Compliance Blog

Posted by Anthony Demangone

This past year, I have spoken to a number of credit union executive and board members who talk about a common issue.  It is very difficult for them to get some board members to attend training.  The reasons include the following:

1. I'm elected.  I'll do as I please.
2. I have a busy life, so I don't have time to attend training events.
3. I'm a volunteer.  There's no way I'm sitting through an hour-long training session on the BSA.  

While such directors are rare exceptions, it can cause problems for the affected credit unions.  Directors who, for whatever reason, do not want to attend training events, put the credit union at risk. They'll make uninformed decisions, and their spot on the board will not contribute in any way to oversight, risk management, and corporate governance.

Can a credit union force the hand of such directors?  In a way, yes.  NCUA talked about this issue in NCUA Legal Opinion Letter 95-0207.  Here's the applicable sections of the rule:

1. Can the board of directors establish educational requirements for its members and remove directors that fail to satisfy the requirements?

An FCU may require all newly elected directors to attend educational programs within a specified period of time after being elected to the board of directors.  Assuming the requirement was reasonable and the director does not complete the requirement, it could constitute a failure to perform his duties pursuant to Article VII, Section 7 of the Standard FCU Bylaws.  The board may then remove that individual or take other action to deny renomination as discussed below.

2. If a board member does not fulfill the educational requirements, can the board refuse to nominate that board member for additional term?

Article VI of the Standard FCU Bylaws gives the nominating committee discretion to set standards for its nominees. It has been NCUA's long-standing position that the FCU Act and the Standard FCU Bylaws contain the only eligibility requirements for membership on an FCU's board. However, neither the FCU Act nor the FCU Bylaws prohibit a nominating committee from adopting a policy that excludes nominees who have failed to satisfy reasonable requirements. An incumbent board member who is not nominated by the nominating committee, however, is not barred from seeking an additional term.  Individuals other than those nominated by the nominating committee may run for the board by submitting the appropriate petition and/or by being nominated from the floor at the meeting called to hold the election, and as prescribed in your bylaws. As long as an individual meets the criteria specified in the FCU Act and the bylaws, the FCU may not prevent that person from running for the board of directors.

So, a board itself can establish its own set of educational requirements.  If a director does not abide by the policy, then he or she would be subject to removal and barred from nomination.  But the key thing to remember is that this must flow from the board.  The board itself must fashion the policy and vote to implement it.  While this may not be an easy process for many boards, this NCUA opinion letter is something worth considering.