Don’t ignore the warnings – Improve governance and document our good deeds!
What do recent events in Washington DC, a piece of research undertaken in 2005 by the Filene Institute and a series of events on the other side of the world 10 years ago have in common? And why would these three events send a powerful message to every credit union leader in the country.
Since arriving from Australia just over a year ago, I’ve been traveling the country telling the story of how Australian credit unions when faced with the prospect of taxation told a Senate Inquiry that they should retain their tax exempt status because of their commitment to serving the underserved and the good deeds they did. When asked to provide details of how they did this and the value of this commitment, Australian credit unions could only give anecdotal evidence. They had no verifiable, documentary evidence to back up their claims. Does this story have a familiar ring to it?
In my presentations, I go on to say that one of the most important lessons US credit unions could learn from the loss of credit union tax exemption in Australia was the urgent need to document their good deeds. I also detail how, through the concept of social auditing, this documentation and verification of good deeds could be done in a systematic way. I talk about how a large Australian bank had taken this approach with astounding success.
Another reason given by Australian legislators for removing the tax free status of Australian credit unions was the poor state of board governance. So, I urged credit union boards in this country to improve their governance practices. I make the point that it is not simply good enough for boards to insist on best practice from their management and staff; it is imperative that boards of directors set and maintain the same standards for themselves.
In over 50 presentations to League conferences in 25 states during 2005, I have told these stories and I have continually urged credit union leaders at all levels of the movement to improve their standard of board governance and document and verify their good deeds as important strategic defenses in the ongoing tax battle.
Just a few weeks ago after the Congressional Ways and Mean Hearing, CUNA President Dan Mica summed up the outcome of the hearing when he said that the key issues for credit unions are “transparency, accountability, and verifiability” and that Chairman Thomas “seemed to be laying a broad overall setting for oversight of credit unions’ activities, governance and accountability in comparison to the standards that for-profits entities must meet.”
A recent study by the Filene Institute documented some of the crucial board governance deficiencies that need to be addressed by many credit unions. The research indicated that credit union board directors need to improve their policies and practices particularly in the areas of board composition, succession and performance assessment and also in the involvement of members in the democratic process. These are the most crucial aspects of board governance and boards need to get them right first. What is the point of having excellent policies and practices in all other aspects of governance if the right people are not on the board in the first place?
Assuming that credit union boards have the policies and practices to get the right people, do boards then have the appropriate policies and practices to complete the full governance agenda? For example, are boards taking responsibility for setting the vision, values and strategies for the “good deeds” agenda? Are boards ensuring that their behaviors and those of management and staff are synchronized with the vision and values? Are boards taking responsibility for ensuring that the “good deeds” are occurring in the way the board intended? And finally, are boards taking responsibility for ensuring the “good deeds” are documented, verified and reported?
In my view, these are the basics of good governance for not for profit, member owned organizations like credit unions. The buck stops with the board and the board must accept responsibility for having the governance policies and practices to be able to make the best decisions for members. As a credit union board director in Australia, I experienced the worst governance practices. I lived through a governance improvement program and I experienced what it is like to operate under the best governance practices. While the process of governance improvement is not easy for board directors, it can be done and believe me, it is extremely rewarding. Resistance and fear of the unknown prior to the process were followed at the conclusion of the governance improvement program by the comment – “I wish we’d done this years ago.”
The precedent has been established and the warnings have been given. Australian credit unions failed to document verify their good deeds and didn’t improve their governance standards until it was too late. So the message is clear, not just from an ex-Aussie credit union leader who has seen it all happen once before, but from detailed research, from the movement leadership and most importantly from legislators – improve governance and document and verify your good deeds or face the consequences.
Mark Lynch was a credit union board director in Australia for 22 years before moving to the US in July 2004. He now works as a credit union consultant and presenter, using his vast experience to assist credit unions to improve their board governance and to retain their current tax status. He can be contacted by e-mail at mark.lynch@entertrainmentworks.com or by phone at 906-440-3804.