Corporate Governance With Expert Michael Daigneault

In this episode, Mark Treichel speaks with Michael Daigneault, CEO of Quantum Governance. They discuss all the different aspects of corporate governance at credit unions. Discover the three-legged stool of credit union governance. Learn why supervisory committees are important in the process and what some credit unions can do better


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Corporate Governance With Expert Michael Daigneault

Thanks for joining me for this episode of the show. I'm excited to have Michael Daigneault from Quantum Governance. Michael, how are you doing?

I’m doing great and eager to talk with you, Mark. That's for sure.

You've got an impressive bio. I’m going to give a little bit of that for the audience before we jump into questions. Michael is the Chief Executive Officer and Cofounder of Quantum Governance. As the CEO of Quantum Governance, Michael brings more than 30 years of training and experience as a consultant, speaker, and dynamic workshop facilitator. With his colleagues and staff, Michael provides a full range of targeted training opportunities in the form of custom seminars, workshops and retreats, as well as keynote speeches.

Michael regularly works with organizations of all types to improve the effectiveness of their governance and leadership. In particular, he's worked with credit unions, large and small, to advance their governance and strategic efforts, strengthen their boards and analyze their committee efforts. More than 70% of Quantum's clients are credit unions. He's provided governance directions, strategy and facilitation services to boards, governance, committees, supervisory committees, as well as senior executives worldwide. That's an impressive first paragraph of a resume. It’s as impressive as any I've seen, Michael.

Mark, what all that boils down to means that I'm a big governance and strategy geek.

It's good to be a geek about something. We've got to have our passions for something. It's good for credit unions that you're out there in this space. I became aware of you and your organization because we had a mutual client whom we were on a call with. I was like, “I’ve got to get Michael on my show. There are a lot of good things here.”

Governance comes up with a lot of my clients and NCUA, which is what my show focuses on, helping credit unions do well with NCUA. First, you’ve got to do good with your members, the board, and supervisory committee to achieve all that. If you do that, that makes the exam easy. That's what good governance can lead to. I'm excited to do a deep dive on all things governance and have a good conversation about what it is you do to help credit unions in particular, since that's the audience here. To prime the pump, can you explain what Quantum does for credit unions and the industry at large, and why Quantum does that?

Mark, I started my career doing ethics work. As a matter of fact, I worked with a number of organizations that had gotten into ethics problems. I was the President of an organization called the Ethics Resource Center. The ethics work led me to understand that a lot of the ethical difficulties that organizations find themselves in boil down to governance issues and how either their board or CEO senior management team, the committees of the board, and essentially the leadership of the organization might in some ways be dysfunctional. As a result of that, ethical problems occur.

I switched my focus from the ethics work that I was doing to doing the governance work of working with the senior leadership of organizations to help them do what they do better. Not only credit unions but all types of organizations, nonprofits, charitable organizations, associations, and foundations, but primarily from the nonprofit end of the spectrum, I've also worked with for-profit organizations.

Credit unions need a significant amount of support and help when it comes to governance.

As a matter of fact, even at 63, I've gone back to school and got a certificate in Corporate Governance to keep the saw sharpened as much as possible. It's also given me the psychic certainty that some of the advice that we're giving out as Quantum is still the leading edge compared to some of our large corporate for-profit colleagues.

I will tell you that one of the reasons I've worked in the credit union field, and I've done so for many years, is I believe in what credit unions do and the impact that they have on people's lives and on the communities where they operate. I've drunk that Kool-Aid, Mark. I also believe that they do need a significant amount of support and help when it comes to governance.

This is because of the historical roots of credit unions. Credit unions were originally designed as relatively small community-based organizations in which neighbors would help neighbors and people would help people to help provide loans, escape from sometimes the economic conditions that they were in, and deal with situations where banks would not loan them money.

What's happened in the last decade or two is that some of these small credit unions have grown into very large sophisticated multi-billion-dollar institutions. The notion of the credit union membership serving on those boards is a test to find the right people and compose the board. It's a challenge to get the right leadership for the organization. That's why we focused on governance, strategy and leadership in credit unions because it has been and continues to be a real challenge for a lot of credit unions.

I took some notes when you were chatting here. I love the ‘sharpen the saw’ reference and continual learning. You make your brain grow if you keep pushing and learning. I'm a big Stephen Covey fan and the whole people helping people concept of credit unions. Many years ago when I first started in credit unions myself, I fell in love with credit unions. What got to me was I was in the Midwest, and I had some very small farm credit unions in my district.

