Board of Director: Delegable vs. Non-delegable Duties

Someone told me that tomorrow is Valentine’s Day. If you’re looking for love advice, you’ve come to the right place. Word on the street is the quickest way to make someone fall for you is a stare down from Chuck Norris… and probably roses.

What would not be a good idea is to delegate the responsibility of impressing a love interest to a friend, because you just might lose the girl. This is analogous to a federal credit union’s Board of Directors (board) delegating direction and control of the Federal Credit Union to an employee. Well, unless that employee is Chuck Norris, then the directors would have no choice but to comply.

As the National Credit Union Administration (NCUA) discussed in this opinion letter, directors have certain general duties when serving a federal credit union:

“The final rule contains the following six key provisions:

1. The board of directors is responsible for the general direction and control of a federal credit union. The board may delegate operational functions to management, but not the responsibility for the credit union’s direction.

2. A director must carry out his or her duties in good faith, in a manner reasonably believed to be in the best interests of the membership, and with such care, including reasonable inquiry, as an ordinarily prudent person in a like position would use under similar circumstances.

3. A director must administer the affairs of the credit union fairly and impartially and without discrimination in favor of or against any particular member.

4. A director must have at least a working familiarity with basic finance and accounting practices, including the ability to read and understand the credit union’s balance sheet and income statement and the ability to ask, as appropriate, substantive questions of management and auditors.

5. A director must direct the operations of the federal credit union in conformity with the Federal Credit Union Act, NCUA’s Rules and Regulations, other applicable laws, and sound business practices.

6. A director may rely on information prepared or presented by employees or consultants the director reasonably believes to be reliable and competent and who merit confidence in the particular functions performed.”

Emphasis added. As the first point above notes, the board may delegate certain functions to management. So, how does this work in practice? Outside of an official NCUA opinion letter, we must piece together our available resources.

NCUA regulation §701.4(a) is where we find the relevant controlling language. “While a Federal credit union board of directors may delegate the execution of operational functions to federal credit union personnel, the ultimate responsibility of each Federal credit union’s board of directors for that Federal credit union’s direction and control is non-delegable.” Emphasis added.

The NCUA opinion letter expounds a little more on what delegation means:

“Paragraph 701.4(a) provides, in part, that “while the board may delegate execution of operational functions to [management], the ultimate responsibility for [the credit union’s] direction and control is not delegable.”

The board may delegate management functions to senior management. The board, however, must directly exercise its authority to hire, fire, determine duties, set compensation, and discipline senior management. The board must also ensure that appropriate policies are in place to guide senior management in the execution of their duties.

To properly exercise the control and direction of the credit union, directors must ensure they are properly informed about what is happening in the credit union. Directors should not rely solely on the reports of senior management, but also consider the reports of the supervisory committee and internal and external auditors. Where necessary, the board may also request credit union employees provide information directly to the board, and not through senior management. The board may also hire consultants that report directly to the board, and not to senior management.”

Despite some limitations, management still contributes to the direction and of the federal credit union. The NCUA’s Examiner’s Guide encourages management to develop operational procedures to carry out board policy. When examining management, the examiners “determine whether operating management has developed procedures to implement board policy.” To comply with board policies, management should review the board’s policies periodically and suggest changes when appropriate.

The takeaway is it’s permissible for the board to delegate operational functions to and consider insight from senior management. The board should receive its information from a variety of reliable sources when making informed decisions which impact the credit union; the board is the ultimate decision-maker. Thus, when it comes to the direction and control of the credit union, the board of directors are the eyes of the ranger.

Credit union compliance professionals have two upcoming opportunities to participate in intensive training to gain essential compliance knowledge and keep their institutions running compliantly and smoothly: Regulatory Compliance School in Arlington, VA March 18-22 and Regulatory Compliance Certification School in Fort Lauderdale, FL (and live online) April 15-19. Active, unexpired designations and training (including recertifications) earned in 2024 will be fully recognized by America’s Credit Unions. We are committed to serving your professional development needs.