The role of directors in the governance of credit unions


My research in particular looks at the role
of directors in the governance of credit unions. These institutions have unique features that
differentiate them from traditional firms. In comparison to traditional banks which are
shareholder owned, credit unions are not-for-profit organisations whose ownership is based on
members who share some common bond of association. So instead of focusing on major shareholders
who will nominate a person to sit on the board, credit unions democratically elect any board
member who represents best the membership. The core idea of credit unions is that the
members are at the centre of the organisations so they aim to maximise member’s benefits
as opposed to making profits for shareholders. Australian credit unions are relevant to the
banking system given their high market share of around ten percent.
That means that one in five Australians is a member of the credit union.
So they have large membership size, and large number of assets which implies credit unions
are competing with the big banks and are regulated in the same way.
Through time we see how credit unions are evolving and how regulators are requesting
more and expecting more from the board. So the findings of my research indicate when
boards are formed of more expert members in terms of accounting and financial expertise,
they are better able to make a significant contribution to the board.
And it’s also relevant for directors to be committed which means the regular attendance
at the meetings where they can effectively monitor and advise manager’s behaviour.
And finally the remuneration paid to directors. Even though these institutions were formed
on volunteer principles, credit members will need some sort of remuneration incentives
to make them more effective. When there is a high remuneration, there is
an increased performance of the credit union. In other words, effective boards are needed
to ensure that they are run with the main aim of the business. So for banks would be
to make profits for shareholders, for credit unions to ensure that member’s goals are
maximised.

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