Board of Directors Policy

Every organization should have a clear policy regarding the board of directors and other volunteer duties and responsibility.  Use this document as a starting point to write your organization's Board of Directors Policy.

INTRODUCTION

The board of directors of [ORGANIZATION’S NAME] is charged with the general direction and control of the organization. The decision to serve as a director is a commitment to [ORGANIZATION’S NAME] and our clients, and part of this commitment includes a responsibility to understand the financial statements, risks and controls of the organization so as to properly exercise authority over the organization’s direction. Accordingly, to be an effective director, an individual must have a certain base level of financial skills, consistent with the size and complexity of the organization.

One of the key measures of the organization’s success is found in its financial statements. As such, a director must understand these financial statements to participate in a meaningful manner in the direction and control of the institution. Each director shall have at least a working familiarity with organization basic finance and accounting practices, including the ability to read and understand the organization’s balance sheet and income statement and the ability to ask, as appropriate, substantive questions of management and auditors. To ensure that a director obtains this level of financial literacy as set forth in [ENTER COUNTRY’S REGULATORY BODY], to [ORGANIZATION’S NAME] provides periodic training and makes other resources available to volunteer officials, as outlined in this policy.

Attendance.  Directors cannot fulfill their responsibilities if they do not attend board meetings on a regular basis. Each director must devote sufficient time and effort to remain informed and aware of issues affecting the organization.

Compliance.  The board must maintain the integrity of the organization by ensuring compliance with applicable laws and regulations. New or amended legal and regulatory requirements must be understood and properly implemented. Professional counsel should be sought when necessary to ensure that directors and management have an appropriate understanding of legal and regulatory requirements.

Continuity. The board must ensure the organization remains in sound financial and operational condition over time. Preserving the organization as a viable institution requires proper board oversight in crucial areas such as strategic planning, capital accumulation, asset quality, liquidity, funds and risk management, and management development and succession.

Hiring and retaining competent management for the organization is one of the board’s most important duties. Appropriate performance standards must be developed for the organization’s CEO. The CEO’s performance should be formally and objectively reviewed against these standards at least annually. Boards of directors must be willing to take appropriate actions, up to and including removal, when managers lack the competence or integrity to operate the organization in a safe and sound manner. 

Examinations and Audits. The board is responsible for reviewing all reports of examination and audits performed by outside sources and implementing any changes which are necessary to correct the deficiencies contained therein.

Insurance. The board must ensure that the organization has adequate insurance coverage for contingences, which should receive at least annual review for reaffirmation and possible restructuring.

Integrity. A director must maintain the highest standards of personal conduct. Directors must demonstrate integrity, dedication, and cooperation. Maintaining the confidentiality of organization business and individual client information is essential.

Internal Control. The board must establish procedures for conducting audits whether it be by a committee of the board or by an outside firm.

Leadership. Effective directors use good judgement and work for the best interest of the client. The board’s responsibility is to ensure that adequate policies, procedures, management, and planning are in place; the board should not be led or simply monitor results after the fact. Care should be taken, however, not to assume responsibility for conducting the organization’s daily operations. Conversely, management should not usurp the director’s role. The board should direct and management should manage.

Management Information System. The board is responsible for establishing a system whereby the organization’s affairs are presented to them in a manner which will allow reasonable comprehension of the information presented and which presents fairly the organization’s activities.

Policy. Establishing sound policies is one of the board’s more important functions. Policies should clearly and concisely state intentions, limitations, and controls that will dictate a specific course of action. Policies should be comprehensive, reduced to writing, approved by the board, and reviewed and revised or reaffirmed at least annually. The board should also make certain that its policies are fully understood and being adhered to by those who are subject to such policies.

Records of Board Action. It is the responsibility of the board to insure that adequate minutes and other records of board actions, including pertinent discussions, dissenting opinions, etc. be maintained.

Self Evaluation. This Directorship Policy will be reviewed on a regular basis. Each board of directors should objectively analyze its performance and compliance with the Directorship Policy at least annually.

Education.  Education is crucial to being an effective director. Credit unions operate in a dynamic, highly regulated environment, and the need for informed, competent directors has never been greater. Extensive education resources are available for organization directors. Ongoing education is essential to ensure that directors understand and appropriately control the risks inherent in operating a depository financial institution.

Minimum Educational Requirements

At a minimum, every to [ORGANIZATION’S NAME] director should be able to examine the organization’s balance sheet, income statement and be able to understand what each line item means and why it is important to the vitality of the organization.  Board members should understand if the line item changes what does that change mean to the health of the organization.

A director shall understand the specific activities in which to [ORGANIZATION’S NAME] engages, including not only how these activities generate revenue for to [ORGANIZATION’S NAME] but also the various risks associated with these activities that could lead to financial loss. If the activities are higher risk such as Indirect Lending, Loan Participations, client Business Loans and/or include more complex investments then additional training will be provided on how these activities can impact the organization’s financial statements, as well as, steps the organization takes to “limit and control” these risks.

Timetable for Acquiring Financial Skills

At the board meeting immediately following the [ORGANIZATION’S NAME] annual meeting and election of officers each year, the financial literacy of newly elected/appointed directors will be assessed and a training plan will be developed to ensure that the 6-month timeline is met.

Periodic training is a requirement; [ORGANIZATION’S NAME] is strongly committed to the financial literacy of our directors. Periodic training on financial statements is provided and attendance is encouraged for all directors. Further, as new products and services are added, directors will be provided with the necessary resources and information to ensure that they have an understanding of not only how these activities generate revenue for [ORGANIZATION’S NAME] but also the various risks associated with these activities that could lead to financial loss.

Resources for Acquiring Financial Skills

In order to achieve regulatory requirements, [ORGANIZATION’S NAME] will provide on-going training opportunities and funding for directors of the board to acquire the skills needed to evaluate the organization’s finances and risks. Directors of the board will be given training and educational opportunities in order to understand the complexities and risks of current programs, services, products and delivery channels offered by the organization as well as new programs, service, products and delivery channels when introduced. The directors are provided but not limited to the following educational opportunities:

Internal organization training

External organization training, provided by the regulatory body, local colleges/universities, or vendors; this training may take the form of a conference, seminar, webinar, teleconference, or other means.

Periodic training for sitting directors, as well as training for newly elected/appointed directors will be coordinated by the CEO or the designee of the CEO.

Applicable regulation(s)

[ENTER YOUR COUNTRY’S REGULATORY BODY’S DIRECTOR’S REQUIREMENTS]: General authorities and duties of Federal organization directors.