Corporate Governance Failures and Best Practices in Financial Institutions

 
CEO Round Table
 
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Other Notable Governance Failures
 
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Fundamentals of Good Boards
Effective Committees
Effective Management
 
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2014 Commissioner of Inquiry Report noted:
The generally poor level of corporate governance at HCU
was a major contributor to its failure
Poor corporate governance  [was] further illustrated by the
various related party transactions
Failing …to improve corporate governance with regard
particularly to the operations of the BOD and the credit
control
Failing to investigate and monitor HCU’s corporate
governance to ascertain whether it complied with the
requirements under the CS Act 1971, the Statutory
Regulations and the Bye-Laws
 
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Wayne Soverall (2012)
The CLICO case illustrates that poor corporate governance, weak risk
management practices, and inadequate management information systems
were also major contributing factors that led to the collapse of CLICO
 
Some of the deficiencies in the corporate governance structure of CLICO
included too much control by the chairman who was also the chief
executive officer
 
Failure of the directors ‟fiduciary duties”
 
Failure of the directors ‟duty of care and skill”
 
Conflicts of interest
 
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Corporate governance is the system by which companies are directed
and controlled. 
(The Institute of Chartered Accountants in England and
Wales, 2022)
 
 
 
 
 
 
 
 
Chart Source: https://www.oncopeptides.com/
 
 
 
 
 
 
 
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“… good governance…. is fundamentally about improving
transparency and accountability within existing systems.” Source
https://www.icaew.com
/
 
 
Corporate governance for credit union is of great importance given their
crucial financial intermediation roles in an economy
Some credit unions have become systemically important
 
Weak governance can undermine public confidence in 
a credit union 
as well
as the financial system in which it operates
 
Directors, committee members and management are required to promote
success of the credit union in the interest of members
 
At best there ought to exist 
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T
he Board plays a critical role in the successful operation of a credit
union.
Remember the old adage regarding what happens if the top is “slack”
 
The Board is chiefly responsible for setting corporate strategy, reviewing
managerial performance and maximizing returns for members at an
acceptable level of risk
 
The Board has a core responsibility for formulating sound and prudent
policies and practices withi
n the credit union
 
The Board 
remains accountable and cannot nullify its overall
responsibility
 
Building a more effective board is a process
The role of a board of directors has evolved
over the years
The board’s knowledge base should help set
the tone for big-picture decision making in a
credit union
Boards are really at their best when they're
providing guidance and leadership and insight
at a higher level in the credit union - "The buck
ultimately stops with the board"
 
Finding the right people to fill the board is the
most crucial part of the process and can often
be the most difficult for credit unions
Seek to ensure you have people who
understand the credit union and the sector so
they can think strategically
Focus on people who understand sort of the
nuts and bolts, the operations and finances of
the credit union
Incorporate “young and/or dynamic talent”
 
Ensure material to be discussed is presented in
a timely manner
Meetings should be balanced in terms of
discussions – seeking to avoid power grabs
and domineering members
Meeting should not be a case of rubber-
stamping or else the board may well not exist at
all
Corporate records of meetings must be
sufficiently detailed
 
 
 
 
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Vision and problem solving skills
 
The ability to motivate
 
Business acumen
 
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the board must avoid the temptation to micro-
manage or intrude in lesser matters or in areas that
are more appropriately handled by the management
team within the credit union
 
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The lack of a strategic plan, in most cases,
will also lead to poor board performance
 
The lack of a formal plan of board training
and education to continually upgrade the
level of board skills and knowledge
 
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Often absent is a plan for the blending of new
and old board members into a well-
functioning team
 
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.
 
