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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 Slide 2 Worst 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 compensation and deferred compensationAllowing management to be overpaid in compensation 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 Survey 2 Slide 3 Best 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 3 Slide 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 commonThey do not function. Drucker Boards tend to be incompetent groups of competent individuals. Carver 4 Slide 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 Slide 6 Keys to a Better Board Key 1: Recruit better Key 2: Nominate better Key 3: Evaluate better Key 4: Govern better 6 Slide 7 Recruit Better Dont Wait until someone comes to you and asks to volunteer! Proactively identify and recruit qualified candidates 7 Slide 8 Recruit Better Create an Advisory BoardCreate an Advisory Board Invite key leaders in your field of membership to periodically 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 Dont have to be members Establish a Board Mentor ProgramEstablish a Board Mentor Program Target members on current committees that show promise Let them attend meetings with MentorLet them attend meetings with Mentor 8 Slide 9 Nominate Better Establish standing Nominating CommitteeEstablish standing Nominating Committee Committee members are assigned to work all year to identify prospects 9 Slide 10 Nominating Committee Made up of people who understand the board Perhaps board members not running for next election Identify skills, qualities and experience neededIdentify skills, qualities and experience needed Develop checklists and questionnairesDevelop checklists and questionnaires Do not hesitate to eliminate from nomination prospective candidates who do not meet criteriaThis is a tough, demanding positionDo not hesitate to eliminate from nomination prospective candidates who do not meet criteriaThis is a tough, demanding position 10 Slide 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 Slide 12 Ways to Improve Board An existing board can be improved thru Election process (doesnt work) Term limits (doesnt 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 Slide 13 Evaluate Better Evaluations No better way to improve your board than by evaluations Evaluate Board as a wholeEvaluate Board as a whole Evaluate individual members by peers (Structured Peer Review)Evaluate individual members by peers (Structured Peer Review) Evaluation of Board meetingsEvaluation of Board meetings 13 Slide 14 Evaluate Better Evaluations Self-evaluation is not important to a Board, Self-evaluation is essential to a Board. John Carver 14 Slide 15 Evaluate Better What do you do after evaluations 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 15 Slide 16 Evaluate Better What do you do after evaluations 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 are week inExplain to him or her what areas they are week in Help them find education/conferences in that areaHelp them find education/conferences in that area Monitor that area ongoingMonitor that area ongoing 16 Slide 17 Free Board Evaluation Source http://www.forteamresources.com/board_downloads.html Free evaluations you can do yourselfor EvalRUs.com 17 Slide 18 The Board is where all authority resides until some of it is delegated to others. Govern Better 18 Slide 19 Board Credit Union Operations CEO MEMBERS Accountability and Feedback 19 Slide 20 Oversee and guide the credit union so that the members assets are as safe and productive as possible.Oversee and guide the credit union so that the members assets are as safe and productive as possible. Hire and when necessary, replace managementHire and when necessary, replace management Provide supportive oversight between hire and replaceProvide supportive oversight between hire and replace Remain independent of managementRemain independent of management The role is to govern, not to operate the credit union 20 Slide 21 How a Board Governs Effectively Establishes clear expectationsPlanEstablishes clear expectationsPlan Delegates authority to CEODelegates authority to CEO Checks whether those expectations have been metMeasurement and EvaluationChecks whether those expectations have been metMeasurement and Evaluation Responds appropriately to the resultsResponds appropriately to the results Links CEOs evaluation and compensation to long-term success of companyLinks CEOs evaluation and compensation to long-term success of company 21 Slide 22 Govern Better CEO is the single point of delegation from the BoardCEO 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 is accountable for meeting the Pre- established expectations (Ends) CEO must be delegated all the authority needed to match this level of accountability (Means)CEO must be delegated all the authority needed to match this level of accountability (Means) 22 Slide 23 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 Slide 24 Govern Better Whoever is directly responsible for achieving the ends must decide which means to use. John Carver 24 Slide 25 Governance Policies, Strategic Goals and Measurable Results The Governance Process ManagementBoard (and Management) BoardBoard and Management Management Carries Out Plans And Policies Reviews Results, Compares to Plan Evaluation! Reward Management If plan met or exceeded Start all over again! 25 Slide 26 Governance is working Outside the Box Operations at the control of CEO Board 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 26 Slide 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 Slide 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 Slide 29 Micro-Managing or Rubber Stamping: A Difficult Balance A zealous, conscientious board can micro-manageA zealous, conscientious board can micro-manage A trusting board can become a rubber stampA trusting board can become a rubber stamp 29 Slide 30 Remember who RUNS 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 need to ascertain that the credit union is heading in the right directionBoards 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 unionBut, Boards need to make sure they do not step into managing the credit union The line is sometimes thinThe line is sometimes thin 30 Slide 31 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 CUBoard 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 horizonFocus 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 Slide 32 Try something new. You may be surprised what happens. 32 Slide 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