CEO Round Table Innovation, Integration, NextGen

Governance Failure in a Credit Union
Other Notable Governance Failures

What is Corporate Governance

The Importance of Corporate Governance

The Fundamentals of Corporate Governance
Fundamentals of Good Boards
Effective Committees
Effective Management

Fundamentals of a Regulatory and Supervisory Oversight of the Governance Function

Key Constructs/Takeaways Outline of Presentation<br>

Hindu Credit Union Co-operative Society Ltd – Trinidad and Tobago
2014 Commissioner of Inquiry Report noted:
The generally poor level of corporate governance at HCU was a major contributor to its failure
Poor corporate governance [was] further illustrated by the various related party transactions
Failing …to improve corporate governance with regard particularly to the operations of the BOD and the credit control
Failing to investigate and monitor HCU’s corporate governance to ascertain whether it complied with the requirements under the CS Act 1971, the Statutory Regulations and the Bye-Laws Governance Failure in a Credit Union<br>

CLICO – Trinidad and Tobago
Wayne Soverall (2012)
The CLICO case illustrates that poor corporate governance, weak risk management practices, and inadequate management information systems were also major contributing factors that led to the collapse of CLICO

Some of the deficiencies in the corporate governance structure of CLICO included too much control by the chairman who was also the chief executive officer

Failure of the directors ‟fiduciary duties”

Failure of the directors ‟duty of care and skill”

Conflicts of interest

Stanford International Bank Ltd – Antigua and Barbuda Other Notable Governance Failures<br>

Corporate governance is the system by which companies are directed and controlled. (The Institute of Chartered Accountants in England and Wales, 2022)








Chart Source: https://www.oncopeptides.com/ What is Corporate Governance<br>

Particular emphasis is place on accountability, integrity and risk management


“… good governance…. is fundamentally about improving transparency and accountability within existing systems.” Source https://www.icaew.com/ What is Corporate Governance Cont’d<br>

Corporate governance for credit union is of great importance given their crucial financial intermediation roles in an economy
Some credit unions have become systemically important

Weak governance can undermine public confidence in a credit union as well as the financial system in which it operates

Directors, committee members and management are required to promote success of the credit union in the interest of members

At best there ought to exist a Corporate Governance framework/manual.
Framework must be made available to all members.
Framework should facilitate and protect the rights of all members.
Governance framework should ensure the equitable treatment of all members. Importance of Corporate Governance<br>

Building Good Boards<br>

The Board plays a critical role in the successful operation of a credit union.
Remember the old adage regarding what happens if the top is “slack”

The Board is chiefly responsible for setting corporate strategy, reviewing managerial performance and maximizing returns for members at an acceptable level of risk

The Board has a core responsibility for formulating sound and prudent policies and practices within the credit union

The Board remains accountable and cannot nullify its overall responsibility Building a Board of Directors: General Overview<br>

Building a more effective board is a process
The role of a board of directors has evolved over the years
The board’s knowledge base should help set the tone for big-picture decision making in a credit union
Boards are really at their best when they're providing guidance and leadership and insight at a higher level in the credit union - "The buck ultimately stops with the board" Building a Board of Directors: General Overview Cont’d<br>

Finding the right people to fill the board is the most crucial part of the process and can often be the most difficult for credit unions
Seek to ensure you have people who understand the credit union and the sector so they can think strategically
Focus on people who understand sort of the nuts and bolts, the operations and finances of the credit union
Incorporate “young and/or dynamic talent” Building a Board of Directors: Filling the Board<br>

Ensure material to be discussed is presented in a timely manner
Meetings should be balanced in terms of discussions – seeking to avoid power grabs and domineering members
Meeting should not be a case of rubber-stamping or else the board may well not exist at all
Corporate records of meetings must be sufficiently detailed Building a Board of Directors: Conduct Effective Meetings<br>

The chairperson of the board of directors should be a leader with:

Vision and problem solving skills

The ability to motivate

Business acumen<br>

Temptation to micro-management
the board must avoid the temptation to micro-manage or intrude in lesser matters or in areas that are more appropriately handled by the management team within the credit union

Unproductive Members
People who are not carrying out their commitments as board members become major blocks to overall board effectiveness Barriers to Board Effectiveness<br>

