Governance Challenges in Credit Unions: Insights and Recommendations

Dionne Pohler, with Nora Russell


The Filene Research Institute and the Canadian Credit Union Association recently commissioned me to write a report examining the characteristics of the well-governed credit union and exploring the values and risks associated with co-operative governance models. Below, I summarize some of the key insights. You can download the full report on which this summary is based here.

Recent mergers and consolidations in the credit union system have led to a decrease in the number of credit unions and an increase in the size of the largest ones, which collectively manage tens of billions of dollars in assets and serve millions of members across the country. As credit unions diversify and grow, they face more risk and greater competition, as well as challenges to the effectiveness of their board governance.

Credit union boards have traditionally comprised directors democratically elected by the members, but they are facing increased regulatory pressure to model their governance structures on those often seen in investor-owned banks. Questions have been raised about whether credit union boards are able to provide effective strategic direction and oversight of senior management and internal control systems. Some have suggested that credit unions should change their board selection processes to ensure that directors have the necessary competencies to appropriately manage increasingly complex financial institutions. Many credit union leaders, members, and outside observers have argued that changing the grassroots approach to selecting board directors undermines the essence of a credit union, reduces responsiveness to members, and has the potential to lead to demutualization. So what are the key issues that must be considered as the governance arrangements of credit unions continue to evolve in response to changing needs?

Three Key Issues

  • Is co-operative governance less effective or riskier than other forms of governance?
  • Can credit unions reconcile traditional grassroots democratic governance with increasing competitive and regulatory pressures to “professionalize” the composition of their boards?
  • What does “good governance” look like in credit unions today?

Based on more than four years of research on governance and strategy in co-operatives, credit unions, and their second- and third-tier organizations, as well as a review of the academic and practitioner governance literature, I compiled a list of critical insights and their associated recommendations for credit union regulators and leaders to consider when proposing changes to board governance guidelines, processes, and practices in credit unions. I adopt a relatively broad perspective on governance, outlined in the figure below (click on image for larger view).

Source: Pohler, Fairbairn, and Fulton 2017[1]

The Implications for Credit Unions

Below are a few of the key recommendations outlined in more detail in the report.


  • Policymakers should examine the unique role played by credit unions in striking a balance among competition, consumer access, and stability in the financial services industry.
  • Regulators should develop a separate set of governance guidelines for credit unions that recognize the unique strengths and risks of co-operative governance and business models.
  • Financial regulators should be careful when adopting requirements that intentionally or unintentionally force credit unions to pursue growth strategies or operate more like banks.


  • Credit unions adopting growth strategies should critically reflect on their rationale and purpose for pursuing growth and be clear about the trade-offs. More so than other types of organizations, they should explore innovative ways to create economies of scale and to improve member services.
  • As credit unions grow, they should be careful to safeguard two key sources of competitive advantage vis-à-vis the banks — the local differentiator and member focus.
  • Growing credit unions must redefine their “communities” and revisit their roles and responsibilities in relation to the communities in which they are embedded.

Member-Focused Governance

  • Credit unions should recruit board members for values fit and diversity in perspectives, in addition to demographic diversity and specific industry experience and technical skills.
  • Credit unions should provide ongoing education, training, and information on co-operative governance and business models to credit union directors and leaders.
  • All nomination procedures, evaluation criteria, and processes for director selection should be open and transparent. Members should be the ones to decide on proposed changes to credit union board nomination and election processes. Board directors, not senior managers, should be primarily responsible for driving conversations with members about changes to governance.

Governance of Credit Union Partnerships and Associations

For second- and third-tier credit union governance frameworks to be most effective, these associations and organizations should be designed by the key credit union players themselves pursuing answers to the following questions:

  • How do we meet two related credit union organizational objectives: efficiency through centralized co-ordination and local autonomy and control?
  • What is our shared long-term vision?
  • What are the formal governance structures and informal norms that will shape “who gets to decide what and how” in our second- and third-tier organizations and associations?


Credit unions have made many contributions to the competitiveness, stability, and resilience of the financial services industry. Regulators, credit union members, boards, and managers must recognize that credit unions may not survive as consumer-owned and -controlled financial services organizations if they are required to adopt governance frameworks developed for banks. Regulatory oversight of credit unions and the development of governance frameworks should be rooted in a deep understanding of the differences between co-operative governance and business models and other types of organizational forms.

Credit union leaders need to be acutely aware of how growth and changes to board selection processes and composition may affect accountability to members. They should develop governance arrangements that focus on how the co-op model can be leveraged to address the unique and unprecedented challenges facing credit unions today.

[1] Pohler, D., B. Fairbairn, and M. Fulton. 2017. “The Governance of Business Federations.” Working paper, Centre for the Study of Co-operatives, University of Saskatchewan, Saskatoon

Dionne Pohler, assistant professor, Centre for Industrial Relations and Human Resources, University of Toronto; Fellow in Strategy and Governance, Centre for the Study of Co-operatives, University of Saskatchewan



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