Since the dawn of time as we know it, credit unions have struggled to find candidates for board seats. Maybe it hasn’t been that bad. In fact, many credit unions have shown tremendous success in cultivating an interested pool of board candidates, and generating hotly contested elections. Others have not… whether by trial or design.

The truth of the matter is that finding board members takes work. It’s not enough to depend on self-starters seeking out the board seat. Unfortunately for the industry, this work may take second fiddle to other work, and worse yet, it might not be the work the board wants management to focus on.

The dilemma at Virginia Credit Union, among others

If attracting and retaining qualified and engaged board members is a challenge, for some credit unions removing an entrenched board may prove an even greater challenge.

In the recent case of Virginia Credit Union (VACU), four members filed a complaint with the NCUA regarding the election procedures at the credit union. The four individuals—Frank Moseley, Kati Hornung, Richard Walker, and Tori Jones—submitted paperwork to run in VACU’s Spring 2022 elections. Their requests were ignored, and finally after a follow-up inquiry as to the status of their declaration, the four were informed that they would not be added to the ballot by the nominating committee despite the fact the committee agreed that the four were qualified.

Read the complaint in full

Per their complaint “no reason was given, no selection criteria, no reason for why it was apparently unnecessary to even interview” the candidates, or why no notice was given to the individuals until they asked for an update months later.

The complainants added that the board had also changed the credit union’s bylaws preventing the nomination of candidates from the floor at the annual member meeting or soliciting signatures from members to be an eligible candidate.

In effect, the board of VACU has created a system where the only individuals that can run for election are themselves, making each election no-contest, and as evidence suggests “no election has actually been held at Virginia Credit Union in at least five years.”

These very serious allegations of the degradation of democratic member control, one of the core cooperative principles upon which all credit unions are formed, shine a light on a risk to the entire credit union industry: member apathy/ignorance paving the way for self-dealing.

Is low voter turnout the issue or the goal?

Theoretically credit union members, the owners, have a say in the outcome of any credit union. The owners elect their board representatives (except in the cases of rogue boards who find loopholes, such as mid-term resignations resulting in direct appointment, or by amending bylaws to serve their interests).

Voter turnout suggests however that members might not care. Or maybe they just don’t know.

I tried finding any information I could on the current board of directors of one of my credit unions. I looked for information on the next annual meeting (it’s in April). I looked for information on how to become a board member. All my searches proved fruitless. This particular credit union’s website has no information on the board available online. I spoke with a member service representative and they didn’t know where to find the information and asked that I email their help desk. I did and got back almost none of the information I requested–just that communications go out in February and March for the April meeting (of which I’ve seen none). I as of yet have no clue if there are open board seats being voted on.

Time and again we hear of merger results where a sliver of the membership voted. 11.4% at Sperry Associates, 8.0% at Washtenaw, 4.65% at Schools Financial. And yet, by rule a minimum of 20% of members must vote for a decision to be approved on selling a credit union to a bank or switching to private insurance…

Coincidentally, in 2020 members of NW Iowa Credit Union voted 2-to-1 against a decision to merge with Siouxland FCU–approximately 21% of members voted. Among the dissenters complaints: excessive retirement packages in excess of $300,000. The board and the President and CEO Steve De Boer expressed disappointment in the result.

The merger was proposed with the reasons given that members would benefit from “advanced products and services with competitive rates” despite the fact that NWICU’s growth of shares (8.4%) and loans (7.9%), operating expense ratio (0.53% of revenue), ROA (0.94%) and delinquency (0.35%) were all better than Siouxland’s March 2020 numbers.

In December 2021, NCUA reported 40 mergers of credit unions. The reasons given for these mergers: poor management, poor financial condition, lack of growth, and finally, expanded services. 34 of those mergers (85%) were for “expanded services.” It makes you wonder how those merged credit unions were doing, how was the merger communicated to members, what was the voter turnout, and what did management stand to gain?

Whether low voter turnout is thanks to apathy or ignorance, boards and executives have certainly realized they can slide through unchecked often.

Will board compensation exacerbate entrenchment?