Going there, I was seeing a credit committee and a board that were farmers. I knew very little. My dad grew up on a farm and he couldn't wait to get off the farm because it was such hard work. When I went into this environment, and that's whom these credit unions that I had in my district were serving, I was learning things and sharpening the saw. I was learning about the equipment and the fact that if you have a crop loan, that loan should mature at the end of the season because the crop's gone.

Those simple things that all these people knew but they knew what the tractors and the equipment were worth. They brought these skillsets to the credit union but they were smaller back then. Now, they're bigger. There are more zeros on the level of expertise that is expected. The more difficult it's gotten to run businesses makes governance that much more important. Lastly, piggybacking, I'm fascinated by the transition from ethics to broader governance. If the symptom is the ethics issue, the cure is having good governance. If you have good governance, you can avoid the ethics issue because you have the systems in place to prevent that.

You can't just ignore ethical issues and hope they go away. Hope is not a strategy.

In an ideal world, yes. You got good governance. Hopefully, you're asking some of the hard questions. Sometimes bad news gets to the top in a more transparent and effective way. What it does is it gives you the courage and the systems to be able to deal with ethics issues as opposed to sometimes ignoring them and hoping that will go away. Hope is not a strategy in my mind. Hoping they'll go away usually has proven to be not an effective way of dealing with some of the issues that some of my clients, and I'm sure some of your clients have dealt with.

Mark, just so you know, what we do when we go to work with a credit union is we will analyze them pretty comprehensively with a series of not only state-of-the-art surveys but also interviews. We do the document review on all of their governance documents. We'll even do observations of their board meetings and the like. We'll get and gather a lot of information about how they're operating from a governance and leadership standpoint and then try to synthesize all that together in a report that we can also compare their results to the results of hundreds of other clients that we've worked with. That gives them some context as to how they're doing in these areas.

We have a pretty frank conversation with them at a retreat, in which we talk about the data. The data is their reflection on how they're doing in a number of different areas. We'll also do a little bit of a reality check as to where not we think their perspective is authentic or not. Usually, it is. People are usually very open and truthful. With the detailed nature of the questions that we're asking, it's hard to hide behind the questions in any way.

We'll work with them like, “In light of these being the results, let's say in these 6 different areas, 3 areas you're doing well, but in these 3 areas here, you've admitted you've got some challenges. There are things that you'd like to improve. What are the kinds of things that you can do to improve in these areas?” We'll have some very open conversations about what those challenges are and what the various options are for them to improve their governance.

Most clients are very responsive to this and it begins to be a transformational conversation. We follow up to make sure that they go through that transformation through what we call a governance action plan, where as a result of the retreat, they develop a mini-strategic plan, which is focused on their leadership and governance, be it at their board, their board committees, their relationship with their supervisory or audit committee, their relationship with their CEO and senior team. Looking at all of those facets, how can we do this better? The governance action plan is the blueprint for them to do that.

You have the retreat and action plan. Is there generally a timeline? It’s like the continuity of operation plans. It's always in the draft stage. In doing continuing education, you can always learn more and do more, but is there an arc of time from the retreat to sometime in the future where they're at a better place, or is it an ongoing something like your training that they need to stay on top of in perpetuity?

It is something they need to stay on top of in perpetuity, but I will tell you that most credit unions will make substantial improvements in the first two years or so. You see substantial improvement after one year. We'll often see it after 18 months or 24 months. Indeed what we will frequently do with most of our clients is at the end of either 1 year or 2 years, depending on the client and circumstances, we'll go in and do the same survey assessment again and then compare where they are as opposed to where they were in 1824 or 12 months earlier.

We give them a progress report. We've also been talking with them during this time, helping them to execute and implement, but the progress report gives them an empirical grounding. “We paid attention to this. We said we would do this and it didn't make a difference. We said we would pay attention to this thing over here too, but we didn't. Therefore, the numbers haven't moved at all.”

WFC 41 | Corporate Governance
Corporate Governance: A progress report can make credit unions hold themselves accountable. It enables them to understand and pay attention to improving an area of governance.

