New Jersey Credit Union League

Webinar Series

December 9, 2014

Board of Directors Responsibilities CODE OF FEDERAL REGULATIONS

Title 12—BANKS AND BANKING

PART 701—ORGANIZATION AND OPERATION OF FEDERAL CREDIT UNIONS

§701.4 General authorities and duties of Federal credit union directors.

Board of Directors Responsibilities The board of directors is responsible for the general

direction and control of the affairs of each Federal credit union. While a Federal credit union board of directors may delegate the execution of operational functions to Federal credit union personnel, the ultimate responsibility of each Federal credit union's board of directors for that Federal credit union's direction and control is non-delegable.

Board of Directors Responsibilities (1) Carry out his or her duties as a director in good faith, in a manner such director

reasonably believes to be in the best interests of the membership of the Federal credit union as a whole, and with the care, including reasonable inquiry, as an ordinarily prudent person in a like position would use under similar circumstances;

(2) Administer the affairs of the Federal credit union fairly and impartially and without discrimination in favor of or against any particular member;

(3) At the time of election or appointment, or within a reasonable time thereafter, not to exceed six months, have at least a working familiarity with basic finance and accounting practices, including the ability to read and understand the Federal credit union's balance sheet and income statement and to ask, as appropriate, substantive questions of management and the internal and external auditors; and

(4) Direct management's operations of the Federal credit union in conformity with the requirements set forth in the Federal Credit Union Act, this chapter, other applicable law, and sound business practices.

Board of Directors Responsibilities(d) Reliance. A director may rely on:

(1) One or more officers or employees of the Federal credit union who the director reasonably believes to be reliable and competent in the functions performed or the information, opinions, reports or statements provided;

(2) Legal counsel, independent public accountants, or other persons retained by the Federal credit union as to matters involving skills or expertise the director reasonably believes are matters:

(i) Within the particular person's professional or expert competence, and (ii) As to which the particular person merits confidence; and

(3) A committee of the board of directors of which the director is not a member if the director reasonably believes the committee merits confidence.

Board of Directors ResponsibilitiesCredit Union National Association (CUNA)

Generally speaking, the board's job is to set direction for and control the credit union, making sure it is operated in a sound and prudent manner and that all decisions are guided by the best interests of the members.

Board of Directors ResponsibilitiesPrimary Responsibilities

1. Set policy

2. Plan the credit union's course

3. Make sure the credit union maintains its sound financial condition

4. Keep communication open to educate members on services

5. Review the chief executive officer’s progress in achieving goals and objectives, and

6. Report to the members at the annual meeting

Board of Directors ResponsibilitiesNecessary Knowledge and Skills

1. An understanding of credit union philosophy

2. A desire to better the financial lives of members

3. Ability to understand basic financial statements

4. Ability to think and plan strategically

Board of Directors ResponsibilitiesSpecific Responsibilities Work with the CEO and the board to develop objectives and goals

for the credit union, including strategic plans Make sure the credit union adheres to pertinent laws, regulations,

and sound business practices Make sure the credit union maintains sound financial conditions

and that the credit union's assets are protected against unauthorized or illegal acts. Designate depositories, authorize borrowing and investing, and provide for bonding and other security factors, including internal control policies and procedures. Approve interest rates, dividends, and refunds, or approver policies to guide management in doing so. Approve loan limits and savings minimums.

Develop personnel policies, or make sure they are developed, and then approve them for all credit union programs and activities. Review policies and bylaws at least one a year and update as necessary.

Board of Directors ResponsibilitiesSpecific Responsibilities

Make sure new products and services are developed as needed.

Approve the credit union budget

Define the scope of the CEO's job, hire someone to fill the position, and review his or her progress in attaining goals and objectives.

Attend monthly board meetings, exercise judgment independently from the CEO, and report to the members at the annual meeting.

Board of Directors Responsibilities Key Areas of Responsibility

Exercise sound judgment

Assure the credit union’s viability and strategic direction

Develop and Maintain sound, robust policies

Assess the credit union’s financial performance

Provide guidance and oversight of CEO

Board of Directors ResponsibilitiesF0undational to all other duties is the responsibility to assure that the credit union is pursuing a direction that will assure business success.

Returns and Yields A key contributor to business success is the return, or

yield, resulting from our activities.

