Building a Better BoardBuilding a Better Board

Tim Harrington, CPATim Harrington, CPAT.E.A.M. ResourcesT.E.A.M. Resources

7049 E. Tanque Verde Road, PMB 1367049 E. Tanque Verde Road, PMB 136

Tucson, AZ 85715Tucson, AZ 85715

800-788-9542 e-mail: tharrington@forTeamResources.com800-788-9542 e-mail: tharrington@forTeamResources.com

Worst BoardsWorst Boards

• Interlocking directorshipsInterlocking directorships• Holding NO meetings without the CEO presentHolding NO meetings without the CEO present• No nominating committee in placeNo nominating committee in place• Allowing the CEO to handpick directorsAllowing the CEO to handpick directors• Awarding contracts to family membersAwarding contracts to family members• Allowing management to be overpaid in Allowing management to be overpaid in

compensation and deferred compensationcompensation and deferred compensation• Having too many insidersHaving too many insiders• Too many directors on too many boardsToo many directors on too many boards

BusinessWeek, Annual Corporate Board SurveyBusinessWeek, Annual Corporate Board Survey

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Best BoardsBest Boards

• Independent and interested directorsIndependent and interested directors• Remain on level of Planning and PolicyRemain on level of Planning and Policy• Plan with clear and measurable goalsPlan with clear and measurable goals• Monitor plan status regularlyMonitor plan status regularly• Hold periodic meetings without CEO presentHold periodic meetings without CEO present• Develop effective nominating committeeDevelop effective nominating committee• Avoid Conflicts of Interest and NepotismAvoid Conflicts of Interest and Nepotism• Evaluate CEO based on achievement of planEvaluate CEO based on achievement of plan• Compensate CEO based on achievement of planCompensate CEO based on achievement of plan• Evaluate their own performanceEvaluate their own performance

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What has been said of BoardsWhat has been said of Boards

““Effective governance by a board is a relatively Effective governance by a board is a relatively rare and unnatural act.”rare and unnatural act.” ChaitChait

““There is one thing all boards have in There is one thing all boards have in common…They do not function.”common…They do not function.” DruckerDrucker

““Boards tend to be incompetent groups of Boards tend to be incompetent groups of competent individuals.”competent individuals.” CarverCarver

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““The illiterate of the 21st century will not be The illiterate of the 21st century will not be those who cannot read and write, but those those who cannot read and write, but those who cannot learn, unlearn, and relearn.”who cannot learn, unlearn, and relearn.”

——Alvin TofflerAlvin Toffler

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Keys to a Better BoardKeys to a Better Board

Key 1: Recruit betterKey 1: Recruit better

Key 2: Nominate betterKey 2: Nominate better

Key 3: Evaluate betterKey 3: Evaluate better

Key 4: Govern betterKey 4: Govern better

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Recruit BetterRecruit Better

Don’t WaitDon’t Wait until someone comes to you and until someone comes to you and asks to volunteer!asks to volunteer!

Proactively identifyProactively identify and and recruitrecruit qualified qualified candidatescandidates

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Recruit BetterRecruit Better

• Create an Create an Advisory BoardAdvisory Board– Invite key leaders in your field of membership to Invite key leaders in your field of membership to

periodically attend meetingsperiodically attend meetings• Give them a voiceGive them a voice

• Solicit their adviceSolicit their advice

• Reward them with dinner or gift for serviceReward them with dinner or gift for service– Don’t have to be membersDon’t have to be members

• Establish a Board Mentor ProgramEstablish a Board Mentor Program– Target members on current committees that show Target members on current committees that show

promisepromise• Let them attend meetings with Mentor Let them attend meetings with Mentor 8

Nominate BetterNominate Better

• Establish Establish standingstanding Nominating Committee Nominating Committee– Committee members are assigned to work all year Committee members are assigned to work all year

to identify prospectsto identify prospects

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Nominating CommitteeNominating Committee– Made up of people who understand the boardMade up of people who understand the board– Perhaps board members not running for next Perhaps board members not running for next

electionelection

• Identify skills, qualities and experience Identify skills, qualities and experience neededneeded

• Develop checklists and questionnairesDevelop checklists and questionnaires

• Do not hesitate to eliminate from Do not hesitate to eliminate from nomination prospective candidates who do nomination prospective candidates who do not meet criteria…This is a tough, not meet criteria…This is a tough, demanding positiondemanding position