No surprise there, but it does hold them accountable and enables them to understand that when they do pay attention to improving an area of governance, be it, “How can we have more effective committees and board meeting agendas? How can we have a better relationship between the board, our CEO and the senior management team?” There are a host of different issues that often will arise. Those are the kinds of things that are often central to the assessment. We've found almost universally that when people pay serious, thoughtful, strategic attention to these governance areas, they can improve them and then sometimes improve them rather dramatically in a quick period, particularly.

Sometimes there are credit unions that get stuck. They’re like, “We've always done it that way for many years. We thought that's the way it has to be done.” I go in and say, “There are 4 or 5 other options.” My team is adept at figuring out not only what they're doing but what some of the options are for them to consider moving forward. It's not up to us at Quantum Governance to tell them, “You have to do this.”

What we do is we're a catalyst for their thinking as to, “We've been pursuing this course A here,” thinking that A is the only way we can do it, but we realize there are B, C, D, and E. Maybe one of these other paths is going to be a more effective path for us, particularly in light of a lot of credit unions have grown. There are significantly different institutions with different regulatory outlooks, environmental outlooks, demographics, technology, regulations and all of that. There are a lot of things changing, let alone the pandemic. We will often give them a variety of different options for how they can think about things going forward. That's generally very appreciated.

The credit union is over $10 billion. Now, over $15 reports to the office of National Exam and Supervision. There are examinations on steroids that are based on governance. They look at governance if they're in that category at a much higher level, but that's trickled down over time into the lower levels. NCUA is looking at establishing a large credit union program for the $10 billion to $15 billion, and then that's going to trickle down below that level. The importance of governance for those big institutions at NCUA is becoming more important.

As you're talking about board packages and the relationship between the CEO and the board, I'm looking at it from the lens that I see things having been at NCUA for so long. NCUA has an investment policy requirement and regulation. They have liquidity requirements, loan requirements, commercial loan requirements, and all these requirements for these regulations that stop shorts of enterprise risk management but essentially, to do all that right, you almost need enterprise risk management and good governance. They’re having those policy requirements that they create.

While they don't mention the governance that's driving it, they're saying the board needs to be involved with a policy and do this. It raises it to that level. The other thing sometimes that you'll see is if you don't have the structure of governance and maybe a credit union does everything exactly right, but the board packets don't show that there are a lot of discussions. The board policies are a little light. They made good decisions and it's set up in a way that staff has more autonomy maybe than the Federal Credit Union Act and the regulation wants or needs.

You need that structure. You need to have the belts and suspenders so that the board and supervisory committee are involved. I see those issues where NCUA is raising some questions relative to actions that were made. “You did A through Z but you didn't document it. You did A through Z but the board didn't have that in their policy. Was the board aware of what was going to be done,” and/or, “Here's the strategic plan that said you're going to do A, B and C. What happened in the year is you did X, Y and Z that was not ever discussed anywhere.”

You bring up a couple of good points that make me think about some of the things that we've run into with our clients and in the credit union community at large. One of them is the notion of supervisory committees and audit committees. This is a very important element of what we would call the three-legged stool of credit union governance. 1) The board. 2) The CEO and senior management. 3) The committees but in particular because it's regulatory mandated, the supervisory and/or audit committee.

Unfortunately, what we've found in a number of credit unions is there's a good deal of attention paid to the CEO and the senior management team as is appropriate but there's also a good deal of attention paid to the board and the composition, the effectiveness of the board. Some people want to improve that, which is appropriate and laudable but where there is not a lot of attention paid is the third leg of the stool, the supervisory and audit committee.

It is a very important committee in contemporary credit unions for a variety of reasons. One of them is enterprise risk management, which you’ve mentioned. When I think of the role of an audit and supervisory committee, I think of it as an enterprise risk management committee, which is focused on finances. Yet for contemporary credit unions, there are so many risks, challenges, potential pitfalls and hurdles out there that go beyond the audit or the formal financial elements of the audit in the internal control environment.

WFC 41 | Corporate Governance
Corporate Governance: Supervisory committees need folks who understand both finance and the challenges credit unions face.

I like to think of supervisory committees as a catalyst. Still, the board is ultimately responsible for enterprise risk management as the CEO and senior team in constructive partnership with them but what I would tell you is more supervisory committees need to be composed of folks that understand not only finances, audit and internal controls but some of these other risks and challenges that credit unions face, writ large. That is the work that still needs to be done in a vast majority of credit unions.