Multiple measures or metrics

Loan yield

Investment yield

Return on Equity

Return on Investment

Returns and Yields One measure that is often ignored is:

Return on Time Spent

Because it is not directly seen as a cost it is often taken for granted.

Without a specific measuring stick it is difficult to quantify.

Effective Metrics Hierarchies of time use:

Leading/ Strategic Guidance

Supervising other people’s work

Working

Each is necesary

Effective Metrics Hierarchies of time use:

Working

Completion of regulatory and other required tasks

Most labor intensive

Lowest long-term return on investment

Lowest multiplier effect

Effective Metrics Hierarchies of time use:

Working

What examples of work can you identify?

Effective Metrics Hierarchies of time use:

Supervising

Oversight of other workers’ actions/work

Labor intensive

Mid-level return on investment

Increased multiplier effect

Effective Metrics Hierarchies of time use:

Supervising

What examples of supervision can you identify?

Effective Metrics Hierarchies of time use:

Leading

Strategic thinking and planning focusing on strategic plan and the direction and goals of the credit union.

Least labor intensive

Highest return on investment

Highest multiplier effect

Effective Metrics Hierarchies of time use:

Leading

What examples of leading can you identify?

Line Staff’s Use Line Most line staff are workers

What is the most desirable distribution of workers’ time?

Strategic 5%

Supervision 10%

Work 85%

Supervisor’s Use of Time Department heads and mid-level management are

Supervisors

What is the most desirable distribution of supervisors’ time?

Strategic 10%

Supervision 75%

Work 15%

Leaders’ Use of Time Board members and Senior management are leaders

What is the most desirable distribution of leaders’ time?

Strategic 80%

Supervision 15%

Work 5%

Leaders’ Use of Time Board members and Senior management are leaders

What is the most common distribution of leaders’ time?

Leadership 10%

Supervision 75%

Work 15%

Leaders’ Use of Time Board members and Senior management are leaders

What is the most common distribution of time at your credit union?

Leadership

Supervision

Work

Leaders’ Use of Time Board members and Senior management are leaders

What is the most common distribution of time at a sample of small to mid-size credit unions?

ALCO Board

Leadership 17.6% 13.6%

Supervision 52.9% 59.1%

Work 29.4% 27.3%

Leaders’ Use of Time Board members and Senior management are leaders

Consider the content of a typical Board meeting.

Work 70% or 42 minutes

Supervision 20% or 12 minutes

Leadership 10% or 6 minutes

Leaders’ Use of Time Board members and Senior management are leaders

Consider the content of a high yield Board meeting.

Leadership 70% or 42 minutes

Supervision 20% or 12 minutes

Work 10% or 6 minutes

Leaders’ Use of Time How can we maximize time use by Leaders at your credit

union?

Continue to address all topics but limit discussion time to match target minutes or percent

Streamline presentation to focus on key elements or strategic implications. For example: How does this impact loan growth?

How does this help us improve loan yield?

Will this help control asset/deposit levels?

How can this improve earnings or equity?

Leaders’ Use of Time How can we maximize time use by Leaders at your

credit union?

In relation to work:

Consolidate approvals such as review of supervisory committed audits, and regulatory tasks

Change to a more Supervisory focus by supervising staff members’ procedure and not doing the work themselves

Leaders’ Use of Time How can we maximize time use by Leaders at your

credit union?

In relation to Supervision:

Focus on the content not the form

Consolidate supervisory reports to key points

Leaders’ Use of Time How can we maximize time use by Leaders at your

credit union?

In relation to Leading:

Constantly look for connection of agenda item to the dashboard.

Constantly think how will this improve the long-term position of the credit union.

Enhancing Efficiency Through Technology Utilize cloud ware to develop easy access to board

materials by board members

Provide board members with mobile devices to maximize access to credit union data

Create graphics based dashboards that can be saved in the cloud and accessed by board members for review

Employ virtual meetings to conduct mid-term meetings and access training

Outcomes What outcomes can you reasonably expect from these

actions?

Our board is more energized and excited about what we are doing

Board meetings are sources of positive interactions and innovation

Board discussions become strategic in nature looking out to where the credit union is going

Strategic planning becomes central to each meeting

Questions and Wrap Up Please feel free to contact me with questions or

requests for help

rthompson@tctconsult.com

(208)939-8366

tctconsult.com