 
Things to consider including in your board orientation:
Principal pieces of statutes governing the
institution
Credit Union’s mission and vision statements
Organizational history
Bylaws and policies
Strategic plan
Corporate governance framework
Financial summaries
Board information
Committee information
Meeting processes
 
 
Prospective effectiveness starts at the
nomination stage
 
Expected standards are similar in many regard
as in the case of the board
 
Members should be conversant with the area
on which they are serving
Its is not a business of “rubber stamping”
 
Actively monitors execution of Board approved strategies,
plans, policies, etc for effective implementation
 
Ensure there is segregation of duty both at management and
line staff.
helps to deter errors and irregularities
can reduce the risk of internal fraud
 
Roles and responsibilities must be transparent
 
Avoid micro management
 
Management should keep the Board of Directors and
Committees fully appraised on a timely basis
 
 
Risk Based Supervision currently forms part
of the regulatory and supervisory process
globally
 
The effectiveness of the Board of a credit
union is a basic tenet of 
a
 risk-based
supervisory approach
 
Assessing Operational Management,
Corporate Oversight and Governance
 
As part of both the on and offsite supervisory
process reviews are done of the corporate
records
Factors assessed via the minutes include:
Existence of a charter
Whether membership of the Committee is
appropriate to  the charter
Frequency of meeting  in line with charter or
purpose
Whether minutes are prepared in a timely
manner
 
As part of both the on and offsite supervisory
process reviews are done of the corporate records
Factors assessed via the minutes include:
Issues discussed in line with charter or purpose
Minutes evidence balanced discussion
Potential conflict of interest declared
Decisions requiring board approval are  escalated
to the Board
Overall rating is then accorded to the governance
area that was reviewed
 
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Characteristics of the function meet or exceed what is
considered necessary for the nature, scope, complexity
and risk profile of the credit union, and the function has
demonstrated highly effective 
 
performance on a
consistent 
 
basis
 
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Characteristics of the function meet what is considered
necessary for the nature, scope, complexity and risk
profile of 
 
the credit union, and the function has
demonstrated effective 
 
performance
 
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Characteristics of the function generally meet what is considered
necessary for the nature, scope, complexity and risk profile of the
credit union; but, there are some significant areas that require
improvement. Performance has generally been effective; but, there
are some significant areas where effectiveness needs to be
improved. These areas are not likely to cause serious prudential
concerns if addressed on a timely basis
 
W
e
a
k
Characteristics are not, in a material way, what is considered
necessary given the nature, Scope, complexity and risk profile of the
credit union. Performance has demonstrated serious instances
where effectiveness needs to be improved through immediate action
 
 
 
Thank You
 
Ensure you know the principal piece of legislation
governing the sector, regulations, guidelines and the
institution’s own polices and procedures
Board and Committee members are not being asked to
be loans officers, CFOs, CFAs, CROs, Internal auditors
and the like, but there must be some basic
understanding of these functions
Board, committee members and management must
become conversant of emerging issues that can
potentially impact the Credit Union operations for
instance climate change and cyber risk
Recruit “young talent”
Understand the macro and micro economic
environment in which the credit union operates
 
 
 
Thank You!
 
C
o
n
t
a
c
t
 
D
e
t
a
i
l
s
:
 
M
o
r
v
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n
 
W
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l
l
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a
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s
                           Tel. (268) 764 5815
                            Email. 
Morvin.Williams@fsrc.gov.ag
                                       Morvin.willliams@gmail.com
 
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Explore the repercussions of poor corporate governance through case studies of Hindu Credit Union, CLICO, and Stanford International Bank, highlighting the critical importance of regulatory oversight, board effectiveness, and risk management. Learn the fundamentals of corporate governance and discover key takeaways to enhance governance standards in financial organizations.


