How to Spot a Board in Trouble: Tim Harington

This is not a comprehensive list. In fact, we’d like to hear from others the things that they’ve seen or what they look for. We’re sure our smart readership has some things to add. This is also not a checklist. We’re not suggesting that once you’ve identified all eight of these you’ve found your troubled board. (Notice that some of these are countervailing.) But these are things that show up regularly and have been present when dealing with troubles.

How to Spot a Board in Trouble

1. No turnover on the board – Why? Lack of desire for change? Lack of recruiting? Difficulty in recruiting? Contentment with the status quo?
2. Heavy turnover on the board – Again, why?
3. No diversity on the board – this means you really don’t represent the demographics of your membership. (We doubt your field of membership is made up exclusively of 67-year-old white dudes.)
4. The CEO attends all committee meetings – Is this the board’s overreliance on the CEO? Or is this the CEO's inability to let go of control?
5. No executive sessions – This suggests that there is a lack of trust somewhere (or a lack of understanding of executive sessions). See our blog post about this topic.
6. Same chair for the last 20+ years – This is a red flag about resistance to change. (This could be a chair that has been begging for years for someone else to take the helm, which is also a red flag.)
7. Four CEOs in the last five years – Not long ago we talked about the “rebound” CEO, which means it’s very possible to have had three CEOs in the last five years and that’s only a bump in the road and not a red flag. But the minute you reach the number “four” this is a giant red flag.
8. All of the board members are from the single SEG sponsor (even though the CU has had a community charter for years). Do we have to explain this one? See #6.

How to Spot a Board in Crisis

Some of you are going to disagree. We’re fine with that. 

Some of you are going to point out a piece of anecdotal evidence that contradicts what we’ve said above. We’re also fine with that, and we still strongly make our claim despite your story.

Let’s duke it out and talk about it.

Yes. Context is everything. These are red flags that cause us to explore and ask more questions.

 Team Resources

7049 E. Tanque Verde Rd., PMB 136
Tucson, AZ 85715

Phone: 520.290.5721
Fax: 520.290.8378
Cell: 520.906.7501

The Feds New Direction

The Federal Reserve has announced a significant policy shift in its approach to inflation and in how it will consider other economic metrics. Practically speaking, the shift indicates the Fed moving forward will be less inclined to increase interest rates when the unemployment rate falls, as long as inflation isn’t on the rise. 

In remarks delivered virtually, Federal Reserve Chairman Jerome Powell  said, “Many find it counterintuitive that the Fed would want to push up inflation. However, inflation that is persistently too low can pose serious risks to the economy.”

The Fed said it is looking at averaging 2% inflation over time, a departure from its annual goal of 2%.

Powell said the Fed is moving to a position of making  job growth pre-eminent and will not raise interest rates to guard against coming inflation just because the unemployment rate is low.

In fact, said Powell, the Fed will look to tolerate slightly faster consumer price increases if the labor market is strong or strengthening.

What that means is extended low-interest rates, including on mortgages and business loans, according to analysts.

Market Response

• The New York Times reported “market reaction to Mr. Powell’s announcement was mixed. Investors had already penciled in years of rock-bottom interest rates and analysts will be watching for more concrete rate guidance at the Fed’s upcoming meetings.”
• The Times’ analysis further noted the central bank is “facing major long-run challenges as price gains prove tepid and as interest rates have slipped lower across  advanced economies including the United States, leaving Fed officials with less room to cut borrowing costs and coax higher growth following recessions. Those slow-burn problems are what prompted Mr. Powell and his colleagues to revamp their policy framework. At the same time, the coronavirus pandemic has created a a significant short-run threat, shuttering businesses and costing millions of people their jobs.”
• Former Fed Chairman Janet L. Yellen said, “It seems like a pretty subtle shift to most normal human beings. (But) most of the Fed’s history has revolved around keeping inflation under control. This really does reflect a decisive recognition that we're in a very different environment.”
• “The Fed is announcing this policy framework in part to push up inflation expectations,” Seth Carpenter, a former Fed research official now at UBS, told the Times. “In practice, however, getting above 2% is a long way off.”
• If investors believe the Fed’s words are credible, the changes announced Thursday “will increase the accommodative power of policy,” former Fed Chairman Ben Bernanke told the Wall Street Journal. “When you go into a recession, markets will expect a longer period of easier policy and that will, in turn, increase the amount of effective stimulus…They believe, and I agree, that there are substantial social benefits from a strong labor market. Under this strategy, they will not take any steps to cool the labor market unless there is clear evidence of inflationary pressure.”
• The Journal further reported, “The revamp also set the table for the Fed to provide more specifics about how long it expects to keep interest rates low as soon as its Sept. 15-16 meeting. It could do that by putting forward an inflation threshold and a qualitative description of labor market conditions that would warrant higher rates.”

Important Changes Already Happened

• “The important changes have really already happened,” William Dudley, who was president of the New York Fed from 2009 to 2018, told the Wall Street Journal. “People already know the Fed wants to see inflation above 2%. This is a recognition of something that has been pretty implicit for a while.”
• Some critics offered a warning to the Journal that the changes would do little to boost growth and instead would propel asset prices to higher levels, creating financial instability. Others had recommended even bolder steps, such as raising the inflation target, to avoid the low-inflation trap that has hampered central banks in Japan and Europe.
• The Journal noted the Fed is committing to stay off the brake pedal for longer, but Powell said little Thursday about any additional tools the Fed might deploy to press harder on the gas. “They’re not good at pushing on the gas. We’ve seen that for 20 years in Japan,” Adam Posen, president of the Peterson Institute for International Economics, told the Journal. “They can’t force people to buy durable goods. They can’t force banks to lend. They can’t force companies to invest.”
• “The Fed is playing a hand of cards that is missing some of the face cards. It is dealt on a routine basis a less powerful hand of cards,” David Wilcox, a former top Fed economist, told the Journal. “It behooves the Fed to play its hand as well as it possibly can.”

