Balance of the board: credit union mission and financial stability

Serving on a credit union's board of directors is a significant responsibility that comes with its fair share of challenges and difficult decisions. As member-owned financial cooperatives, credit unions rely on their board members to guide the organization toward success while upholding the interests of their members.

Challenges faced by credit union board members are vast and include balancing the financial needs of the credit union with those of its members, staying informed about the ever-changing financial landscape, understanding the threats facing their credit union and the communities it serves, and ensuring all members are treated fairly.

The reality of difficult financial decisions

Board members routinely face choices that pit short-term member satisfaction against long-term institutional health. These decisions require balancing what members want today with what the credit union needs to serve them tomorrow and for decades to come.

For example, board members may need to approve changes to loan rates or fees to ensure the credit union remains financially stable, even if some members object to these changes. Consider a scenario where the board must decide whether to raise auto loan rates in response to rising funding costs. While members seeking loans will naturally prefer the lowest possible rates, the board must consider:

• Whether current rates adequately compensate for the risk and cost of funds
• How rate changes will impact the credit union's net interest margin and profitability
• Whether the institution can maintain adequate capital reserves for future growth
• How competitors are pricing similar products
• The long-term sustainability of the credit union's lending program

A board that keeps rates artificially low to please members in the short term may jeopardize the credit union's ability to serve those same members in the future. Conversely, a board that focuses solely on financial metrics without considering member impact may drift from the cooperative's fundamental purpose.

Keeping pace with a dynamic financial environment

Staying informed about the ever-changing financial landscape requires a significant time commitment and a willingness to continuously learn and adapt. The financial services industry is constantly evolving, with new regulations, emerging technologies, shifting economic conditions, and changing member expectations regularly reshaping the landscape.

Board members must stay current on topics such as:

• Federal and state regulatory changes that impact credit union operations
• Economic trends affecting interest rates, lending practices, and member financial health
• Competitive pressures from both traditional banks and fintech companies
• Emerging financial products and services that members may need
• Best practices in governance, risk management, and strategic planning

This ongoing education requires dedication beyond quarterly board meetings, including attendance at conferences, participation in training programs, and regular review of industry publications and reports.

Protecting members in the digital age

In today's interconnected world, ensuring adequate cybersecurity measures are in place to protect sensitive member data has become one of the board's most critical oversight responsibilities. This often involves making substantial investments in technology and security infrastructure, which can be a difficult decision when resources are limited.

The consequences of a data breach can be devastating, not only in terms of direct financial losses but also in damage to member trust and the credit union's reputation. Board members must understand cyber risks even if they lack technical expertise and balance the costs of robust cybersecurity measures against other organizational priorities, recognizing that prevention is far less expensive than recovery from a breach.

Maintaining ethical standards and fairness

Volunteer board service also involves navigating complex ethical considerations, such as avoiding conflicts of interest and ensuring that all members are treated fairly. This can be particularly challenging when dealing with issues such as loan approvals or member disputes, especially in smaller communities where board members may have personal relationships with members seeking services.

Board members must be vigilant about:

• Recusing themselves from decisions where they have a personal or financial interest
• Ensuring lending and service policies are applied consistently and without discrimination
• Maintaining confidentiality of sensitive member and organizational information
• Acting in the best interests of all members, not just a select few
• Modeling the cooperative values of honesty, transparency, and democratic participation

These ethical challenges require both strong personal integrity and clear organizational policies that guide decision-making when conflicts arise.

Regulatory requirements for board financial literacy

The National Credit Union Administration (NCUA) recognizes the importance of financially literate board members. Six months from the date of election or appointment, board members are required to have a certain base level of financial skills, consistent with the size and complexity of the credit union operation they serve. At a minimum, directors must have the ability to read and understand the credit union's balance sheet and income statement.

This requirement ensures that board members can:

• Evaluate the credit union's financial condition and performance
• Understand key financial ratios and metrics
• Assess the adequacy of capital and reserves
• Identify potential financial risks and trends
• Make informed decisions about strategic initiatives and resource allocation

Importantly, this financial literacy empowers board members to better navigate the member needs versus organizational health balance. When directors truly understand financial statements, capital requirements, and risk metrics, they can make more informed decisions about how far the credit union can stretch to serve members while maintaining safety and soundness.

As the credit union thrives under the guidance of a knowledgeable board, its members can enjoy the advantages of belonging to a well-governed and financially sound cooperative. These advantages include competitive rates, innovative services, personalized attention, and the satisfaction of being part of a democratic financial institution that puts people before profits.