Clarifying Board Expectations Is A Good Idea

August 14, 2017 at 8:43 am 1 comment

A proposed guidance by the Federal Reserve on August 3, 2017 would narrow the scope of board responsibilities. It has gotten a lot of snarky reviews, with critics suggesting that it would result in the directors of the nation’s largest financial institutions having less responsibility instead of more. Critics argue that if the financial crisis taught us anything, it is that more board governance is needed, not less.

 This criticism misses the point. Not only is the Federal Reserve justified in clarifying the responsibilities of board members but, keeping in mind that the views expressed in this blog are mine and mine alone, NCUA should follow the Federal Reserve’s lead and provide greater clarity to boards detailing the proper division of labor between Boards of Directors and Senior Management.

 The Fed’s goal is to make sure that boards remain focused on five core responsibilities. These core responsibilities are to (1) Set clear, aligned and consistent direction; (2) Actively manage information flow and board discussions; (3) Hold senior management accountable; (4) Support the independence and stature of independent risk management and internal audit and (5) maintain a capable board composition and government structure.

 How would the focus on these five responsibilities impact board operations? The most controversial aspect of the Fed’s proposed guidance would indicate that the Federal Reserve expects to direct most Matters Requiring Immediate Attention and Matters Requiring Attention to senior management, not to the Board of Directors. Instead, matters would be directed only to the Board of Directors when the board needs to address corporate government’s responsibilities or when senior management has failed to take “appropriate remedial action.” Crucially, and this is the part that critics are not emphasizing enough, boards would still remain responsible for holding senior management responsible for addressing supervisory findings.

 Perhaps this model isn’t a perfect fit for the credit union industry but a clear explanation of board responsibilities is a discussion well worth having. Existing guidance doesn’t provide enough guidance to board members. And let’s face it, there are some boards that exercise too much power and some boards that exercise too little oversight. This is in no one’s interest.


Entry filed under: Regulatory. Tags: , .

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Authored By:

Henry Meier, Esq., Senior Vice President, General Counsel, New York Credit Union Association.

The views Henry expresses are Henry’s alone and do not necessarily reflect the views of the Association. In addition, although Henry strives to give his readers useful and accurate information on a broad range of subjects, many of which involve legal disputes, his views are not a substitute for legal advise from retained counsel.

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