing to the credit union’s success? Even if we can’t answer the questions, maybe by being aware the answers shouldn’t be based on an assumption can lead to better discussions, better decisions and a better understanding of what the board is actually contributing to the success of the credit union. Personal bias. We all filter facts through our own experiences so we better understand them. When others perceive our thoughts as open and relevant, we may be viewed by others as wise, aware or even empathetic. When our minds are already made up, when we don’t listen, many view our thinking in terms of a “personal bias.” We need to do all we reasonably can to be aware of our own biases and assumptions and try to be genuinely open about seeing the world differently. The halo effect. Our overall impression of something influences our feeling and thoughts about it, and it can work for you or against you. Take the city of Las Vegas, for example. People tend to either love it or hate it. The halo effect goes beyond a personal bias because you can have an opinion about Las Vegas without ever having been there. This effect can be so strong it can outweigh the facts, especially if they don’t agree with strong feelings or assumptions. Anchoring. We tie thoughts and feelings to a piece of information and then apply it to another piece of information, even if the two things do not have anything in common. We tend to apply specific facts to general circumstances. That first piece of information becomes the “anchor” around which we perform our analysis. Consider a credit union board that bases its discussions on “how we used to do it,” and uses that filter to make decisions for the present day. The analysis is “anchored” to a prior experience that may have little or no relation to the needs of present-day members. The endowment effect. It’s likely you’ve done this one, too. Have you ever assigned more value to your own abilities than others’ abilities? We all tend to think we are better than average. Study after study notes anywhere from 65 percent to 85 percent of people think they are “better than average.” Confidence can be a good thing, but that many people can’t be better than average, it is mathematically impossible. Boards—yes, even your board—may unconsciously assign more value to its efforts than the impact warranted. Your board may be one of the majority of credit union boards that would rate itself as “better than average.” Loss aversion. Credit union boards are notoriously risk adverse. Many strongly prefer avoiding loss to the risk of acquiring gains – or even serving members in better ways! Our focus on avoiding future loss can cause us to overestimate how truly risky some actions are. Being prudent is a good thing, but being extremely conservative can be the riskiest approach of all! These are six examples of how we typically think. This instinctive thinking is one of the things that makes us human, and it is embedded deep within us. But when thoughtful analysis is required, we may get led astray by our instincts. We suggest being aware of the reasons underlying your judgments and actions can help you and your colleagues make better decisions about what you do and how you do it for your credit union, your members and the communities you serve. Caitlin Hatch previously served as a senior consultant with Quantum Governance and has worked with credit unions for the past eight years, focusing on governance and strategic planning. Prior to that, she served for 25 years as general counsel and corporate secretary for the largest anthracite coal company in the United States. Previous Next