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Credit Union Strategic Governance

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Credit Union Strategic Governance Credit union strategic governance Paul A Jones, Nick Money and Ralph Swoboda Commissioned and supported by Research Unit for Financial Inclusion Liverpool John Moores University January 2017 1 Credit union strategic governance Published by Research Unit for Financial Inclusion Liverpool John Moores University 79 Tithebarn Street, Liverpool, L2 2ER © Research Unit for Financial Inclusion, 2017 All rights reserved. No part of this report may be reproduced, adapted, stored in a retrieval system or transmitted by any means, electronic, mechanical, photocopying, or otherwise without the prior written permission of the authors. Cornerstone Mutual Services Ltd (CMS) is a credit union service organisation established as a subsidiary of the Association of British Credit Unions Ltd (ABCUL) with the aim of assisting credit unions to compete in the financial services market. CMS manages the Credit Union Expansion Project, of which this governance study forms a part. The authors Paul A Jones is Reader in the Social Economy at LJMU where he heads up the Research Unit for Financial Inclusion. RUFI undertakes academic, action and evaluative research related to the development of financial services for lower and moderate-income households, money and debt advice and credit union development. Nick Money is a business adviser to third sector organisations, social enterprises, credit unions and co-operatives. Nick specialises in governance, business strategy, human resources and recruitment and product and service development. Ralph Swoboda is managing director of CUFA Ltd., a Dublin-based company that provides strategy consulting services and loan portfolio risk management software to credit unions internationally (www.cufa.ie). Ralph has over forty years’ experience in the US and international credit union sector, having served as President/CEO of Credit Union National as Chair of the Management Committee of the Association of British Credit Unions Ltd. and as head of International Operations for CUNA Mutual Group. 2 Credit union strategic governance Contents Preface ................................................................................................................................. 7 Acknowledgments ................................................................................................................. 8 Executive Summary .............................................................................................................. 9 1 A systematic approach to credit union governance ...................................................... 15 1.1 Understanding governance ................................................................................... 15 1.2 Governance as a system and process .................................................................. 18 1.3 Governance and its relation to management ......................................................... 19 1.4 Typical outcomes from misunderstanding the governance function....................... 21 1.5 The interconnectedness of governance principles................................................. 21 2 The function of the board of directors ........................................................................... 24 2.1 Board accountability .............................................................................................. 24 2.2 Board authority and responsibility ......................................................................... 25 2.3 The statement of board roles and responsibilities ................................................. 30 3 The function of the CEO and management .................................................................. 31 3.1 The function and authority of the CEO .................................................................. 31 3.2 The strategic leadership of the CEO ..................................................................... 32 3.3 Skills, characteristics and knowledge of a CEO..................................................... 33 4 The board - management relationship .......................................................................... 35 4.1 Clear division of responsibility ............................................................................... 35 4.2 A relationship built on partnership ......................................................................... 36 4.3 The chair and the CEO ......................................................................................... 37 4.4 Clarity of expectations ........................................................................................... 39 4.5 The delegation of executive authority .................................................................... 40 4.6 A schedule of delegated authority ......................................................................... 42 4.7 The CEO, senior management and other staff members ...................................... 44 4.8 Management of the CEO ...................................................................................... 45 4.9 CEO performance appraisal .................................................................................. 46 4.10 The CEO as an executive director of the board ..................................................... 46 5 Co-operative values, principles and organisational culture ........................................... 48 5.1 Co-operative values .............................................................................................. 49 5.2 Co-operative principles ......................................................................................... 49 3 5.3 Values and principles in transition and development ............................................. 52 5.4 The board’s role in leading a values driven organisational culture ......................... 53 5.5 Monitoring and evaluation ..................................................................................... 53 5.6 Values, principles and business success .............................................................. 54 6 Strategy and the setting of goals and objectives .......................................................... 56 6.1 The strategic business plan .................................................................................. 56 6.2 The strategic planning process ............................................................................. 57 6.3 Setting strategic direction ...................................................................................... 58 6.4 Setting objectives .................................................................................................. 58 6.5 Strategic planning and the assessment of risk ...................................................... 60 6.6 Communicating the strategic plan ......................................................................... 61 6.7 The monitoring of strategic objectives ................................................................... 61 7 Oversight of risk and compliance ................................................................................. 63 7.1 Credit unions and risk ........................................................................................... 63 7.2 Risk governance and risk management ................................................................ 64 7.3 Compliance ........................................................................................................... 68 7.4 The Risk Management Process (RMP) ................................................................. 68 7.5 An audit and risk committee (or supervisory committee) ....................................... 85 8 The role of board policy................................................................................................ 87 8.1 The distinction between board and management policy ........................................ 87 8.2 Policies on the limitations of executive authority.................................................... 88 8.3 The writing and review of board policy .................................................................. 89 9 The role of the board in monitoring performance .......................................................... 91 9.1 The effective use of management information ....................................................... 91 9.2 Monitoring performance against the strategic plan ................................................ 92 9.3 The board objectives report .................................................................................. 92 9.4 The balanced scorecard........................................................................................ 94 9.5 Financial reports ................................................................................................... 98 9.6 Risk register/Risk report ...................................................................................... 101 9.7 Compliance Report ............................................................................................. 102 9.8 The CEO Report ................................................................................................. 102 9.9 Additional papers for Board approval .................................................................. 102 9.10 Access to further management information outside of board meetings ............... 102 10 Board organisation ................................................................................................. 103 10.1 The size and composition of the board ...............................................................
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