Directors'%20responsibilities%20accountabilities%20and%20liabilities

Directors’ Responsibilities, Accountabilities and Liabilities Janie Warner warner@classicnet.net

A Few Rules   

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No rules Turn cell phones to vibrate Ask questions – nod in agreement – voice dissent – be part of the discussion If you need to be excused – it’s okay!

Pat yourself on the back

Today’s Objectives   

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What is the job of the Board of Directors?

What are the prerequisites of the job?

What are the duties and responsibilities of a volunteer?

What are the legal responsibilities of the Board of Directors?

Why is self-assessment a BIG DEAL?

The Job 

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The Board of Directors (BOD) is elected by credit union membership and reports to the general membership The BOD generally serve on a voluntary basis Usually is an odd number – not less than 5 and (ideally) no more than 9

The Job 

The BOD is part of the overall management team that includes:  

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A Supervisory or Audit Committee and A Credit Committee (some delegate to loan officers)

The BOD has the ultimate decision making authority and Responsibility for directing and controlling the affairs of the credit union and Provides effective and efficient management of overall operations.

The Job 

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The BOD approves policies that direct operational management and Delegates the necessary authority to staff so they can fulfill their job responsibilities A CEO or Manager is in charge of daily operations – the BOD supervises this person who reports directly to the board

Essential Tools for Volunteers 

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Board members have a fiduciary responsibility to their membership Therefore, Board Members should have a background in business or management OR have sound business acumen Each Director should be able to assess the financial condition and the operational quality of the credit union

Essential Tools for Volunteers 

The BOD should not be reliant on operational management to interpret financial data and other information received.

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The BOD MUST be independent and able to question management about issues they do not understand or are unclear. 

THIS IS VERY IMPORTANT!

Essential Tools for Volunteers 

Each Board Member should be given and have opportunity to fully review a WRITTEN JOB DESCRIPTION

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There should be NO AMBIGUITY regarding their qualifications, duties and responsibilities

Job Description 

The following should be included 

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Must be a member (in good standing?) of the credit union Able to read and interpret financial statements Have basic knowledge of laws governing credit unions Have knowledge of risk measurement and effective management

Job Description 

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Have knowledge of and a commitment to credit union philosophy Familiar with asset/liability management Familiar with lending and collections Familiar with marketing concepts

Job Description  

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Able to work as part of a team Able to commit enough time to successfully complete all of the job duties and responsibilities Possess strong oral communications skills

Job Descriptions should be signed and kept by the credit union along with the application for board membership

Duties and Responsibilities  

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Attend meetings Reconvene monthly meetings if no quorum is present Provide informed/relevant input and participate in decisions of the Board Read ALL information provided BEFORE the monthly meetings

Duties and Responsibilities 

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Make sure the CU complies with all applicable legislation Act on all membership applications – may be delegated to membership officer Approve credit union policy Approve financial statements Approve annual budget Approved annual Business Plan

Duties and Responsibilities 

Develop (in conjunction with management) SHORT and LONG range planning based on: Objectives that meet member needs  Reflect credit union philosophy  Assurance of sound operation 

Duties and Responsibilities 

Hire – Supervise – Evaluate the Performance of CEO/President/Manager       

Set qualifications Write job description Set Goals and Objectives Set Performance Standards Evaluate AT LEAST yearly Set Compensation – including any bonuses Terminate with due cause (documentation!)

Duties and Responsibilities 

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Determine minimum ownership share requirement Determine maximum amount of shares that may be owned by one member Assure that no member shall hold more than 10% of the total shares

Duties and Responsibilities 

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Authorize appropriate investment of credit union funds Determine (from time to time):    

Services offered Loan interest rates and terms Deposit interest rates and terms Types of deposits and loan accounts offered by the credit union

Duties and Responsibilities 

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The BOD has the authority to declare a SHARE DIVIDEND only after all expenses and mandatory payments have been made and regulatory requirements met.

