What is Governance?
Introduction
Corporate Governance refers to the framework from which credit unions directors can be inspired to work collectively to build an effective and sustainable credit union.
From a compliance and stewardship perspective it is concerned with the practices and procedures that the Board develops in order to achieve its specific goals. A democratic view of governance would be that the Board represents the interests of the members of the credit union and other stakeholders connected with the organisation.
Credit unions as co-operative organisations see strong governance as central to the organisation. Accountability to members, community, funders and other stakeholders is an important feature in safeguarding the credit union for the future.
The legal and regulatory structure that credit unions operate under already in place in regard to credit unions determine what a credit union does and how it is to be operated. These also rightly protect members as consumers. However credit unions can do much more to be accountable to their stakeholders. The Independent Commission for Good Governance in Public Services report gives its first principle as:
“Good Governance means focusing on the organisation’s purpose and outcomes for citizens and users”
The same goes for credit unions. The basis of good governance is to protect and develop the credit union on behalf of its members and stakeholders.
In the public sector the Nolan Principles set out the principles of good governance for those holders of public office including how they must ensure accountability to the public. In the private sector, governance has been strengthened significantly through the Cadbury, Greenbury and Higgs reports. These resulted in The Combined Code: Principles of Good Governance and Code of Best Practice. It is a short document that sets out clearly the principles of good governance and allows shareholders and stakeholders to call upon boards to comply with the commonly accepted standards or explain the reasons for not doing so. The Code was developed independently from regulatory agencies, and then adopted widely by the business community and by regulators themselves. In the co-operative movement the Corporate Governance Code of Best Practice outlines the governance requirements of co-operatives within membership of Co-operativesUK. Although mainly consumer co-operative organisations the code outlines the need for governance in co-operative boards and committees and the rights and responsibilities of members. ABCUL itself has signed up to the Co-operativesUK Code of Governance.
Of course governance in the credit union sector cannot be seen as ‘one size fits all’. The way in which governance is managed and the specific nature of the credit union in which it operates will influence the success or otherwise of good governance practice.
Participation
The co-operative and democratic nature of credit unions means that the participation of members in the decision-making processes is a fundamental principle in the running of the organisation. In small credit unions particularly, this aspect of democracy is give little or no priority as the day to day demands of providing a service and complying with the regulator take up so much time.
In the credit union sector, as in other sections of the co-operative sector, democratic participation is sometimes poor with insufficient people standing for election of able to offer the commitment required to become a key part of the decision making processes. The key to developing participation is education and training. Developing people takes considerable time and resources neither of which are of a high priority to most credit unions. The Board must develop imaginative ways of keeping members informed of the co-operative and democratic nature of the credit union and highlight the way in which it is owned and controlled by members. The Code emphasises this in the section on Skills & Ability and in Structue & Good Governance.
Who is responsible for Governance?
The Board of a credit union is the trustee of the members assets and has primary legal responsibility for governance — the exercise and assignment of power and authority — of their credit unions. Boards reserve to themselves organisational oversight and policy setting, and delegate to the senior employee responsibility for managing operations and resources. This means that the Board provides the leadership for ensuring good governance is implemented, evaluated and reported.
The Board should seek to involve all stakeholders in implementing good governance. As the trustees of the credit union the Board maintains ultimate responsibility for governance implementation and must maintain a process of evaluating success or otherwise in meeting the requirements of the code of governance. The Board must take a strategic and developmental approach to governance by keeping an overview, delegating responsibilities and providing training and resources.
Employees and volunteers are key to good governance. As those involved in the day to day running of the credit union and often the front facing people in transactions with members, they have an important role in providing the board with expertise, capacity and time to conduct the necessary work around the code of governance. They can take a systematic approach to implementation and alert the Board of areas of concern.
Members have an interest in the protection and future development of their interests in the credit union. As a democratic organisation, membership participation is at the centre of good governance. Members interests also include accountability, personal development and succession.
The Regulator defines credit unions as financial co-operatives with specific accountability in regards to protection of members’ interests and adequate control. Much of what happens in credit unions in terms of good governance is about control and accountability and so the regulator is a key stakeholder in the implementation of good governance.
Funders and Partner organisations have an interest in the safekeeping of their investment in the development of the credit union and would be keen to ensure that sufficient controls and levels of accountability are implemented.
