The Importance of the Supervisory Committee & Member Participation
Many who don’t understand the unique fabric of credit unions tend to misconstrue the designs in place. It must be acknowledged that credit unions are owned by their members (shareholders / investors). That fact must be understood because it is a common misconception that the Board of Directors has uncontrollable power. However in the credit union context, when the rights of the supervisory committee and more importantly the rights of members are examined, it is clear that that is not the case.
Corporate governance has been defined by the Cadbury Committee in 1992 as the system by which companies are directed and controlled. It should be taken seriously by every financial institution because good corporate governance plays a critical role in improving investor confidence, and it also reduces the risk of financial crises and scandals.
In the credit union movement, the Board of Directors is mandated by law to direct the business and affairs of the credit union, the supervisory committee keeps the board in check and members indirectly control the business and affairs of the credit union. Therefore, it can be said that the Board of Directors, Members and the Supervisory Committee, are three (3) necessary pillars needed to ensure good corporate governance exists in credit unions. Like a house built on stilts, if any pillars are weak there’s a possibility that a collapse can occur.
The notorious Hindu credit union’s (Trinidad & Tobago) collapse is one which should be remembered whenever looking at corporate governance in the credit union context. The Commission of Inquiry’s investigations highlighted amongst other things that the Board of Directors’ mismanagement led to its demise. Some may say that that credit union’s collapse could have been avoided if their members were more critical at Annual General Meetings (AGMs).
Professor Burgess (as he then was), emphasized “shareholder meetings (AGMs) are an important mechanism for shareholders to exert control in corporate decision making.” At Annual General Meetings members have the right to voice their concerns as it relates to the management of the credit union, make recommendations, request information and examine the credit unions’ financial statements. Such power may lead one to wonder, “Why is the Board of Directors accountable to the members?” The answer to that question is simple; the Board is elected by the members to direct the business and affairs of the credit union and to take their interest into account.
The legislation makes it clear, that the Board of Directors’ duty is to act in the best interest of the credit union and when exercising that duty, they must consider the interests of members. Since the Board is accountable to members, it is understandable why the law plainly states that they must consider their interests. Moreover, it is understandable why the law implies that directors should not act selfishly when exercising their duty, they must “act in the best interest of the credit union.”
The Board of Directors must understand the nature of their duty and cooperate with members because it helps to ensure good corporate governance. That in addition to having analytical members and a strong supervisory committee can aid in reducing the possibilities of financial scandals & collapses. The Supervisory Committee and members can help to keep the Board on track so that they can remember the main mission of credit unions, which is to operate “not for profit, not for charity but to serve their members’ needs.”
The Supervisory Committee must make certain that the Board of Directors complies with the law. The law gives them the power to examine the books of the credit union, confirm cash instruments, property and securities of the credit union and confirm the deposits of the members. If they are of the opinion that there has been a misappropriation of the credit union’s cash instruments, property & securities or members’ deposits and the investigations show that it is true, the Supervisory Committee has the power to suspend the Board of Directors.
When the Board of Directors has been suspended because of misappropriating or misdirecting the credit union’s funds, securities or other property, the supervisory committee must request the Board to summon a general meeting of the members to inform them. The mere fact that the members must be informed further highlights how important they are as a pillar of corporate governance. The Supervisory Committee and member participation are critical as they help to ensure good corporate governance.
Disclaimer: This article has been created for educational and information purposes only. It is not intended to constitute legal advice and must not be relied upon as such.
Authorities:
- Akira Kawamura Anderson Mori & Tomotsune “Corporate Governance International Series 2nd Edition.”
- Suzanne Ffolkes- Goldson, “Commonwealth Caribbean Corporate Governance” (first published 2016, Routledge)
- Barbados Co-operative Societies Act CAP 378A
- Report of the Commission of Enquiry into CLICO and HCU
- Andrew Burgess, Commonwealth Caribbean Company Law ( first published 2013, Routledge 2013) 282