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  1. CEO Round Table Innovation, Integration, NextGen Leadership

  2. Session Type: Corporate Governance/Business Continuity

  3. Session Title: Corporate Governance Standards and its Optimality to realize its Benefits By: Morvin Williams (Antigua and Barbuda) Date: 17 June 2022 Venue: CCCU Convention - Jamaica

  4. Outline of Presentation Governance Failure in a Credit Union Other Notable Governance Failures What is Corporate Governance The Importance of Corporate Governance The Fundamentals of Corporate Governance Fundamentals of Good Boards Effective Committees Effective Management Fundamentals of a Regulatory and Supervisory Oversight of the Governance Function Key Constructs/Takeaways

  5. Governance Failure in a Credit Union Hindu Credit Union Co-operative Society Ltd Trinidad and Tobago 2014 Commissioner of Inquiry Report noted: The generally poor level of corporate governance at HCU was a major contributor to its failure Poor corporate governance [was] further illustrated by the various related party transactions Failing to improve corporate governance with regard particularly to the operations of the BOD and the credit control Failing to investigate and governance to ascertain whether it complied with the requirements under the Regulations and the Bye-Laws monitor corporate HCU s CS Act 1971, the Statutory

  6. Other Notable Governance Failures CLICO Trinidad and Tobago Wayne Soverall (2012) The CLICO case illustrates that poor corporate governance, weak risk management practices, and inadequate management information systems were also major contributing factors that led to the collapse of CLICO Some of the deficiencies in the corporate governance structure of CLICO included too much control by the chairman who was also the chief executive officer Failure of the directors fiduciary duties Failure of the directors duty of care and skill Conflicts of interest Stanford International Bank Ltd Antigua and Barbuda

  7. What is Corporate Governance Corporate governance is the system by which companies are directed and controlled. (The Institute of Chartered Accountants in England and Wales, 2022) Chart Source: https://www.oncopeptides.com/

  8. What Cont d is Corporate Governance Particular emphasis is place on accountability, integrity and risk management transparency and accountability within existing systems. Source https://www.icaew.com/ good governance . is fundamentally about improving

  9. Importance of Corporate Governance Corporate governance for credit union is of great importance given their crucial financial intermediation roles in an economy Some credit unions have become systemically important Weak governance can undermine public confidence in a credit union as well as the financial system in which it operates Directors, committee members and management are required to promote success of the credit union in the interest of members At best there ought to exist a Corporate Governance framework/manual. Framework must be made available to all members. Framework should facilitate and protect the rights of all members. Governance framework should ensure the equitable treatment of all members.

  10. Building Good Boards

  11. Building a Board of Directors: General Overview The Board plays a critical role in the successful operation of a credit union. Remember the old adage regarding what happens if the top is slack The Board is chiefly responsible for setting corporate strategy, reviewing managerial performance and maximizing returns for members at an acceptable level of risk The Board has a core responsibility for formulating sound and prudent policies and practices within the credit union The responsibility Board remains accountable and cannot nullify its overall

  12. Building a Board of Directors: General Overview Cont d Building a more effective board is a process The role of a board of directors has evolved over the years The board s knowledge base should help set the tone for big-picture decision making in a credit union Boards are really at their best when they're providing guidance and leadership and insight at a higher level in the credit union - "The buck ultimately stops with the board"

  13. Building a Board of Directors: Filling the Board Finding the right people to fill the board is the most crucial part of the process and can often be the most difficult for credit unions Seek to ensure you understand the credit union and the sector so they can think strategically Focus on people who understand sort of the nuts and bolts, the operations and finances of the credit union Incorporate young and/or dynamic talent have people who

  14. Building a Board of Directors: Conduct Effective Meetings Ensure material to be discussed is presented in a timely manner Meetings should be balanced in terms of discussions seeking to avoid power grabs and domineering members Meeting should not be a case of rubber- stamping or else the board may well not exist at all Corporate records of sufficiently detailed meetings must be

  15. The chairperson of the board of directors should be a leader with: Vision and problem solving skills The ability to motivate Business acumen

  16. Barriers to Board Effectiveness Temptation to micro-management the board must avoid the temptation to micro- manage or intrude in lesser matters or in areas that are more appropriately handled by the management team within the credit union Unproductive Members People commitments as board members become major blocks to overall board effectiveness who are not carrying out their

  17. Barriers to Board Effectiveness Cont d Absence of a strategic plan The lack of a strategic plan, in most cases, will also lead to poor board performance The lack of a formal plan of board training and education to continually upgrade the level of board skills and knowledge Lack of functioning committees structure Non functioning of committees can lead to poor performance in general

  18. Barriers to Board Effectiveness Cont d No plan for orientation of new and old members Often absent is a plan for the blending of new and old board members functioning team into a well- The lack of a formal plan of board training and education to continually upgrade the level of board skills and knowledge.

