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Boards need to have and follow a policy regarding conflict of interest.
Boards need to have and follow a policy regarding conflict of interest. If a board doesn’t carry out its conflict of interest policy, the supervisory committee, which has an oversight responsibility under federal and some state regulations, may need to step in.
To fulfill that responsibility, at least one member of the supervisory committee should attend all board meetings, asserts Michael Daigneault, CCD, principal of CUES strategic provider Quantum Governance, Vienna, Va.
Federal credit unions may appoint a director to serve on the supervisory committee, but Daigneault prefers that this committee be totally independent of the board.
“One of the roles of the supervisory committee would be to point out when the potential for a conflict of interest exists, even if directors don’t agree. They may need to say, ‘You should think this through. This may be a conflict of interest for the following reasons.’”
Daigneault compares credit union governance to the checks and balances envisioned in the federal branches of government, with the board serving a similar role to Congress, the CEO and senior management team as the executive branch, and the supervisory committee in a quasi-judiciary role, not in passing judgment, but in helping to ensure adherence to policy.
“The power of the supervisory committee is to ask the hard questions—to call the question, as I like to say,” he notes. “This transparency and the public nature of calling the question is often enough to compel boards to consider whether their actions align with the credit union’s mission.”
The supervisory committee of$100 million Reach Federal Credit Union (now Xceed Financial Credit Union), Menlo Park, Calif., is primarily responsible for ensuring board members and other volunteers adhere to policies spelling out how to avoid conflicts of interest, says President/CEO Chris Petro, a CUES member. “We invite every supervisory committee member to every board meeting so they can see firsthand that directors are adhering to the policy. They are only excluded from executive sessions.”
Strong volunteer leadership is an effective antidote, agrees Jim Warren, CCD, CCE, president/CEO of $1.2 billion, Tyndall Federal Credit Union, Panama City, Fla. “Our current supervisory committee chair is one of the best I’ve worked with, with strong communications skills to convey how to steer clear of conflicts of interest.
“It also helps to have a board chairman who is willing and able to use effective persuasion to steer directors away from potential conflicts and to suggest when it may be time to step out of the room. The message is polite and professional, but straightforward: We want to keep you and the organization above reproach.”
Karen Bankston is a freelance writer based in Middleton, Wis.