Designates a safe depository for surplus funds and investment Approve any external borrowing of the credit union

Duties and Responsibilities 

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Ensure safe preservation of the credit union’s books and records Assess the adequacy of insurance of credit union assets Authorize CEO (other other as agreed) to sign all official documents on behalf of the credit union

Duties and Responsibilities 

Authorize the writing-off of uncollectible loans and their removal from the books

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Approve loans to DIRECTORS, COMMITTEE MEMBERS and the CEO by a simple vote when the loan exceeds the shares and savings of that person

Duties and Responsibilities 

Propose amendments to the credit union bylaws, subject to approval by regulatory authority

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Plan and reside over all annual and special meetings

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Report to the general membership activities occurring over the past fiscal year

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Report to the general membership the annual budget and proposed use of profits for the next fiscal year

Duties and Responsibilities ď Ž

Determine PHYSICAL security needs of the credit union (safety officer?)

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Ensure that the monthly board minutes and board committee meeting minutes are in writing and prepared within 10 days of the meetings and are verified by the secretary and the presiding officers of the meeting

Duties and Responsibilities ď Ž

Be sure minutes of meetings contain names of members present, date, time and place of the meeting and

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A record of material discussion and all decisions made

Duties and Responsibilities  

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Appoint specific committees Ensure the supervisory and credit committees are fulfilling their duties and responsibilities Fill vacancies on the board, credit and supervisory committees until next annual meeting (or election) Remain current on all credit obligations with the credit union

Duties and Responsibilities 

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Keep the business of the credit union and its members confidential Avoid conflicts of interest (disclose potential conflicts and abstain from voting) Represent the credit union in the community in ways that enhance – not deter – from the reputation of the credit union Promote the credit union and its services

Duties and Responsibilities ď Ž

These duties and responsibilities should be reviewed not only by prospective board members, but NOT LESS THAN annually by ALL Board Members

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This review should be noted in the Board Minutes

Duties and Responsibilities 

Review performance of individuals Attendance  Preparation  Participation  Financial soundness  Moral conduct Formally or informally – should be done no less than annually but more often if needed 

Legal Responsibilities 

The BOD is accountable for the Credit Union’s legal and ethical conduct

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Members demand that their board serve as responsible STEWARDS of the credit union’s (i.e. the members’) resources.

Serious Business 

Credit Unions can be held liable for breaches of law, conduct and ethics

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Volunteers/Board Members can be held Personally Liable as well…

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Be sure you know what those responsibilities are and be ready and willing to act appropriately

Liability and Accountability  

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Fiduciary responsibility is important Today’s society is such that directors can be found personally liable for violations of fiduciary responsibility Where does the danger lie?

Danger Zones 

Most common reasons “non-profits” are sued* 

Employment claims 

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Contract claims 

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Employment, volunteers, programs

Torts/Negligence 

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Length of agreement, termination, work specification, payment terms

Discrimination claims 

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Hiring, firing, contract, benefits

Injuries, theft

Defamation

*2009 BoardSource “Legal Responsibilities of Nonprofit Boards”

Held to a Standard 

Fiduciaries are held to a standard known as the test of Reasonableness and Prudence

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Based in English common law today means that board members are expected to regard and treat the nonprofit organization’s assets and other resources with the same care with which they would treat their own resources.

#1 Fiduciary Failure 

“Guilt by Omission” 

When board members have been passive or otherwise inactive in overseeing the activities of the organization and, consequently, may have failed to adhere to the standards of fiduciary responsibility

#1 Fiduciary Failure 

Remedy/Prevention 

Board members must demonstrate that they appropriately discharged the requisite duties.

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Ignorance is NOT an acceptable excuse when a legal problem demands the board’s attention.

Fundamental Protective Strategies 

Proactive Positive Action 

Be a GOOD Board Member Attend meetings  Be prepared  Ask questions  Be involved in the discussion  Make informed decisions  Do not be passive in the process  Do not “go along to get along” 

Fundamental Protective Strategies 

Proactive Governance 

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Recognize fundamental duties and responsibilities inherent in volunteer board service (and hold each member accountable) Develop a basic understanding of the legal framework that surround the organization and its structure (no, you don’t have to be a lawyer) All members must show good intentions by being accountable for their own actions

Fundamental Protective Strategies 

Tip (this is free!) 

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Use consent agendas to allow the board more time to deliberate on difficult issues Airing ALL sides of an issue carefully is one way to protect board members later on.

Fundamental Protective Strategies 

WARNING 

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Ignorance is NEVER a defense!

ACTION    

Draft policies Ensure policies are followed Refrain from delegating fiduciary duties Rely on expert advice when a particular acumen is missing from the board room

Fundamental Protective Strategies 

Indemnification 

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One party promises to protect another party from losses resulting from risks while carrying out specified duties.