  19. Barriers to Board Effectiveness Cont d Things to consider including in your board orientation: Principal pieces of statutes governing the institution Credit Union s mission and vision statements Organizational history Bylaws and policies Strategic plan Corporate governance framework Financial summaries Board information Committee information Meeting processes

  20. Having Effective Committees Prospective nomination stage effectiveness starts at the Expected standards are similar in many regard as in the case of the board Members should be conversant with the area on which they are serving Its is not a business of rubber stamping

  21. Having Effective Management Actively monitors execution of Board approved strategies, plans, policies, etc for effective implementation Ensure there is segregation of duty both at management and line staff. helps to deter errors and irregularities can reduce the risk of internal fraud Roles and responsibilities must be transparent Avoid micro management Management should keep the Board of Directors and Committees fully appraised on a timely basis

  22. How do regulators Measures the Effectiveness of Governance Risk Based Supervision currently forms part of the regulatory and supervisory process globally The effectiveness of the Board of a credit union is a basic tenet of a risk-based supervisory approach Assessing Corporate Oversight and Governance Operational Management,

  23. How do Regulators Measures the Effectiveness of Governance Cont d As part of both the on and offsite supervisory process reviews are done of the corporate records Factors assessed via the minutes include: Existence of a charter Whether membership of the Committee is appropriate to the charter Frequency of meeting in line with charter or purpose Whether minutes are prepared in a timely manner

  24. How do Regulators Measures the Effectiveness of Governance Cont d As part of both the on and offsite supervisory process reviews are done of the corporate records Factors assessed via the minutes include: Issues discussed in line with charter or purpose Minutes evidence balanced discussion Potential conflict of interest declared Decisions requiring board approval are escalated to the Board Overall rating is then accorded to the governance area that was reviewed

  25. Governance Standards Ratings The following core standard rating categories are used to assess the Corporate Oversight and Governance functions: Strong Characteristics of the function meet or exceed what is considered necessary for the nature, scope, complexity and risk profile of the credit union, and the function has demonstrated highly effective consistent basis performance on a Acceptable Characteristics of the function meet what is considered necessary for the nature, scope, complexity and risk profile of the credit union, demonstrated effective and the function has performance

  26. Governance Standards Ratings Cont d The following standard rating categories are used to assess the Corporate Oversight and Governance functions: Needs Improvement Characteristics of the function generally meet what is considered necessary for the nature, scope, complexity and risk profile of the credit union; but, there are some significant areas that require improvement. Performance has generally been effective; but, there are some significant areas where effectiveness needs to be improved. These areas are not likely to cause serious prudential concerns if addressed on a timely basis Weak Characteristics are not, in a material way, what is considered necessary given the nature, Scope, complexity and risk profile of the credit union. Performance has demonstrated serious instances where effectiveness needs to be improved through immediate action

  27. Thank You

  28. Some Key Constructs/Takeaways Ensure you know the principal piece of legislation governing the sector, regulations, guidelines and the institution s own polices and procedures Board and Committee members are not being asked to be loans officers, CFOs, CFAs, CROs, Internal auditors and the like, but there understanding of these functions Board, committee members and management must become conversant of emerging issues that can potentially impact the Credit Union operations for instance climate change and cyber risk Recruit young talent Understand the macro environment in which the credit union operates must be some basic and micro economic

  29. Thank You! Contact Details: Morvin Williams Tel. (268) 764 5815 Email. Morvin.Williams@fsrc.gov.ag Morvin.willliams@gmail.com

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