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Nominate BetterNominate Better

Nominating CommitteeNominating Committee– Must understand how complex credit unions are Must understand how complex credit unions are

todaytoday– Should screen candidates with critical eyeShould screen candidates with critical eye– Should determine how to deal with incumbent Should determine how to deal with incumbent

candidates running again for seatcandidates running again for seat– Should use Self-evaluation results to determine Should use Self-evaluation results to determine

qualificationsqualifications– Should not accept ‘incumbency’ as a qualification Should not accept ‘incumbency’ as a qualification

for nominationfor nomination11

Ways to Improve BoardWays to Improve Board

An existing board can be improved thru

• Election process (doesn’t work)

• Term limits (doesn’t work)

• Self-evaluations (works! But tough to get boards to do this)

– Boards tend to not want to hold themselves accountable. But this is CRITICAL!!!

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Evaluate BetterEvaluate Better

EvaluationsEvaluationsNo better way to improve your board than by No better way to improve your board than by evaluationsevaluations

• Evaluate Board as a wholeEvaluate Board as a whole

• Evaluate individual members by peers Evaluate individual members by peers (Structured Peer Review)(Structured Peer Review)

• Evaluation of Board meetingsEvaluation of Board meetings

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Evaluate BetterEvaluate Better

EvaluationsEvaluations““Self-evaluation is not important to a Board,Self-evaluation is not important to a Board,

Self-evaluation is essential to a Board.”Self-evaluation is essential to a Board.”

John CarverJohn Carver

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Evaluate BetterEvaluate Better

What do you do after evaluationsWhat do you do after evaluations

If they are all good?If they are all good?

• Pat yourself on the back and celebratePat yourself on the back and celebrate

• Check your level of honestyCheck your level of honesty

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Evaluate BetterEvaluate Better

What do you do after evaluationsWhat do you do after evaluations

If they are not so good?If they are not so good?

• Meet with member who is falling shortMeet with member who is falling short

• Explain to him or her what areas they Explain to him or her what areas they are week inare week in

• Help them find education/conferences Help them find education/conferences in that areain that area

• Monitor that area ongoingMonitor that area ongoing 16

Free Board Evaluation Sourcehttp://www.forteamresources.com/board_downloads.html

Free evaluations you can do yourself…or EvalRUs.com

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The Board is where The Board is where

all authority resides all authority resides

until some of ituntil some of it

is delegated to others.is delegated to others.

Govern BetterGovern Better

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Board

Credit Union

Operations

CEO

MEMBERS

Accountability Accountability and Feedbackand Feedback

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• Oversee and guide the credit union so that the Oversee and guide the credit union so that the members’ assets are as safe and productive as members’ assets are as safe and productive as possible.possible.

• Hire and when necessary, replace managementHire and when necessary, replace management

• Provide supportive oversight between hire and Provide supportive oversight between hire and replacereplace

• Remain independent of managementRemain independent of management

The role is to govern, not to The role is to govern, not to operate the credit unionoperate the credit union

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How a Board Governs EffectivelyHow a Board Governs Effectively

• Establishes clear expectations…PlanEstablishes clear expectations…Plan

• Delegates authority to CEODelegates authority to CEO

• Checks whether those expectations have Checks whether those expectations have been met…Measurement and Evaluationbeen met…Measurement and Evaluation

• Responds appropriately to the resultsResponds appropriately to the results

• Links CEO’s evaluation and compensation Links CEO’s evaluation and compensation to long-term success of company to long-term success of company

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Govern BetterGovern Better

• CEO is the single point of delegation from CEO is the single point of delegation from the Boardthe Board– Board has one employeeBoard has one employee– CEO has one boss, Board as a ‘whole’CEO has one boss, Board as a ‘whole’

• CEO is accountable for meeting the Pre-CEO is accountable for meeting the Pre-established expectations (Ends)established expectations (Ends)

• CEO must be delegated all the authority CEO must be delegated all the authority needed to match this level of accountability needed to match this level of accountability (Means)(Means)

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Board Speaks with One VoiceBoard Speaks with One Voice

Board Speaks with One Voice Board Speaks with One Voice

Statements by individual board members Statements by individual board members have NO AUTHORITYhave NO AUTHORITY

Board speaks authoritatively when it passes Board speaks authoritatively when it passes an official motion or makes an official an official motion or makes an official strategystrategy

One Voice or None at AllOne Voice or None at All

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Govern BetterGovern Better

““Whoever is directly responsible for achieving Whoever is directly responsible for achieving the ends must decide which means to use.”the ends must decide which means to use.”

