u.s. senate fcu director liabilities and the fun of being a board member
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Director Liabilities and the Fun of
Being a Board Member
U.S. Senate Federal Credit Union
and their CUSO’s
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Basic Roles and Responsibilities
• Decision making • Oversight • Duty of loyalty • Duty of care
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General Standards
• Standards of Conduct – Good faith – Reasonable belief – Best interests of credit union
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• Standards of Liability – Lack of good faith – Unreasonable belief – Lack of information – Lack of objectivity
Always put the interest of the Credit Union or CUSO first!
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• Business Judgment Rule (std. defense) – Business decision – Good faith – Disinterested parties – Informed judgment – Reasonable belief – Best interests of U.S. Senate FCU – Best interests of Strategic Services, LLC
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Recent Influences
• Sarbanes – Oxley
• Murdock
• Corporates
• CFPB
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Sarbanes - Oxley
• Corporate disclosure and governance
• Insider Accountability and disclosure obligations
• Auditor independence
• Sanctions for criminal and civil wrongdoing
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Selected Provisions
• Safety and soundness
• Corporate governance practices
• Corporate Responsibility
• Enhanced Financial Disclosures
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Potential Trend
• Breach of duty
• Shift in application of business judgment rule
• Suggests personal liability may be imposed where directors fail to adopt and implement a compliance plan
• Trend of NCUA
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Federal Credit Union Context
• NCUA • State corporate law
– Bylaws
– Model Business Corporation Act
• Other federal laws • Sarbanes – Oxley • Financial Literacy
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Areas of Interest Now or in the Future
• Risk Management – Risk Assessment & Planning
• Compliance and ethics training • Internal control standards • Written documentation • Effective Due Diligence • Financial Literacy
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Principles of Corporate Governance
• Board Structure – Size of board – Director qualifications – Selection of new directors – Term limits
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• Board Meetings – Agenda – Advance distribution of materials – Access to employees – Executive sessions – Regular attendance
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• Performance Evaluation – Board effectiveness
– Director evaluation
– Director orientation and continuing education
– CEO evaluation
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CU Strategic Partners, LLC * 2013 Fidelity Bonds Insurance Summary
Coverage
Annual Aggregate
Limit
Single Loss Limit Deductible
Employee [or Director] Dishonesty $1,000,000 $1,000
Premium for Basic Bond Coverages Above
[Faithful Performance] Financial Services Professional Liability $500,000 $2,500
Coverage
Annual Aggregate
Limit Per Claim Deductible
Directors, Volunteers & Employees No Coverage
Employees No Coverage
Officer Limit of Liability Endorsement No Coverage
Entity Endorsement No Coverage
Fiduciary Liability No Coverage
Employment Practices Liability No Coverage
* Policy Certificate from 8/1/11 – 8/1/12
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United States Federal Credit Union * 2013 Fidelity Bonds Insurance Summary
Coverage
Annual Aggregate
Limit
Single Loss Limit Deductible
Employee or Director Dishonesty $6,000,000 $25,000
Premium for Basic Bond Coverages Above
Faithful Performance $5,000,000 $25,000
Coverage
Annual Aggregate
Limit Per Claim Deductible
Directors, Volunteers & Employees
Employees/Management Liability $10,000,000 0
Officer Limit of Liability Endorsement
Entity Endorsement
Fiduciary Liability $1,000,000 $1,000
Employment Practices Liability $5,000,000 $100,000
* Policy Certificate from 8/1/12 – 8/1/13
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What if you breach?
• Breach of duty + damages = potential liability • Indemnification, insurance • Who would sue?
– NCUA, members with uninsured shares, disgruntled ex employees, those not elected to the Board
– Many “members” threaten a lawsuit
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Indemnification
• FCU Bylaws • FCUs may not indemnify officials or
employees for personal liability – Where decision giving rise to claim is determined
by a court to have constituted: • Gross negligence
• Recklessness
• Willful misconduct
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Indemnification 12 CFR 701.33
• Exception will allow advance of funds before final disposition if:
– Disinterested board members/supervisory committee deem officials acted in good faith
– Disinterested individuals determine that payment will not harm safety and soundness
– Corporate governance/Board resolution
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Directors are Responsible for General Direction and Control
of the Credit Union • Duty of good faith • Best interests of membership • Fairly, impartially and without
discrimination in favor of any particular member
• New regulation/financial literacy • Be prepared
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Director Liabilities and the Fun of
Being a Board Member
U.S. Senate Federal Credit Union
and their CUSO’s