Number of credit unions decline by 100+

As of June 2020, CUNA estimates 5,354 credit unions were in operation, 15 fewer than May and 180 fewer than June 2019. During the first half of 2020, approximately 106 credit unions ceased to exist because of mergers, purchase and assumptions or liquidation, according to the Trends Report.

“During a typical year, 46% of the total decline in the number of credit unions takes place in the first half of the year, which means that we can estimate the 2020 full year decline in the number of credit unions to be 230, above the 143 reported in 2019,” CUNA Mutual said in its analysis. “However, my official forecast is for a decline of 180 credit unions in 2020. The average asset size of a credit union now stands at $312.4 million, up 11.7% from a year ago, while the median asset size is $37.5 million, up 7.4% over the last year, indicating larger credit unions growing faster than their smaller counterparts.”

 If you are a credit union serving first first-responders and thinking of merging or closing, please reach out to us!

"Your Not Alone With NCOFCU!"

NCOFCU is an exclusive network (have been meeting since 2001) of credit unions primarily serving over 900 thousand firefighters, first responders, and their families.

Our collaborative effort is to assist the volunteers and staff of credit unions serving firefighters and first responders with their operational and educational needs and to promote the importance of first responder credit unions to the credit union community.

NCOFCU’s peer two peer networking relationships bring together,

• credit union staff & volunteers with the same employment backgrounds,
• field of membership, and
• financial & educational needs

Through NCOFCU’s exclusive social network and annual conference, credit unions serving first responders are available to assist fellow credit unions in making operational decisions such as;

• possible first responder network merger solutions
• field of membership expansion
• products and services
• both staff and volunteer succession planning
• Recommended Business Partners

NCOFCU’s nation wide board of directors and membership is made up of credit union executives and volunteers from across the country of all asset and membership sizes. It is this diverse makeup that brings forth our goals and objectives that we hope will assist credit unions, serving first responders, to continue to survive and support their memberships.

Please take this opportunity to visit our website www.NCOFCU.org  (virtual tour) and look at the many member benefits, services, and conference scholarships available to you.
 
We are here for you, Grant Sheehan CEO 305-755-3302 CEO@ncofcu.org

Save the Date

Practical Tasks that Achieve Strategic Benefits; by Tim Harrington CPA

Focus the Meeting Agenda & Board Packet on the Important!

By Tim Harrington, CPA

At TEAM Resources, we believe the board packet and monthly board meeting agenda should be built around the credit union’s Purpose (Mission) and Key Strategies. This is board level stuff. As we look at the information generally provided to a board in the packet, most directors cannot easily discern what is important, such as what is supporting the Purpose and Key Strategies. Board packets generally contain a lot of information and detail that is operational in nature. The format of information presented to the board can make their job easier or harder. Out of not knowing exactly what the board really wants from the CEO and the  executive team, the CEO will usually give them a “shotgun approach.” That is very common for CEOs to do in the absence of board guidance.

Start everything with a reminder of “Why We Are Here”: The Mission (Purpose) and Key Strategic Drivers.

From the TEAM Resources approach, the general requirement for the board packet and meeting agenda are as follows:

1. Present your Mission and Key Strategic Drivers (KSDs) at the top of your board Agenda right under the word “Agenda.”

2. Create an Instrument Panel of the Key Strategic Measures.

This will help keep the board (and your management team) discussing the big picture.

3. Limit reports to what is essential and what aligns with Purpose and Strategy:

• CEO report
• Financial Report
• Strategic Report
• Executive Staff reports

4. The Executive Staff Reports should align with Purpose and Strategy.     

• Start every staff report with a direct indication of how this report aligns and supports the Purpose and Key Strategic Drivers (KSDs). 
• This compels the Executive Staff to recall what their big picture purpose is. It also guides the directors reading the report as to why this information is being shared with them.
• Reduce executive staff reports to those things that tie to the Purpose, KSDs, a standard industry ratio, or those that regulation requires.
• Keep the reports as a “brief” or a “summary” unless a high level of detail is required.
• The CFO can do an in-depth financial analysis semi-annually (or at most quarterly). Otherwise the report is a brief or summary that aligns with strategy.

5. Deep Dives:

There is information that is helpful for the board to get a more comprehensive view of, but only periodically. These “Deep Dives” might take place the 1^st and 2^nd month of each quarter for example. They require a little extra meeting time as you go into depth. We would recommend scheduling a deep dive for the following items.

• Asset Liability Management (ALM)
• Investments
• Branch activity
• Commercial lending
• Allowance for Loan Losses (ALL)
• Enterprise Risk Management
• Others as determined by the board

6. Remove from the board packet any info that does not tie to the Purpose and KSDs unless it is:

• required by regulation;
• a pressing urgent need;
• something that is out of the ordinary and important;
• something that is at variance with what was planned;
• a policy update; or
• is just needed due to common sense.

By using these ideas, the board will see and stay on the big picture. The more purely operations information the staff gives, the more directors feel the need to review and question it. By giving reports on the Purpose and Strategy, it helps the board stay on a level where they are really helpful to the organization.

Kevin Smith
Consultant/Publisher
Team Resources
608-217-0556

https://forteamresources.com/tims-blog/
Ksmith@forteamresources.com

Save The Date