Directors’ Responsibilities, Accountabilities and Liabilities Janie Warner warner@classicnet.net
A Few Rules
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
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
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:
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
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
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.
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
There should be NO AMBIGUITY regarding their qualifications, duties and responsibilities
Job Description
The following should be included
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
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
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
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
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
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
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
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
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
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
Plan and reside over all annual and special meetings
Report to the general membership activities occurring over the past fiscal year
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?)
ď Ž
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
ď Ž
A record of material discussion and all decisions made
Duties and Responsibilities
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
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
ď Ž
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
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
Volunteers/Board Members can be held Personally Liable as well…
Be sure you know what those responsibilities are and be ready and willing to act appropriately
Liability and Accountability
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
Contract claims
Employment, volunteers, programs
Torts/Negligence
Length of agreement, termination, work specification, payment terms
Discrimination claims
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
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.
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
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!)
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
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
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
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:
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?
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?
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
Effective Governance
Strong Financial Oversight
Legal Compliance and Disclosure
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
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
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
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?
Not usually – requires a BOD to be self critical Requires time and energy Can require $$ Will require diligence and consistency
Self-Evaluation
Steps:
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?
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
Ensure Compliance with Laws and Rules
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)