If board of directors can become entrenched when all they receive is reimbursement for travel to events and the like, will direct compensation create even less incentive for board members to build open and fair election processes?

It’s important to note that direct compensation to directors is not allowed at federally-chartered credit unions. Separate state laws determine the legality of board member compensation for their respective state-chartered credit unions.

As of September 2019, seven states allowed the treasurer alone to receive compensation, and sixteen allowed at least some director compensation. The arguments one article cited for compensating directors included attracting and retaining talented board members; a worthwhile goal all credit unions should seek. The arguments against included it not being “part of the mission” (i.e. it’s a community service role); volunteerism is a bank differentiator; and the financial implications to a credit union’s bottom line. Not cited was entrenchment.

In research conducted by the CCBE and Filene, interviewers sought the opinions of the credit unions and regulators alike on board compensation. Per Filene: “the participants cited effective board renewal as the key benefit of paying board members. Rather than seeing it as a perverse incentive for entrenched directors to hold on even tighter, they believe that paying boards empowers them—obligates them, even—to clean house when necessary.”

In fact, participants believed that by compensating board members, higher expectations are placed on their qualifications and behavior.

“In addition, “rubber stamp” boards present an even greater risk when many millions, or even billions, of members’ dollars are at stake. The credit unions that pay their boards are confident that even a small amount of compensation is enough to enable them to attract a higher caliber of director. If this is true, then the other concerns surrounding board compensation may need to take a back seat,” wrote the author, Matt Fullbrook.

Rather, most participants held the belief that compensation was a far lesser factor in entrenchment than other rigorous board renewal practices. Or as one credit union CEO put it, “nobody leaves the board except for health reasons or because they die.”

One lesson to be learned might be that if your credit union is considering compensating directors to attract better ones, you also take an equally rigorous look at how you manage or even encourage board member turnover.

Term limits as a possible solution

The most obvious solution to the issues of entrenchment, and the opportunities they create for self-dealing, is term limits. But it’s likely not a topic easily broached. Reaching back to the Filene/CCBE study one more time, one participant explained that “the only policy more controversial than director compensation is term limits.”

The Federal Credit Union Act and NCUA regulation do not prohibit credit unions from imposing term limits, but boards may be opposed to it. A 2010 Filene study found that 53% of board directors disagreed with the idea, to only 24% who agreed. Bringing up the topic at a board meeting can be testy at best, especially at credit unions that have long-standing board members who may take it personally.

There are possible drawbacks to term limits though. For every bad board, there are many great boards with long-standing, hard-working, and passionate boards. Should we force out those individuals who have been a boon to the credit unions they served? Will it be hard to find a good replacement?

Yes. It’s worth the effort involved to generate board member turnover. Not just to reduce the risk of board member entrenchment and self-dealing behaviors, but to inject new ideas into the board room.

Members need encouragement to get involved. In many cases, you may have interested members who just don’t know they can run for the board, or the commitment it would require. Don’t give your members an excuse not to care about the democratic control of their financial institution.


  • Esteban Camargo

    As a supervising editor of CUSO Magazine, Esteban reviews and edits submissions, assists in the development of the publishing calendar, and performs his own research and writing. His experience provides CUSO Mag with a seasoned writer and content curator, able to provide valuable input to contributors, correspondents, and freelance journalists. Esteban has worked at CU*Answers since 2008 and currently serves as the CUSO's content marketing manager.

  • chip+filson#1

    March 28, 2022

    one of the most balanced and accurate analysis I have seen on board renewal and compensation. I don’t think the two subjects need to be linked. In fact one result of compensation at a large SCU on the west coat was that it made members even more entrenched.
    I think the solution generally is greater transparency and disclosure about every aspect of the board. YOu comment on not being able to find out anything about your cu’s board on the website let alone election-nomination information. And when included, board information does not cover tenure.
    While there is always a temptation to pass a rule to correct an apparent shortcoming, a standard bylaw requiring greater transparence around the whole election may be one approach. Absent that, maybe the next best solution is to draft a member Bill of Rights and ask that it be included in state and FCU legislation!


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