Building a Better Board
Tim Harrington, CPA
T.E.A.M. Resources
7049 E. Tanque Verde Road, PMB 136
Tucson, AZ 85715
800-788-9542 e-mail: tharrington@forTeamResources.com
Worst Boards
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Interlocking directorships
Holding NO meetings without the CEO present
No nominating committee in place
Allowing the CEO to handpick directors
Awarding contracts to family members
Allowing management to be overpaid in
compensation and deferred compensation
• Having too many insiders
• Too many directors on too many boards
BusinessWeek, Annual Corporate Board Survey
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Best Boards
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Independent and interested directors
Remain on level of Planning and Policy
Plan with clear and measurable goals
Monitor plan status regularly
Hold periodic meetings without CEO present
Develop effective nominating committee
Avoid Conflicts of Interest and Nepotism
Evaluate CEO based on achievement of plan
Compensate CEO based on achievement of plan
Evaluate their own performance
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What has been said of Boards
“Effective governance by a board is a relatively
rare and unnatural act.” Chait
“There is one thing all boards have in
common…They do not function.” Drucker
“Boards tend to be incompetent groups of
competent individuals.” Carver
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“The illiterate of the 21st century will not be
those who cannot read and write, but those
who cannot learn, unlearn, and relearn.”
—Alvin Toffler
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Keys to a Better Board
Key 1: Recruit better
Key 2: Nominate better
Key 3: Evaluate better
Key 4: Govern better
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Recruit Better
Don’t Wait until someone comes to you and
asks to volunteer!
Proactively identify and recruit qualified
candidates
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Recruit Better
• Create an Advisory Board
– Invite key leaders in your field of membership to
periodically attend meetings
• Give them a voice
• Solicit their advice
• Reward them with dinner or gift for service
– Don’t have to be members
• Establish a Board Mentor Program
– Target members on current committees that show
promise
• Let them attend meetings with Mentor
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Nominate Better
• Establish standing Nominating Committee
– Committee members are assigned to work all year
to identify prospects
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Nominating Committee
– Made up of people who understand the
board
– Perhaps board members not running for
next election
• Identify skills, qualities and experience
needed
• Develop checklists and questionnaires
• Do not hesitate to eliminate from
nomination prospective candidates
who do not meet criteria…This is a
tough, demanding position
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Nominate Better
Nominating Committee
– Must understand how complex credit unions are
today
– Should screen candidates with critical eye
– Should determine how to deal with incumbent
candidates running again for seat
– Should use Self-evaluation results to determine
qualifications
– Should not accept ‘incumbency’ as a qualification
for nomination
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Ways 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)
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Boards tend to not want to hold themselves
accountable. But this is CRITICAL!!!
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Evaluate Better
Evaluations
No better way to improve your board than by
evaluations
• Evaluate Board as a whole
• Evaluate individual members by peers
(Structured Peer Review)
• Evaluation of Board meetings
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Evaluate Better
Evaluations
“Self-evaluation is not important to a Board,
Self-evaluation is essential to a Board.”
John Carver
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Evaluate Better
What do you do after evaluations
If they are all good?
• Pat yourself on the back and celebrate
• Check your level of honesty
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Evaluate Better
What do you do after evaluations
If they are not so good?
• Meet with member who is falling short
• Explain to him or her what areas they
are week in
• Help them find education/conferences
in that area
• Monitor that area ongoing
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Free Board Evaluation Source
http://www.forteamresources.com/board_downloads.html
Free evaluations you can do
yourself…or EvalRUs.com
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Govern Better
The Board is where
all authority resides
until some of it
is delegated to others.
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MEMBERS
Board
Accountability
and Feedback
CEO
Credit
Union
Operations
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The role is to govern, not to
operate the credit union
• Oversee and guide the credit union so that the
members’ assets are as safe and productive as
possible.
• Hire and when necessary, replace management
• Provide supportive oversight between hire and
replace
• Remain independent of management
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How a Board Governs Effectively
• Establishes clear expectations…Plan
• Delegates authority to CEO
• Checks whether those expectations have
been met…Measurement and Evaluation
• Responds appropriately to the results
• Links CEO’s evaluation and compensation
to long-term success of company
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Govern Better
• CEO is the single point of delegation from
the Board
– Board has one employee
– CEO has one boss, Board as a ‘whole’
• CEO is accountable for meeting the Preestablished expectations (Ends)
• CEO must be delegated all the authority
needed to match this level of accountability
(Means)
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Board Speaks with One Voice
Board Speaks with One Voice
Statements by individual board members
have NO AUTHORITY
Board speaks authoritatively when it passes
an official motion or makes an official
strategy
One Voice or None at All
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Govern Better
“Whoever is directly responsible for achieving
the ends must decide which means to use.”
John Carver
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Start all over again!
The Governance Process
Governance
Policies,
Strategic
Goals and
Measurable
Results
Board (and
Management)
Management
Carries
Out Plans
And Policies
Management
Reviews
Results,
Compares to
Plan
Board and
Management
Evaluation!
Reward
Management
If plan met
or exceeded
Board
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Governance is working
“Outside the Box”
Values, Mission,
Plans, Goals, Policies
Member survey
Staff survey
Mystery Shops
Fraud hotline
Operations at the
control of
CEO
External Audit,
Internal Audit
Regulatory Exam
Board Packet
Dash Board
External Reports
Internal feedback
systems
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Credit Union
Directors Newsletter
“Boards should meet regularly without
management present and should evaluate
their performance every year. Audit
committees should meet at least four times a
year. Boards should be frugal on executive
pay, decisive when planning CEO succession,
diligent in oversight responsibilities, and
quick to act when trouble strikes.”
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Boards should meet regularly
without the CEO present
– Allows candid discussion that may be stifled
with CEO present
– Allows Boards to remember and practice their
independence
– BUT: Keep general minutes
– Inform the CEO what the meeting generally
covered
– This is not a ‘get the CEO’ session
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Micro-Managing
or Rubber Stamping:
A Difficult Balance
• A zealous, conscientious
board can micro-manage
• A trusting board can
become a rubber stamp
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Remember who
RUNS the Credit Union
• Board oversees and governs the credit union
• Management runs the credit union
• Boards need to define what information
they need to ascertain that the credit union
is heading in the right direction
• But, Boards need to make sure they do not
step into managing the credit union
• The 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-today 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 infighting 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.
You may be surprised what
happens.
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Building a Better Board
Tim Harrington, CPA
T.E.A.M. Resources
7049 E. Tanque Verde Road, PMB 136
Tucson, AZ 85715
800-788-9542 e-mail: tharrington@forTeamResources.com