John CarverJohn Carver

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GovernancePolicies,Strategic

Goals and Measurable

Results

The Governance ProcessThe Governance Process

ManagementBoard (and Management)

BoardBoard and Management

ManagementCarries

Out Plans And Policies

ReviewsResults,

Compares toPlan

Evaluation!Reward

ManagementIf plan met or exceeded

Start all over again!Start all over again!

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Governance is workingGovernance is working“Outside the Box”“Outside the Box”

Operations at the Operations at the control of control of

CEOCEOBoard Packet Dash Board External Reports Internal feedback systems

Member survey Staff survey Mystery Shops Fraud hotline

Values, Mission, Plans, Goals, Policies

External Audit, Internal Audit Regulatory Exam

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Credit Union Credit Union Directors NewsletterDirectors Newsletter

““Boards should meet regularly without Boards should meet regularly without management present and should evaluate management present and should evaluate their performance every year. Audit their performance every year. Audit committees should meet at least four times a committees should meet at least four times a year. Boards should be frugal on executive year. Boards should be frugal on executive pay, decisive when planning CEO succession, pay, decisive when planning CEO succession, diligent in oversight responsibilities, and diligent in oversight responsibilities, and quick to act when trouble strikes.”quick to act when trouble strikes.”

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Boards should meet regularly Boards should meet regularly without the CEO presentwithout the CEO present

– Allows candid discussion that may be stifled Allows candid discussion that may be stifled with CEO presentwith CEO present

– Allows Boards to remember and practice their Allows Boards to remember and practice their independenceindependence

– BUT: Keep general minutesBUT: Keep general minutes– Inform the CEO what the meeting generally Inform the CEO what the meeting generally

coveredcovered– This is not a ‘get the CEO’ sessionThis is not a ‘get the CEO’ session

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Micro-Managing Micro-Managing or Rubber Stamping: or Rubber Stamping:

A Difficult BalanceA Difficult Balance

• A zealous, conscientious A zealous, conscientious board can micro-manageboard can micro-manage

• A trusting board can A trusting board can become a rubber stampbecome a rubber stamp

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Remember who Remember who RUNS the Credit UnionRUNS the Credit Union

• Board oversees and governs the credit unionBoard oversees and governs the credit union• Management runs the credit unionManagement runs the credit union• Boards need to define what information they Boards need to define what information they

need to ascertain that the credit union is need to ascertain that the credit union is heading in the right directionheading in the right direction

• But, Boards need to make sure they do not But, Boards need to make sure they do not step into managing the credit unionstep into managing the credit union

• The line is sometimes thinThe line is sometimes thin

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Working Board

Managing Board

Governing Board

Ratifying Board

Failing Board

No CEO or Acting CEO

Board assumes CEO needs help running org

Competent CEO and experienced staff that knows more than board

Board hires a good CEO and stays out of his/her way

CEO controls Board. Board inactive or ineffective

Small CU Board involved in minutiae, manager of CEO

Clear division between Ops and Governance

Organization OK but board in decline

Financial, audit, or ethical issues

Board doing job of CEO

Board assigns tasks to CEO

Focused on Board Work, concerned with values

Board approves what CEO brings

CEO doing job of board

Focus on day-to-day operations

Board hands on and proud of it

Operates on future/strategic level

Out of touch, complacent, delegating Gov.

Looking to the past, way behind staff

Short time horizon Focus on administration & Operations

Delegates Operations to CEO

Stale policies, little accountability

Not strategic, crippled by in-fighting or inertia

Primary role is operations

Primary role is making decisions

Primary role is setting policy and general direction

Primary role is supporting CEO, rubber stamping

Primary role of board is keeping perks

Try something new.Try something new.

You may be surprised what You may be surprised what happens.happens.

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Building a Better BoardBuilding a Better Board

Tim Harrington, CPATim Harrington, CPAT.E.A.M. ResourcesT.E.A.M. Resources

7049 E. Tanque Verde Road, PMB 1367049 E. Tanque Verde Road, PMB 136

Tucson, AZ 85715Tucson, AZ 85715

800-788-9542 e-mail: tharrington@forTeamResources.com800-788-9542 e-mail: tharrington@forTeamResources.com