The third leg of the stool needs to be shored up. It is part of the overall governance system of a credit union. When we think of governance of a credit union, we're not thinking of just the board. It's the board, the CEO or senior management team and all the committees of the board. In particular, looking heavily at the supervisory and/or audit committee of the board. All three of those legs of the stool have to be functioning effectively for the governance system to be doing what it needs to be doing. Unfortunately, there are a number of credit unions that are still struggling with one or more legs of that three-legged stool. It keeps us busy and hopping on our end.

With the visual of a stool, a 2-legged stool or a 1-legged stool, you fall right off and hit the ground. You need all three legs to be firm. Plant it in the ground to sit on it and achieve what you want and your goals. That's a great visual. You've summed that up very well. The supervisor committee is so important as you stated. You've reminded me of a book, The Wisdom of Crowds.

It's the diversity of thought and the things that they can bring to their role. They're going to look at it again through a different lens and have different skillsets. While their responsibilities are different, they play a key role in the safe and sound operation of credit unions. That's a great point. Michael, relative to credit union governance, what are some ways that you've seen evolve over the last years?

There has been a revolution and it's a quiet revolution. A lot of people don't fully comprehend what's happened in the credit union industry, at least, as far as some of the governance components. A couple of them were spurred partly by the NCUA as a regulator but also partly by folks outside the regulatory community such as consultants who have come together and created some forces that have put a premium on the governance of credit unions.

Here's what I have in mind. One, you may recall that in 2010, the NCUA put out a very special final rule on the fiduciary duties of federal credit unions. This is a clarification of the governance responsibilities of credit union boards and leaders. I don't think it was meant as a revolution of any sort but it firmly pointed credit unions towards the basic building blocks of good fundamental governance, a very important point historically for credit unions.

In addition to that, I remember going to credit union conferences a decade or more ago and asking a simple question, “How many of you have a governance committee of your board at your credit union?” 1 or 2 hands would go up. As you know, Mark, a lot of large corporations, Fortune 500s and all of that, have not only a nominations committee but they have a governance and nominations committee. These governance committees have a lot of authority as far as making sure that the board of this corporation is properly constituted, they have good policies and procedures around the board and they're dotting their I’s and crossing their T’s because they're very heavily regulated by the SCC, FASB and some other regulatory bodies. They want to make sure they got the very best people on their board and procedures.

We've got a situation here where Corporate America, believe it or not, showed us an effective way of thinking about how do we put into motion a committee that will constantly spur interest in innovation and champion good governance at the board and indeed at the entire institutional level. What's happened in the last decade or so is that this is caught fire in the credit union community. If I go to a credit union conference now, as opposed to a decade or more ago and I ask, “How many of you have a governance committee,” not everyone but the majority of the credit unions in the room will put up their hand.

In only a decade, that is not only evolution. That is a revolution. What are these governance committees doing? They're doing everything from making sure we've got our roles and responsibilities down clear as board members, that we've got the right committee structure for the board and the credit union as a whole, that we're clear on the roles and responsibilities of the supervisory and audit committee, that we've got good agendas at board meetings, that we've got the right officers, that we've got the board composed appropriately.

It's 101 things even assessing people and the board itself, making sure that we're doing our jobs as a board or as committees, in addition to the CEO and the senior team doing their jobs. This is a major catalyst in the industry combined with some of the regulatory encouragement that the NCUA gave some years ago to make sure that you've got good governance going on in your credit union.

WFC 41 | Corporate Governance
Corporate Governance: The development of governance and nominations committees is one of the major catalysts why there is a sea change in the attitude of a lot of credit unions and credit union boards on making sure that their governance is operating at a very high level.

I've seen therefore what I would call a sea change in the attitude of a lot of credit unions and credit union boards on making sure that their governance is operating at a very high level. One of the major catalysts has been the development of governance and nomination committees. There are two different ways of looking at governance and nomination committees. There's the integrated form and the non-integrated form.

The integrated form is that the governance and nominations committees are one committee. Sometimes this makes perfect sense for a credit union. Why? It’s because those people that are looking at the governance and making sure that our governance is up to speed and the best it can be are the most adept in understanding what are the board members that we need in the future. How do we want to compose ourselves for the future to have the ideal credit union board of the future?

