Credit union directors are breathing a sigh of relief that their organizations have survived the recent financial crisis and their oversight has moved the industry back into a position of safety and soundness. The years ahead will be a time when volunteers must become more motivated about professional development and hold themselves responsible for creating value through the governance process.

The post-crisis era will be filled with new regulations, technology-driven innovation and economic challenges that will stretch the capabilities of many boards. Sadly, many CUs will not live up to their potential because boards will be either too self-protective or too frozen by the magnitude of the environment’s challenges. The new era will be a time for board members who think big and actively engage management while holding themselves directly accountable for results.

Much has been written over the years about a critical vulnerability in the CU cooperative model: Boards are appointed to oversee executives but who holds the board accountable?

In the for-profit sector, shareholders place pressure on boards to create value or risk being replaced. With CUs, a passive audience of member-owners provides little pressure for true value creation. Certainly, CUs have performed consistently and remained steadfast in their purpose to serve their members. Yet the industry’s stagnant market share indicates the CU model is not living up to its potential. Opportunities to create value through mergers, collaboration, and delivery innovation are given short shrift because boards and executives cannot work together to “think big.”

Boards That ‘Think Big’

In the future, boards that think big and create value will possess the following characteristics:

1. They will have the financial and industry knowledge to govern effectively. While financial education requirements have been a first step, best practice boards may test the knowledge of their members to ensure knowledge is real. While retaining the volunteer spirit, successful CUs will better professionalize their boards.

2. They will spend their time addressing substantive and appropriate issues. Value-creating boards will not frustrate their executives with “nitpicks” about small budget items or misguided grandiose sound bites. Instead, they will take part in fact-based discussions and debates about the issues that could make or break the CU’s strategic plan, and the board chair will play the lead role in ensuring discussions stay at the right level.

3. They will unselfishly look for value in mergers and collaborations. The very best board members will focus on how member value and credit union viability can be created by joining forces with others, even if this means ultimately stepping down from a board position. Many boards have been too protective of their domain to objectively evaluate the benefits of mergers.

4. They will break the log jam of board entrenchment. With or without term limits, value-creating boards will understand that active succession planning, contested elections, transparency and a philosophical commitment to new ideas are critical for the next generation of governance. The best board members will understand that they must drive this change proactively and see the value in fresh, diverse perspectives.

5. They will align compensation with value creation. Today, some CUs passively overpay mediocre executives to track with “peer levels,” and others fail to retain outstanding talent because they focus on controlling compensation expense at all costs. Compensation is most dysfunctional when resentment builds on a board composed of middle-income volunteers who hold a bias that executives “make too much money already.” For-profit boards more actively embrace the idea that paying for the best talent often creates the most value for owners.

While CUs have made great efforts to upgrade governance, it is time to step up our game and deal with the structural vulnerability in the non-profit model. The movement has incredible potential to improve the lives of consumers if we can think more ambitiously than protecting our traditional turf.

Regulators will be ineffective at getting boards to evolve, members will be much too passive and splintered to drive change, and management is clearly in no position to honestly critique their superiors. Instead, it will take true leaders at the board level and on the supervisory committee to spark this change and create a new governance mindset for the CU movement.

Steve Williams is a principal with Cornerstone Advisors Inc., a CUES Supplier member and CUES strategic provider based in Scottsdale, Ariz.