By Richard C. Powers, MBA, LLB
Board responsibilities have changed since the recent financial crisis. Regulatory amendments and increased risk brought on by the mortgage implosion, industry corruption and misjudgment, and general economic downturns have influenced the modern governance model. The two areas most affected are the transparency and accountability of decision making.
But, the increased scrutiny, and responsibility, goes beyond the board as a whole. The changes also mean an increased responsibility, and liability, for individual credit union directors. In today’s society, the credit union is going to get sued by someone at some time, over some real or perceived “wrong,” and if an organization is sued, individual directors will likely be sued as well.
Areas of potential individual director liability include, but are not limited to, errors and omissions and wrongful acts by directors, the board or credit union leadership, as well as vicarious liability—that is, directors are being held responsible for the errors of employees and other volunteers.
There are several ways directors can meet and surpass the new levels of scrutiny while protecting the credit union, and its individual directors, from risk. For example, indemnification insurance for directors is a must, as is keeping up with new regulatory requirements for individual directors. For example, meeting the new NCUA requirement that directors demonstrate a “working familiarity of basic finance and accounting practices.”
Richard C. Powers, MBA, LLB, is the National Academic Director, Directors Education Program & Governance Essentials Program, Joseph L. Rotman School of Management, University of Toronto, Toronto.
Examine all the duties, risks and liabilities today’s credit union directors face with Powers at CUES’ Directors Leadership Institute: Governance June 3-6, in Toronto.