Some other credit unions though have said, “That can be too much work for one committee.” Some of them have said, “Let's have a governance committee separate and a nominations committee,” which is regulatory required. They'll look at the nominations process but they'll have conversations with the governance committee to do that. There's an integrated form and a non-integrated form.

I'm not necessarily saying that one is necessarily better than the other. To me, the ideal form is the integrated form together but nonetheless, both have proven to be very effective. In my mind, the board is doing one of the most important things it can do and that is making sure that it itself as one of the legs of the three-legged stool is doing its best job through the work of its governance committee and then making sure the other legs of the stool are doing their jobs also through the work of the governance committee.

As long as there's a governance committee looking at those things, I'm very happy because that is a major part then of the conversation that boards of credit unions and indeed the entire leadership of the credit union will have. Simultaneous to this, I've seen the following revolution and that was years ago, it would be rare to see governance as part of the strategic plan of credit unions.

That's not part of our strategic plan. That's usually the answer. That's just the board but increasingly, major initiatives that exist within the credit union, whatever it is like strategic growth initiatives or core conversions and we are trying to upgrade the level of the folks that are sitting on our board or we're going to an entirely new committee structure and all that, those elements of the important work and initiatives of the credit union that are governance related are finding their way into the strategic plan of the credit union itself.

What this does is it elevates its importance of it. Look at all these factors. You've got the NCUA saying fiduciary duties and the governance duties of a credit union board are important. You've got governance committees coming into a prominent role on a lot of credit union boards and probably with billion-dollar or more credit unions, probably the vast majority of them have governance committees of one sort or another.

We've got governance being a critical component of the strategic plans of a number of credit unions. Why? It’s because they've realized not only is talent at the staff level important like the CEO and senior management but the talent at the board and committee level is also important for a well-functioning credit union. They've drunk the Kool-Aid, which I always like to see and realized that governance matters. Governance is important for a high-functioning credit union. To that extent, the industry has started to evolve its practices to make sure that it's paying attention to its governance practices.

I'm glad to hear NCUA, in your mind, played a big role in this. You said it very eloquently. Marrying that governance being brought up in strategic planning, whether it's NCUA establishing the expectations, the governance committee that's formed establishing the expectations or if it's getting buy-in from the board to put it in the strategic plan, every step of establishing expectations in raising that expectation higher, people always try to achieve what is expected. It's human nature.

By establishing these expectations, I could see it getting into strategic plans because you follow up on the strategic plan. Yes, you follow up on the government's committee but it creates that follow-up circle so it gets the attention. When it gets the attention, you have the discussion. When you have the discussion, you have that a-ha moment and you make things better.

Think about how simple it is. The strategic plan essentially says these are our priorities. This is what's important to us. If governance is not part of that, it becomes a secondary priority. People wonder why governance is a lag time phenomenon in some credit unions to the tremendous operational success and financial success, growing their asset base and those types of things. That's because it hasn't been prioritized along with other things.

I'm not suggesting nor would my team suggest that everyone needs to become the governance geek that I am, perhaps that you are. The reality is that governance is part of the equation. It is one of the pieces of the puzzle for a well-functioning credit union. Therefore, you do need to pay attention to it. Sometimes more. Sometimes than others but it is a very clear priority.

Some organizations have sadly made it a very secondary or tertiary priority. As a result of that, their board, governance, committee structure and all of those types of things have lagged which sometimes are some very innovative steps that either their CEO or senior teams have taken. As a result of that, the entire institution falls behind other credit unions out there. We would never want that to happen, let alone the competition they have from a lot of upstart organizations out there in the financial field who are doing some very leading edge things, be they nonprofit or for-profit.

Michael, there are small credit unions, big credit unions and super big credit unions. As it relates to governance, how is governance of a smaller credit union? Let's say it’s less than $1 billion different from that of a larger credit union or $5 billion or more. The second part of that is what transitions does a board of directors have to be prepared for as they change from the small to the medium to the large category?

That's probably a good ten-hour seminar with that one question but I'll try to summarize my thoughts on that quickly. One is the framing of what the board would pay attention to. In the smaller credit unions, statistically, they're going to be paying attention to a lot more of the high-end operational issues like some of the hows. Sometimes even in some of the smaller credit unions, the board can be in active conversation almost on a high-end operational level with the senior leadership of the small credit unions to figure out, “How are we going to move forward? What are the kinds of things we should be doing from a nuts and bolts point of view?”

