By Kevin Davies
While attending CUES' inaugural DLI: Governance institute at the Rotman School of Management in beautiful Toronto this June, "nose in, hands out" was a common Canadian expression, referring to the degree to which directors should be involved in running the credit union business.
According to a Korn-Ferry Institute study, directors average 215 hours per year working in their respective industries, while CEOs average 3,500 hours per year involved in the business. Clearly this puts CEOs more in tune with the inner workings of their credit unions and gives directors the luxury of being able to stand back from the daily routine to focus on their credit unions' futures. Yet, is this what happens? Or is your board more likely to look back in the rear-view mirror than scan ahead through the windshield of your business, in order to drive it in the right direction?
"Today's boards must dive into the corporation's strategy the way they do into the numbers," said Tim Rowley, Rotman associate professor of strategic management and national academic director of the Clarkson Centre for Business Ethics & Board Effectiveness. "Strategy is essential in the creation or destruction of long-term stakeholder value," he added.
A basic question boards need to ask themselves is, "How do we effectively oversee strategic growth plans when management possesses the expertise and information?" Rowley suggested using a value curve to reduce, eliminate, raise and create value for members. "Ultimately, this is how a credit union's value proposition will create profitable growth. The fundamental board objective should be to protect and create value for its members."
Often the board is serving two masters: oversight and strategy. The board is charged with ensuring appropriate disclosure, managing resources, responding to regulation/compliance issues, and monitoring past activities such as financials–all involving oversight of past activities. But the board must be strategic too. That is, the board needs to carve out time to assess potential risk, apply business know-how, and plan and explore strategic focus for the future of the credit union. Accomplishing these tasks is not without obstacles and requires a deep understanding of many operational and strategic issues. However, getting close enough to the organization without crossing the line between board and management can demand surgical precision. So, how does a board remain strategic and ask the right questions needed in order to discover a credit union's new market space? The diagram below depicts the process.
The best news is that it is not the board's responsibility to create the value curve, depicting the organization's member value drivers and corresponding competitors. This is something the board directs management to complete, in order to find your credit union's blue ocean of uncontested market space. Countless case study examples of this are available including: Formula 1 hotel; Cirque du Soleil, Southwest airlines, Curves health clubs, IKEA, Starbucks, Intel, Dell, and the case of Bombardier, a Canadian transportation firm, which we analyzed during DLI: Governance. The following graph illustrates the various customer value drivers and corresponding relative level of offerings for Bombardier (solid line) compared with its main competition.
"Nose in, hands out" should be the mantra for all credit union boards. Directors need to have a nose for news when investigating and sometimes reporting on what's going on with their credit union as well as in the industry. However, when it comes to board effectiveness, they should clearly not have their fingers in the business at hand. Aside from hiring and managing the leader at the helm, boards should be focusing on the planning, strategy, direction, and alignment of the organization by asking unlimited "why" questions and leaving the "how tos" to others.
Kevin Davies is VP/research for CUES and himself a credit union director.
DLI: Governance is a companion to DLI: Strategic Planning. Other DLI: Governance sessions covered Raiffa's Organizing Questions and the Cloud of Unknowing Used in Negotiations, Influencing Change With the 6 Principals of Persuasion, Executive Compensation Strategies, and Enhancing Board Effectiveness With Better Board Practices. In addition, participants were involved in a one-of-a-kind credit union case study dealing with hiring a CEO and conducting a board assessment.