Absence of a strategic plan
The lack of a strategic plan, in most cases, will also lead to poor board performance

The lack of a formal plan of board training and education to continually upgrade the level of board skills and knowledge

Lack of functioning committees structure
Non functioning of committees can lead to poor performance in general Barriers to Board Effectiveness Cont’d<br>

No plan for orientation of new and old members
Often absent is a plan for the blending of new and old board members into a well-functioning team

The lack of a formal plan of board training and education to continually upgrade the level of board skills and knowledge. Barriers to Board Effectiveness Cont’d<br>

Things to consider including in your board orientation:
Principal pieces of statutes governing the institution
Credit Union’s mission and vision statements
Organizational history
Bylaws and policies
Strategic plan
Corporate governance framework
Financial summaries
Board information
Committee information
Meeting processes Barriers to Board Effectiveness Cont’d<br>

Prospective effectiveness starts at the nomination stage

Expected standards are similar in many regard as in the case of the board

Members should be conversant with the area on which they are serving
Its is not a business of “rubber stamping” Having Effective Committees<br>

Actively monitors execution of Board approved strategies, plans, policies, etc for effective implementation

Ensure there is segregation of duty both at management and line staff.
helps to deter errors and irregularities
can reduce the risk of internal fraud

Roles and responsibilities must be transparent

Avoid micro management

Management should keep the Board of Directors and Committees fully appraised on a timely basis Having Effective Management<br>

Risk Based Supervision currently forms part of the regulatory and supervisory process globally

The effectiveness of the Board of a credit union is a basic tenet of a risk-based supervisory approach

Assessing Operational Management, Corporate Oversight and Governance How do regulators Measures the Effectiveness of Governance<br>

As part of both the on and offsite supervisory process reviews are done of the corporate records
Factors assessed via the minutes include:
Existence of a charter
Whether membership of the Committee is appropriate to the charter
Frequency of meeting in line with charter or purpose
Whether minutes are prepared in a timely manner How do Regulators Measures the Effectiveness of Governance Cont’d<br>

As part of both the on and offsite supervisory process reviews are done of the corporate records
Factors assessed via the minutes include:
Issues discussed in line with charter or purpose
Minutes evidence balanced discussion
Potential conflict of interest declared
Decisions requiring board approval are escalated to the Board
Overall rating is then accorded to the governance area that was reviewed How do Regulators Measures the Effectiveness of Governance Cont’d<br>

The following core standard rating categories are used to assess the Corporate Oversight and Governance functions:

Strong
Characteristics of the function meet or exceed what is considered necessary for the nature, scope, complexity and risk profile of the credit union, and the function has demonstrated highly effective performance on a consistent basis

Acceptable
Characteristics of the function meet what is considered necessary for the nature, scope, complexity and risk profile of the credit union, and the function has demonstrated effective performance Governance Standards Ratings<br>

The following standard rating categories are used to assess the Corporate Oversight and Governance functions:

Needs Improvement
Characteristics of the function generally meet what is considered necessary for the nature, scope, complexity and risk profile of the credit union; but, there are some significant areas that require improvement. Performance has generally been effective; but, there are some significant areas where effectiveness needs to be improved. These areas are not likely to cause serious prudential concerns if addressed on a timely basis

Weak
Characteristics are not, in a material way, what is considered necessary given the nature, Scope, complexity and risk profile of the credit union. Performance has demonstrated serious instances where effectiveness needs to be improved through immediate action Governance Standards Ratings Cont’d<br>

Thank You<br>

Ensure you know the principal piece of legislation governing the sector, regulations, guidelines and the institution’s own polices and procedures
Board and Committee members are not being asked to be loans officers, CFOs, CFAs, CROs, Internal auditors and the like, but there must be some basic understanding of these functions
Board, committee members and management must become conversant of emerging issues that can potentially impact the Credit Union operations for instance climate change and cyber risk
Recruit “young talent”
Understand the macro and micro economic environment in which the credit union operates Some Key Constructs/Takeaways<br>

Thank You!

Contact Details: Morvin Williams
Tel. (268) 764 5815
Email. Morvin.Williams@fsrc.gov.ag
Morvin.willliams@gmail.com<br>