I'm not saying they should be micromanaging, don't get me wrong but the conversation is not necessarily elevated to a high strategic level. As credit unions grow, particularly, I'm talking about the asset size of the credit union but even beyond asset size, I'm talking about geographic complexity and regulatory complexity, affiliating with QSOS and those types of things. As that increases, the need for the board to be ever more strategic in its thinking becomes paramount.

This then entails looking at the composition of the board, who sits on the board and the types of skills, abilities and traits those individuals bring to the board table and the credit union writ large. It's important that people realize that as credit unions grow in size and complexity that they have to think, and this is a very clear analogy to me, that as the staff has had to evolve and get more sophisticated, so do the board and the committees of the credit union need to evolve.

They need to sometimes even have new people to sit on them, which have higher degrees of expertise, experience or familiarity with strategic issues, major initiatives and what some people would call C-Suite types of projects and challenges and wrestle with them. We need to look at who is it that is sitting on the credit union’s board and who we need to build the ideal board of the future. That's where the larger, more complex credit unions go. It is paramount to have the right people on the board, let alone the degree of regulatory scrutiny and the stakes.

Some credit union boards have smart and experienced people, but for whatever reason, they don't want to ask the question. Sometimes the job of a board is to ask hard questions.

You make a mistake in a $50 million credit union that's 1 thing. You make a mistake in a $5 billion credit union. If they're comparable in the percentage of the mistake in those two credit unions, it could be a very big mistake. You got to have people that are attending to both the fiduciary oversight duties, have the ability to ask the right questions and be willing to ask the right questions. Half of the time, I've seen credit union boards where people have the smarts, experience and knowledge but for whatever reason, they don't want to ask the question. They're afraid or intimidated to ask the question. When they ask that question, they get a whole bunch of pushback.

Sometimes, the job of a board is to ask hard questions. I'm not saying you asked the same hard question 27 times in a row but the reality is sometimes these things need to be worked out as you grow and as your asset base becomes larger. What's happening here? The board becomes more strategic in its orientation. It also becomes more sophisticated and nuanced in asking some of the right fiduciary oversight questions but not to the degree that the fiduciary and oversight questions crowd out the time to have strategic conversations.

One of the major changes is that the board meetings themselves begin to get more strategic. Instead of talking about strategy in 10% of your meeting and 90% of your meeting as a small credit union, perhaps being devoted to fiduciary oversight or high-end operational issues, it begins to shift. You begin to have meetings that $1 billion or above $2 billion, $3 billion or $5 billion might be half of your meetings or more are strategic in their orientation.

That's a big shift for the Chair and CEO in designing those meetings. For the people participating in those meetings, both the board and staff have to reframe what's important in those meetings. It's not doing a 75-slide detailed 20 bullet points PowerPoint presentation. It's not a data dump anymore. It's having high-impact knowledge and wisdom-building conversations so that we know enough to ask the hard questions when we need to. That's a big mental framing shift.

The word that I wrote down here as you're talking is it's a culture shift. I think about the discussions where some are afraid to ask the question or for whatever reason, they won't ask the question. That goes back to the culture and we've always done it this way. The new board members come on and you've got the board members that have been there forever. It is a paradigm shift and a culture shift.

Also on the question side, there's a difference between seeking to understand and micromanaging. We've all had micromanagement type of situations where we felt like, “That's my responsibility. That's not your responsibility.” “Believe me or relieve me,” it is one of my former bosses used to say. Seeking to understand so you can raise the bar for everybody is what it's all about. Micromanagement is not what it's all about. Sometimes, you can get a little defensive. As you're transitioning to that culture change so that you can see the light and be at a better place, you're going to go through some of those nuances.

One of the things that Quantum does that you and your readers would be interested in is every two years, we do a very formal synthesis of all the data that we've gathered from credit unions and even from supplementary surveys. In the governance field, you can ask all kinds of questions that are descriptive in nature like, “Do you have a governance committee? Do you do this or that?”

One of the things that we've been looking for is whether there are any linear relationships or correlations between certain types of data and other data that would be indicative of how important some of the governance elements are. At the end of 2022, we're going to come out with our report, the state of credit union governance.

For the first time, we've seen some correlations or what we would call linear relationships between four major elements of how credit unions govern themselves. One of them is as simple as this clarity around the board members’ roles and responsibilities. Everyone would say, “That seems basic 101 stuff.” The most sophisticated credit unions that we deal with still ask thoughtful and intelligent questions about what are the board members' roles and responsibilities. Why? It’s because they are constantly evolving in certain ways.

