2. How Strong Boards Can Drive Governance Success
Richard C. Powers
Rotman School of Management
University of Toronto

3. C U directors want to spend more time looking forward

4. Board Composition
Member based
Election based
Skills based?

5. Strategic / decision-making capabilities
Credit union boards value decision-making and oversight capabilities over past experience
Strategic / decision-making capabilities
Past experience

6. Other factors to consider
How many other boards?
NFP, Corporate
How many other committees?
How many officer positions?
Attendance?
How many years have they served?
Terms?

7. Nominations Process in Credit Unions
Over 85% use “word of mouth”
Almost 80% consider CEO recommendations?

8. But what do most boards prioritize when actually nominating candidates?
Industry expertise
Senior management experience
Board experience
Known to current board members
WHY?

9. Latest research Almandoz and Tilesik (2016)
Impact of “domain experts” on corporate boards
Focused on failed local banks in the US ( )
Focused on the composition of the boards
The higher the proportion of “domain experts”, the greater the likelihood of failure!

10. Why? In stable (normal) conditions, the “domain experts” were helpful
In situations of high decision uncertainty, unpredictability – negative impact!
“more ambiguous the situation”, the more likely the CEO is likely to look to the board “experts”

11. The Problem “Domain Experts” do have experience
But they are usually older and hold on to previous problem-solving skills that have worked for them
Bias – overconfidence and old assumptions, and…
They often shut down challenges to their views
What is a CEO to do?????

12. Solutions to counter “domain experts”
Open up the organization – encourage thought leadership
Data-driven decision-making
3rd party verification
Pre-mortem analysis

13. Diversity
OMG!!!!
What does it mean?
Gender?
Age?
Ethnicity?

14. Women on Boards Credit Unions take a bow!
Avg. % women - credit union boards – 33%
Corporate boards – USA – 15%
Corporate boards – Canada – 13%
Corporate boards – Europe – 40%

15. Age and Ethnicity of Directors
Less than 25% are under 50 years of age
Less than 8% were under 40 years of age
33% were over 80 years of age
Only 11% represented visible minorities

16. Board Diversity Policy
Only 40% had one
Of those that did – 80% felt their board represented their client base
Of those that did not – only 40 % felt they were representative of their client base

17. What can credit unions do to optimize board composition?
Observe turnover rates and tenure. Would your board benefit from regular renewal?
Consider implementing formal board renewal processes/structures
Elections
Evergreen list
Term/age limits

18. Are there any other solutions?
Yes – appointments!
Respect the democratic process
Bylaw review and changes if required
Experience in Canada

19. Skills Matrix Perform one! What do we need Tied directly to succession
Experience
Organizational
Board
Due diligence

20. Board Evaluations 40% is the average
Smaller the credit union (under $500M), the less likely they are to do evaluations
Formal, rigorous evaluation process
Confidential assessment and one-on-one interviews with Chair

21. Why evaluate? Research is pretty clear
Formal evaluations lead to better boards
More emphasis on skills
Renewal is also positively impacted
Why – regular assessment - identification of skill gaps/ overlaps

22. CU board compensation: Pros and Cons
Attract/retain
Skills enhancement
Increased accountability
Increased time commitment
CONS
$ on directors = $ not spent on something else
Entrenchment
Counter to co-op philosophy

23. Those CUs that compensate directors … do so modestly

24. CEO Succession Planning

25. CEO Succession
Less than 60% of credit unions have a formal succession plan
Large publically traded companies – over 80%
Why?

26. Finally…..Cyber Security
Not a question of if, question of when
Are you prepared?
Hindsight – what has happened already
Oversight – crown jewels, current security framework
Foresight – stress testing, security breach scenarios (Home Depot)
Insight – what will we need in 5, 10, 15 years

27. Monitoring and Compliance
Code of Conduct
Code of Ethics
Legal framework
Ethical Audit
Stakeholders
Products/ services
Corporate objectives
Hypernorm values
Reputation Risk

28. Aligning Values for Ethical Motivation & Action
Board of Directors
Sets Vision, Mission, Strategy, Policies, Codes, Compliance, Feedback, Compensation, Appoints CEO, CFO
Identify ALL Stakeholders
Assess & Rank ALL Interests
Integrate into Corporate Value System & Actions
Corporate Risk Assessment
Prepared by Management for Board Review & Approval
Corporate Culture
Created by Management Leads to Corporate Action
Actions
Motivation
Beliefs
Values 28 28

29. Thank you 29