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Hey everyone, this is Mark Treichel with another episode of With Flying Colors. I'm back with Steve Farr and Todd Miller of my team here at Credit Union Exam Solutions and also formerly of NCUA. Guys, how you doing today?
Very good. Very good.
Very good. All right. And we have folks who listen to every episode and we have folks that listen to episodes based on what we, what the topic is, and we might have some new listeners today. So if you guys could give a little bit of your background at NCUA before you change teams with me and started helping credit unions what was your your journey at NCUA? And let's start with Steve today.
I welcome everybody. I always refer to my career. It was 2 parts. 1st, part in the field. With the credit unions, 2nd, part in the central office in the division of risk management, but while in the field, I got to do is just a big variety of examinations. Most of that career was as a problem case officer and got to be involved in problem credit unions and their resolution.
Then I second sent another 15 of my 30 some years in the central office and division risk management working on many project. And 1 that will come into place here was I worked on the training that was provided to examiners on problem resolution. And in that was we'd hired a person that taught conflict resolution specifically, and that training session was one day for each examiner. And that was one of the things that they said it was one of the best things.
So examiners are trained and to be able to listen well and to deal with conflict. And I think that was important, but so I'll just end it right there for going into this podcast.
Very good. And Todd.
So I spent 34 years within CUA, I can break my career into three parts, probably the first third from 87 to 2000 or so, I was an examiner problem case officer in the western region, that middle third from 2000 to 2010 I was a capital market specialist. Dealt with your larger complex credit gains in the Western region. And then the last decade of my career, I was the director of special actions in the Western region, supervising problem case officers.
So throughout my career, most of it was actually spent in larger complex credit gains or what you would, NCA would call troubled credit unions.
Troubled credit unions. And that kind of dovetails into, we talked about problem resolution, we talked about conflict resolution, troubled credit unions. We have experienced with our discussions with credit unions recently. An uptick maybe is the right word of N. C. U. A. Gathering the board of directors or some subset of the board of directors and asking to speak with the credit union's board of directors without credit union staff present.
And, we've seen that an uptick in that in our conversations. And I thought it would be a good topic to walk through the nuances of why NCUA might ask for that to happen. So with that open-ended statement there, guys, what let's talk about situations where a board member, if a board member's listening, or a CEO or staff member is listening, where they might go here for the first time from NCA that they would like to meet with the board. separately from staff being present.
I think we need to break this into a couple pieces. NCOA examiners asking to meet with just the board chair as part of an exam or part of their ongoing supervision is not that uncommon. And Steve and I, our first boss that we ever had when we started, he often asked us, He said, go to lunch with the board chairman, figure out their points of view. It's a very different equation when NCUA asked to meet with the full board without management present. That's a whole different
scenario. Okay. And so why don't we, and Steve, you can add something here, but so if we're going to break it into Board chair versus full board. We can maybe talk about board chair first, but Steve, anything before we jump into that, you want to add?
No, I think that's a good process for this discussion.
Okay, great. So scenario a NCOA asked to talk with the board chair.
Steve talked about problem resolution and conflict resolution. A lot of times with meeting with board chairs and like I said, our first boss had us do it routinely when I was a director of special actions, I told my PCOs to meet with their board chairs at least once a quarter, a lot of that is just. Opening the doors to further communication and building trust. It's not nefarious. It's here's the board's view.
It's gathering information, but part of it is just the examiner wants to meet with the board and open doors of communication and build trust. There's usually nothing nefarious in it. It happens quite often. It probably should happen more often than it does. So in those situations.
I think just as a board chair, take it as an opportunity to learn a little bit more about your examiner what concerns them and take it as an opportunity to educate your examiner what you as a board want from your credit union, what your focus is, how you focus on serving the members. Use it as an opportunity to open doors and exchange. Information about your credit union and your board.
Yeah, I think that's the real key is that regular dialogue can be extremely helpful. And, unfortunately, that regular dialogue really occurs. Once the credit union is dealing with the emergence of problems, cause they'll tend to spend more time with, when you get to code three and stuff that regular dialogue will really start to kick up.
And there also could be a fear like it's a gotcha moment. It's examiners are not police officers, but they are regulators, right? Examiner is not the IRS, but. Getting a, getting an envelope from the IRS, peach makes your eyebrows stand up and getting a call from into a saying, Hey, I'd like to talk to you. They the volunteer could go, Oh gosh, did I do something wrong.
Is there something I should I get talking points from the CEO before I, I call them but if it hasn't happened to the board, it's a new board chair. Or it's a board chair where they haven't done that. It could make them, get a little bit anxious or get a little bit worried about the fact that NCUA is considering, having that conversation. And then I also, I'm remembered of a quote that I say on here quite a bit, former NCWA board member who said, familiarity breeds consent.
