Building a Better Board

1. 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

2. Worst Boards • 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 2

3. Best Boards • 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 3

4. 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 4

5. “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 5

6. Keys to a Better Board Key 1: Recruit better Key 2: Nominate better Key 3: Evaluate better Key 4: Govern better 6

7. Recruit Better Don’t Wait until someone comes to you and asks to volunteer! Proactively identify and recruit qualified candidates 7

8. 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 8

9. Nominate Better • Establish standing Nominating Committee • Committee members are assigned to work all year to identify prospects 9

10. 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 10

11. 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 11

12. 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) • Boards tend to not want to hold themselves accountable. But this is CRITICAL!!! 12

13. 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 13

14. Evaluate Better Evaluations “Self-evaluation is not important to a Board, Self-evaluation is essential to a Board.” John Carver 14

15. 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 15

16. 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 16

17. Free Board Evaluation Source http://www.forteamresources.com/board_downloads.html Free evaluations you can do yourself…or EvalRUs.com 17

18. Govern Better The Board is where all authority resides until some of it is delegated to others. 18

19. MEMBERS Board Accountability and Feedback CEO Credit Union Operations 19

20. 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 20

21. 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 21

22. 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 Pre-established expectations (Ends) • CEO must be delegated all the authority needed to match this level of accountability (Means) 22

23. 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 23

24. Govern Better “Whoever is directly responsible for achieving the ends must decide which means to use.” John Carver 24

25. Start all over again! The Governance Process Governance Policies, Strategic Goals and Measurable Results Management Carries Out Plans And Policies Reviews Results, Compares to Plan Evaluation! Reward Management If plan met or exceeded Board (and Management) Management Board and Management Board 25

26. Governance is working“Outside the Box” Values, Mission, Plans, Goals, Policies Operations at the control of CEO Member survey Staff survey Mystery Shops Fraud hotline Board Packet Dash Board External Reports Internal feedback systems External Audit, Internal Audit Regulatory Exam 26

27. 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.” 27

28. 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 28

29. Micro-Managing or Rubber Stamping: A Difficult Balance • A zealous, conscientious board can micro-manage • A trusting board can become a rubber stamp 29

30. 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 30

32. Try something new. You may be surprised what happens. 32

33. 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