Paying Directors: A Bad Idea

February 11, 2013 at 7:28 am 3 comments

imagesCA51V5PORecently, a series of legislative proposals were unveiled in Washington State in the name of credit union modernization.  Among the proposals, which the Credit Union Times reports are supported by the Northwest Credit Union Association, is one that would permit credit unions to have a paid board of directors.  With all due respect to the state that gave us Starbucks, Microsoft and the best years of Ken Griffey’s career, this is a dangerously bad idea that the entire industry should oppose.  Here’s why.

Ask anyone outside the industry what is a credit union and they will struggle to tell you what distinguishes credit unions from banks except for the fact that credit unions are not-for-profit.  They like credit unions because of an intuitive sense that they are not out to gouge their members which is why bank transfer day continues to resonate with the general public.  Do away with that distinction and you might as well turn out the lights on the credit union difference and have these institutions convert to community banks and start paying taxes.  I’m sure the people in Washington State feel we can maintain the credit union difference by doing away with volunteer boards, but the general public won’t get the distinction and neither will Congressmen or legislators, many of whom aren’t all that anxious to help out credit unions in the first place.

A volunteer board of directors goes to the core of the differentiation between credit unions and traditional for-profit financial institutions.  We don’t need Sarbanes-Oxley style financial oversight precisely because our directors aren’t going to be tempted to look the other way so long as the value of their preferred stock keeps rising.  How do we make that argument if we can only get directors who are in it for the money?

But let’s say we can continue to successfully thwart attacks on our industry, wouldn’t allowing compensation of directors for their service increase the quality of directors?  No, it won’t.  For one thing, it’s not as if credit unions would, or even could, pay the type of compensation that would make them competitive choices for directorships among other financial institutions.  Somehow, I just don’t see a person exiting their cabinet post in the Obama Administration and sifting through directorships, choosing a credit union over J.P. Morgan Chase or, for that matter, choosing a credit union over the local community banks, which are always going to be in a better position to entice someone who is in it for the money with greater compensation.  In fact, think it through logically and do we really want the type of person who will be intrigued by the type of compensation he or she could receive?  State legislatures around the country have been increasing pay for decades now, has that really improved the quality of our representation?

I understand the frustration that is being felt in Washington State because credit unions will tell you that it is getting impossible to attract new people to serve on volunteer boards at a time when new leadership is needed more than ever.  But the answer isn’t to throw up our hands and start enticing people whose heart isn’t into it to serve on boards that should be dedicated first and foremost not to putting aside a little money for their retirement, but to make sure that people in the community get a fair deal for financial services.  As I pointed out in one of my monthly blogs for CU Insight (did you notice the shameless plug), there are things that credit unions can and should be doing to improve board turnover and diversity.  Throwing up their hands in frustration and starting to hand out paychecks is not among them.

Entry filed under: Advocacy, General. Tags: , , .

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3 Comments Add your own

  • 1. Keith Leggett  |  February 11, 2013 at 7:58 am

    Henry:

    That horse has already left the barn. Look at your neighboring state of Pennsylvania, state chartered CUs can compensate their directors. The same is true for state chartered credit unions in Rhose Island and Texas. I suspect other states are already doing so.

    Reply
  • 2. Dan Leclerc  |  February 11, 2013 at 8:51 am

    Henry,

    Great topic! While I am not sure if paying Board members will have any impact at all, something does need to be done about enhancing Board governance for credit unions. There are way too many people who serve on Boards that are not qualified and are there only for one reason – their ego! That is far worse than someone serving on a Board for a paycheck! Hopefully this idea of paying Board members will create conservation about Board Governance.

    Reply
    • 3. Henry Meier  |  February 11, 2013 at 9:46 am

      Thanks Dan-I agree with you board governance is a huge issue and almost everything should be on the table for consideration except compensating members notwithstanding what other states have already agreed to. Why make it easier for Keith to argue that credit unions are the same as community banks or confuse members about what we are? Today we may have some inflated egos on boards; start providing compensation and you end up with a disgruntled board member who feels he is overworked and underpaid with an ego to boost.

      Reply

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Authored By:

Henry Meier, Esq., Associate General Counsel, Credit Union Association of New York

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