It's, it goes back to that communication. If I know you, and how you tick, and you know me, and how I tick if we should run into problems, like it's someone who has some issues that we have to deal with, If it ever gets to that point, we're going to under, we're going to have a little bit more trust as one of you mentioned. So that we can maybe figure things out that work both for NCUA and for the credit union. Any thoughts on anything I added there?
I think you summed it up fairly well, Mark.
Yeah. And occasionally, I know me, I met with other board members apart from that, and they usually dealt with it. There was some specific issue there that I didn't think needed to be brought up to the entire board. I know one case that dealt with it had a board member that was pretty seriously delinquent on an agriculture loan and wanted to just get the sense of what was going on there, but and what the other board members would be thinking about that.
The other ones dealt with when I would find or be informed of potential conflicts of interest. I would see, when they start using board members, firms for architecture and other professional services that might lead to the need for a conversation to make sure that was completely on the up and up. But those are examples of when I would meet with not just the board chairman, but specific board members.
And in those instances, making sure on the up and up that the votes that, you know, that the individual recused himself from the vote, that they did a competitive bid. And I'm also, as you were explaining that I'm going to date myself here again, but I was, I pictured you in a like Peter Falk in Colombo, asking and asking open ended questions to try and get to the truth.
Yeah, they do that. Oh, 1 more thing. Just 1 more thing. Yeah. Yeah. But the other thing is, we're also interested in as examiners is. The powers within the board, some boards are overwhelmed by 1 member of the board, and it really helps if the examiner is aware of who that is and why that situation exists. And is it creating a problem or not?
That's a good, that's a good point. We had, when I was at NCA we had training by an author of a book called the loudest duck. And the concept was whoever the loudest duck is in a group of ducks what a gaggle? What's no giggles geese. I don't know what a group of ducks is. Whatever the loudest duck is, that's who you hear, right? And so you can have these dynamics of group dynamics of a board or.
Or at NCOA executives where there's someone who dominates those conversations which can have positive and negative effects.
And on those 1 on 1 meetings it's important when it's less of a group is is if the examiner asks a question and it's just you and the examiner, and you don't know the answer, just admit that, I don't know the answer to that 1, but I can get back to you on that and don't ever try to, make anything up, but don't be afraid to admit. I don't know.
That's great. Yeah, saying you don't know expresses the confidence that you don't feel that you maybe you should. And I would even say sometimes, I should know that. I think I know that, but let me double check to make sure I give you the right answer. And we hadn't mentioned a supervisory committee, but it's not uncommon or actually probably is as common or maybe even more common that they'll reach out to the supervisory committee and touch base with them.
Anything you want to add on NC way talking to the supervisory committee.
That probably happens on most exams. Yes. Supposed to happen on most exams. So supervisory committee chairs are probably used to talking to their examiners and a lot of that's just logistical. The agency is trying to figure out, how active the committee is and are they aware of their duties? And, what's the extent of their supervision over the credit union in terms of internal audit and external auditors? And so that's an information gathering one, too, on the part of the examiner.
It's just a routine check in with the committee. It's part of their scope. It's something that examiners are expected to do.
Yeah. And as you were, as I was framing the question, my recollection is that is a required call as opposed to the others that are a, maybe regionally or supervisory examiner based type setups with the board and things. But. I think that reaching out to the Supervisory Committee Chair may actually be on the checklist of things they have to do, but
It's a good way, like Todd talked about measuring their engagement in in, in what they're doing. The other thing is that one's always good. 'cause a lot of times supervisory committee is a developmental committee for potential board members. So that's never hurts to get that dialogue going with the potential board members.
Yep. No, that makes sense. That makes sense. All right, so that kind of I think we've talked through the talking to one board member and or talking to the chair of the board. Let's pivot to N. C. U. A. Has asked to speak to the entire board or the executive committee, but we'll focus on the entire board. N. C. U. A. Asked. to speak with the entire board without credit union staff present. Thoughts on that?
Now you're getting into the realm of not such a common action. In my 35 years, as I was going through notes last night, I think I did this maybe five times as all in my career. So in 35 years, so it doesn't happen very often. In two of those five times, it was state regulators that actually said board, we want to talk to you without your management present. So it doesn't happen a lot. And so when it does happen, It's an unusual circumstance.
The regulators usually have concerns of one kind or another. I would just say in the times I've done it, different reasons is you have a dominant CEO, so you're trying to figure out just where the board stands because the CEO has dominated all the conversations. It doesn't really let the board speak to the regulator at all. Oftentimes, while in another case, it came down to the board was just totally misinformed about the credit union's risk position in every way, shape, or form.