The other thing is what types of things should board members be engaged in? Time is limited. They're volunteers in almost every case, except for certain states in the country. In what kinds of things should the board members spend their time? Where should they be engaged? To what extent should they be engaged? How do we hold volunteers and ourselves accountable? How do we make sure that we meet whatever promises we make to each other?

I often call this The Board Covenant. How do we make sure that we meet the promises that we've made as far as being good leaders, board members and stewards of this tremendous trust that members have placed in us? That leads us to the last element of these four key elements, which is the notion of leadership trust itself. You mentioned culture, mark. I couldn't agree more. In some ways, it does boil down to some significant development of a culture, a framework in which we can respect and trust each other enough to ask each other hard questions.

It's hard. That's why there are all these management books out there trying to help people do it, why you do your work and why we do our work. That can be hard but with the combination of these things, board member roles and responsibilities, engagement, accountability and trust, for the first time in our data, we've seen linear relationships between those factors. What do I mean by that? If you go back into high school here and remember the mathematics chart in which you're charting X and Y on some line, the linear relationship means X changes and Y also changes. If X changes some more, Y will also change some more. It’s basic correlation or linear relationship.

We have seen in our data linear relationships, correlations between the degree to which board members understand their basic roles and responsibilities, the degree to which they are appropriately engaged, the degree to which they are willing to hold each other and senior management accountable and the degree to which there has been a genuine or authentic development of leadership trust. It's trust but verified. Don't get me wrong, but it starts with trust, not distrust.

WFC 41 | Corporate Governance
Corporate Governance: There is a linear relationship between understanding your role as the board, being engaged, holding each other accountable, and developing leadership trust. When you improve one, you improve the others.

When you put those four factors together and you see linear relationships among them, you realize that as you improve one, you could potentially improve the others. I don't want to call it the $64 million question that we've been looking for a decade or more, but it's at least the $32 million question that we've been looking for a decade or more.

This is a significant leap ahead in investing in the clarity around governance while putting governance as part of your strategic plan, having a governance committee, looking at and assessing the quality of your governance, your board as a whole, and even potentially, looking at the quality from a peer-to-peer perspective of how board members are contributing at a leadership level to your governance, as well as the relationships among the three legs of the stool.

These four factors here say that as you do and improve those things, it will improve not only that one area you're looking at, but perhaps the other areas as well because of these linear relationships among them. That has to say it's a good investment because when you improve all of these things, you can improve the leadership, the governance, and the success of your credit union.

Michael, that's fascinating. I look forward to seeing that report when it comes out. This has been a lot of fun and informational. The readers are going to like it. If someone reading would like to reach out to you and/or Quantum, what's the best way for them to reach you?

We're on the web,, or they can reach out to me and members of my team. Our acronym is the same and that is Also our President of Consulting Services, Jennie Boden is,, or our Director of Marketing,

Any one of us would love to hear from folks such as feedback on this particular show. We're always here to answer questions. We're unique. Remember it, Mark. We're not a for-profit consulting practice. We are what's called an L3C, which is a Limited Liability Low-profit organization dedicated to the public good. Our dedication is to make institutions such as credit unions even more effective at all their various leadership levels. I would welcome conversation and questions from anyone about their governance.

Michael, this has been great. I want to thank you for your time.

Thank you, Mark. It was a pleasure.

Likewise. I appreciate you reading this episode. I hope we'll have you back again soon.

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About Michael Daigneault

Michael Daigneault Chief Executive Officer & Co-Founder of Quantum Governance, L3C As the CEO of Quantum Governance, Michael brings more than 30 years of training and experience as a consultant, speaker and dynamic workshop facilitator. With his colleagues and staff, Michael provides a full range of targeted training opportunities in the form of custom seminars, workshops and retreats, as well as keynote speeches. Michael regularly works with organizations of all types to improve the effectiveness of their governance and leadership.

In particular, he has worked with credit unions large and small to advance their governance and strategic efforts, strengthen their boards, and analyze their committee efforts. More than 70 percent of Quantum Governance’s clients are credit unions. He has provided governance direction, strategy and facilitation services to boards, governance committees, supervisory committees, as well as to senior executives worldwide.