Why Credit Union Boards Need to Consider Formal Self-Evaluations

If I ask credit union boards “How well do you do as a board?” the answer I typically get is “I think we do a pretty good job.” Yet when I ask, “What do you base this on?” I often get a blank stare. Why is this? Because while credit union directors often think they do a good job, they rarely establish standards and hold themselves accountable to those standards. Directors tend to be good at holding their CEOs accountable, but rarely hold themselves to the same level of accountability.

Do credit union directors hold themselves as accountable as for-profit and charitable organization boards? Not even close. According to a PricewaterhouseCoopers survey of over 1,000 corporate directors, in 2007 88% of public companies conducted a full board evaluation on a regular basis, up from 33% in 2002. In 2004, the New York Stock Exchange (NYSE) adopted a requirement that the boards of listed companies must conduct regular evaluations of their boards of directors.

The boards of nonprofit organizations are also beginning to adopt structured self- evaluation processes. This movement should not be viewed as a “nice to have” trend, but rather a requirement on equal footing with that of for-profit enterprises. In light of this increasing accountability, 52% of nonprofit boards, for example, have conducted a self– assessment, double the percentage from 1994 (PriceWaterhouseCoopers and BoardSource). Per a now aging Filene Research Institute Study, fewer than 30% of credit union boards perform any form of evaluation and most of them don’t do it annually.

What are the benefits of Board self-evaluations?

  • Performance Assessment that helps identify areas of strength and weakness.
  • Continuous Improvement of the performance and effectiveness of the board over time.
  • Accountability, namely holding directors accountable for their performance.
  • Better Alignment for the board with the overall credit union strategy.
  • Communication, an objective, fact-based vehicle for board member communication regarding performance and responsibilities.

As the authors of the PricewaterhouseCoopers study noted: “The periodic need to look inward and accurately gauge one’s own performance is a necessary function for all high-performing organizations. [Credit union] boards are no different. An honest evaluation helps ensure the board as a whole and its individual members are maintaining peak performance and operating effectively.”

In addition to providing a number of benefits to the board as a whole, the vast majority of directors (79%) believe that a formal board evaluation process is the most important method to ensure individual director effectiveness. (PricewaterhouseCoopers study). In that study, only 5% thought term limits accomplished any good.

John Carver, the father of modern board governance has been quoted as saying “Board evaluations are not important to quality board governance, they are essential.”

With this in mind, isn’t it time for your board to consider annual, structured evaluations?

Tim Harrington is a Certified Public Accountant; he is an expert in the field of credit unions. Since 1996, Tim has been President of T.E.A.M. Resources, a firm which provides consulting, strategic planning, and training to credit unions from coast-to-coast. His knowledge, wit and unpretentious delivery make Tim a much sought after speaker. For more information on T.E.A.M. Resources visit: www.forteamresources.com.

He will be presenting at the 2010 Volunteers Conference. Among other timely issues, Mr. Harrington will discuss opportunities for strategic growth in his remarks. Visit the Volunteers Conference page for more information and to register.

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