You can say the CEO or management team was either intentionally or unintentionally not keeping the board informed about the whole risk position of what was going on in the credit union. Other instances, we've done it. In those five things is you have a board that's not holding management accountable for doing their job. And from a board governance position, hiring the CEO and holding them accountable is one of the primary functions of the board. And so we had a case where, that wasn't happening.
And in one of the cases, it was a prelude in a way to maybe prevent NCOA from having to take other administrative actions. And it's to inform the board. This is what needs to happen. It wasn't a pleasant conversation. It's you're going to do A or B or NCOA is going to take the next administrative action. So in my cases, those were the reasons where I was personally involved in it.
But boards should be aware it's not A usual practice and in fact, it's happens very rarely, but as we're seeing with our clients, it's happening more frequently. And today with like code two credit unions and it's wait, that's never happened in my career in the past. So there's some other things potentially going on.
And I think is that if you're a chairman and you get that, phone call that and see who he wants to meet without a management president. That I would probably ask is are you able to provide me with a just brief agenda that I can share with the other board members so that we can be, if we need to do any preparation for that meeting, they may not they may say no, this is item we're going to talk and that kind of would tell you a lot if they say, I'm hesitant to provide you a agenda ahead of time.
Keep in mind, you should have a good idea of what the trajectory of your credit union is. Okay. And I doubt that you'd be real surprised. That that was a request that was made to meet without senior management. And I can't overemphasize Todd's good point about, the bar, the board is responsible for holding professional management accountable for obtaining the results of which they have put into the strategic plan. And that absolutely needs to happen.
And which is the kind of conversation that you'd see in a credit union that has complex document resolutions, and maybe not not the code too, right? That Todd said, we're starting to see some situations where well cameled credit unions are asked to have such conversations. And I don't know if that's a change in policy.
At NCUA, or as you and I know that, regions do things a little bit different, there might be a rhythm to what's going on, and of course there's a National Supervision Policy Manual, but regional directors can influence how things are done ARDs, Associate Regional Directors of Operations can influence it, Supervisory Examiners, Directors of Special Actions can influence how their group of 10, 15 examiners are handling things.
So it, but we've seen also some things in different in all of the regions and all of the organizations that touch credit unions. So it's, yeah, it's an, it's a very interesting trend.
And you talk about, importance of responsibility and accountability with staff ultimately who NCUA, Who the credit union employs, as long as they're bondable is up to the credit union, it's really important that the credit union operate in a safe and sound manner but who's employed is the responsibility of the credit union. And so it can get into a delicate situation there if you're, if they're trying to point out, issues that could go into that arena.
I don't know if we want to talk, go down that path in this podcast here today, or that might be a story for another day.
I go through 1 I want to bring up is, 1 of the questions that you might have is a board member based on that trajectory of your credit union. And what you know what's going on is, do you feel like you need to have legal representation at that meeting? I know it's always a joke that I had. I used to get called into. When I was just an examiner and a PCO that the regional director just usually wanted to catch up with me. And I would always ask jokingly, Oh, do I need to bring my lawyer?
And everybody's laughing. And then one time there was a meeting, it was like I don't know. You might want to think about it today. But I think that's important that that you can question that you can ask even the numbers you think would be appropriate for us to have counsel at that one. And then you can ask that, but it is your decision. If you need counsel, then. It's really needs to be clear that if you bring counsel to that meeting who they're representing, because that would be the question.
I would always ask if counsel is there. It's do you represent the board? Are you representing an individual board member? But they wouldn't, you wouldn't have somebody that's representing the CEO. So I think those are issues that you have to clearly consider. You guys's thoughts on that.
I've asked that question of attorneys a few times when they've been present. I want to circle back to your whole comment about the board asking the regulators if they have an agenda and are willing to share with it because the simple fact of the matter is The regulator and see you a state regulator. They don't ask to meet with the board unless they have an agenda. Now they might not want to share it in writing but be assured they have an agenda.
So I think, along with the General Counsel recommendation that Steve brought up. I think there's a couple things that boards need to keep in mind when they're asked for this one I'd recommend you don't refuse them. Refusing to meet with the regulator is just inviting additional actions or administrative actions on their part, and you probably don't want to go down with that. That path.
So if N. C. U. A. or state regulator asked to meet with the board without management present as a board, you should probably agree to do that. Refusing is probably not in the credit unions interest. But in terms of the meeting itself like Steve had mentioned earlier, asking for an agenda ahead of time is good. Whether they'll give you one or not is a different thing, or they might give you a verbal one and not a written one. It is good to perhaps have your attorney present.
I think as a board, one thing you have to be very careful about during these meetings is that you don't agree to anything. Go there and listen, have questions back and forth. But as a board in a pressured meeting where you might not have an Clear agenda on the part of the regulators. I think it's important as a board, you go and listen and you keep an open mind. But at that specific meeting, don't agree to anything with the regulators at that meeting.