Can cost the credit union $$$ Can purchase insurance to cover indemnification obligations

Fundamental Protective Strategies 

Immunity? 

Volunteer Protection Act of 1997 

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Created to provide certain protections to volunteers, nonprofit organizations and governmental entities in lawsuits based on the activities of volunteers

Does not offer comprehensive umbrella coverage and does not protect the organization itself Covers volunteers if they were acting within the framework of their duties and met the minimum standards of conduct

Fundamental Protective Strategies 

Insurance 

Directors’ and Officers’ (D&O) Insurance 

Liabilities from employment practices – such as allegations of intentional acts

Employment discrimination  Defamation  Constructive discharge  Etc 

Fundamental Protective Strategies 

Tip: 

Questions to ask regarding D&O insurance policies:     

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Who is covered?

Who is excluded?

What is excluded?

How is loss defined?

Are lawyers’ fees, all types of penalties and punitive damages included?

Are defense costs reimbursed or paid as incurred?

Are past acts covered or will former board members be excluded?

Fundamental Protective Strategies ď Ž

WARNING: The practice of providing even modest compensation to nonprofit board members may void their immunity from personal liability!!

Fundamental Protective Strategies 

Questions Boards should ask: 

Does our board periodically (at least every two to three years) review its insurance coverage to make sure it remains adequate and up-to-date?

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Has the board ensured that the personnel policies include all the necessary clauses to help protect us from the most common legal actions?

Fundamental Protective Strategies 

Questions Boards should ask: 

Do we have an insurance policy that covers any indemnification costs if we ever had to indemnify a board member?

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Does our D&O insurance cover defense costs as incurred or not until the proceedings are over? (can create a cash flow issue)

Principles for Good Governance 

Legal Compliance and Public Disclosure

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Effective Governance

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Strong Financial Oversight

Legal Compliance and Disclosure   

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Comply with laws Formally adopted, written code of ethics Policies and procedures regarding conflicts of interest Whistleblower policy Preservation of documents and records Adequate plans to protect assets Information about operations is available

Effective Governance 

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Governing body that is responsible for approving mission, strategic direction, annual budget, key financial transactions, compensation practices and fiscal and governance policies Meet regularly Establish and review size and structure of board Include members with diverse backgrounds and experience Hire, oversee, and annually evaluate the CEO

Effective Governance     

Establish process for educating board members Self evaluation Establish terms and length of terms Review mission and goals Make prudent use of all resources

Strong Financial Oversight    

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Keep complete, current and accurate financial records Independent audits Ensure sound investments in accordance with law Ensure a significant portion of annual budget is spent on programs that pursue the credit union’s mission and adequate administration Clear policies for paying or reimbursing expenses Should NOT pay for nor reimburse travel expenditures for spouses, dependents, or others who are accompanying someone conducting business for the CU unless they are also conducting business.

Chief Executive Compensation  

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Yes, they should be paid!

Focus on reasonableness – excessive benefits raise red flags Rely on compensation studies to pay appropriately Consider expectations, budget and staff size Pay in accordance with EXPERIENCE – not the Job Title!

Tie compensation to performance Bonuses/incentives are okay as long as they are not percentage based.

Self Evaluation 

Simple and easy – right?

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Not usually – requires a BOD to be self critical Requires time and energy Can require $$ Will require diligence and consistency

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Self-Evaluation 

Steps:    

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What did we say we would/would not do?

Did we do what we said we would?

Did we NOT do what we said we would not?

Provide scorecard for each member – by self and by each board member Determine outcome of all major decisions for the past 12 months

Self-Evaluation 

How often? 

Annually?

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Best practice: continual evaluation Assign portion of each monthly meeting to self evaluation  Have auditor assign areas of decision making from past  Discuss thoroughly CU’s successes and failures in that area  Have all board members determine “score” 

Self-Evaluation 

Individual Score Cards      

Attendance Participation Preparation Involvement Credit checks??

Other?

Wrap Up 

Be a Guardian of the Mission

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Ensure Compliance with Laws and Rules

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Promote Collective and Individual Vigilance

Questions/Comments?

Speak up!!

Thank You! Now, go home and be FABULOUS! Janie Warner warner@classicnet.net 501.944.8706 (mobile) 501.661.4876 (office)