You need a chance to talk that over with your fellow board members away from the regulators. You need a chance to involve your executives. You need a chance to potentially involve your credit union's counsel. So be careful that you don't agree to anything, to agree to take any actions. You might agree that a problem exists or something that they bring up, but don't agree to take any actions at a meeting of that nature. You might even consider asking to record the meeting.
If it's within CUA, they generally have to allow you to do that. There are certain state regulators that will not allow you to record meetings with them. So that answer to that question can go either way.
I've been in meetings like this sometimes state regulators are present in a state chartered credit union and sometimes it's been just with federal credit unions, but there are some states out there that will not allow you to record meetings, but you might think about asking if you can record the meeting. Take notes. But the big thing is listen attentively speak truthfully.
If you don't know the answer to something, like we talked about earlier with an individual if you don't know the answer, tell them you don't know the answer or just say it. And keep your mouth closed in this situation, but be honest with them and anything you do say But in the big scheme of things This is not the meeting to make agreements with them
That's a really good point because we actually recently did deal with a credit union where the board and the examiner had met together and agreed on doing something and the Examiner thought the board was going to tell senior management about it You and the other 1, 5 and 2, 8 was going to partner. Nobody told senior management would have been agreed to in that meeting. And, it was, weeks later, and everybody starts asking him, it was like.
Nice to know, so that's just following up on those recapping those meetings is something that usually should be done. If the NCOA doesn't do it, you should do it as your organization. That's always important. Here's what we understand in our conclusions of our meeting. That's a great
point. Yeah, as Todd was walking through that, the situation of not making commitments, if you don't have the people, there may be unintended consequences and NCOA should, A, NCOA should not expect you to make decisions like that. And B, there may be unintended consequences that both the people at NCUA and the board might not be aware of if they were to take some sort of action similar to the situation you're referring to.
And then the taping concept, that's something NCUA's vice chairman, Kyle Houtman talks about at NCUA board meetings, NCUA actually in their closed section of their exam report, they have to check a box that says whether or not the meeting was tape recorded. And so NCOA current regime is pushing people to do that so that they've got a good record.
And the reality is anything that NCOA says in a meeting with the board they should be comfortable that there be a record of it. 40 years ago, that might not have been the case, but today in the world we're living in that is indeed the case. So very good. What else? What else we got on this topic guys? Anything you can think of? I
think at times you may get, emotional. And that occurs in some of these meetings. And it's okay to disagree with the examiner, but you have to do it in a respectful way. And you may have to just say, we need that. We need a break right now. If you can feel like you're triggered and might not be. In the best of shape to continue the conversation right at that minute. So it's just all of that, good listening and conflict resolution type skills.
As my mom said, you got two ears and one mouth for a reason, go into those meetings planning on listening and not using your mouth so much.
He speaks about emotional stuff in the big scheme of things in my career. It never bothered me when boards got emotional, especially if you were giving them news that was unexpected to them or they perhaps didn't want to hear. I found quite often if they got emotional, it was helpful in the long run because They would go back later and they would rethink their whole position and go over everything that they were told. And quite often it was a catalyst to moving forward.
Yeah. The seven stages of grief, you gave them maybe some bad news about something that they weren't aware of, and they're going to, they're going to have some emotions there. Yeah, this is an interesting topic guys. Again, we're seeing it. More frequently taught in the front end. You had mentioned you saw it less than five times. And I'm recalling three in particular.
And two of those three were actually state exams where they called them into the office and said, you're coming to the office and you can leave your staff at home. And states tend to. Be a little bit more aggressive in that maneuver, at least they did back when you and I and Steve were at NCUA.
Like I said, out of my five, it was state commissioners twice, once on the Canadian border and once at a state on the Mexican border, so extreme North and South, and in those cases, Both times the commissioners, the highest level at the state, they went to the credit union, but it was pretty clear that state commissioner was in charge of the meeting and they had very specific reasons for meeting with those credit unions without their management present.
Same in my, in the one I was involved with. Very good. It's happening more frequently. If it happens consider having your attorney present, consider tape recording listen more than committing to actions. If it should happen and any last thoughts again, before we wrap up here, guys, I'm
reemphasize Steve's point, ask them if they have an agenda.
Yeah.
And exam.
Examiners are people and they're usually, after the, the best interest of your institution. So just keep that in mind.
Great point. Great point. As always, this is fun. It's fun chatting with you guys about these topics. I think we all probably sparked a synapse in our brain of a story that we hadn't thought of for a while, which makes us smile. And I appreciate your time, Steve and Todd.
Have a great day, Mark.
You too. And listeners, I want to thank you for listening as always. I hope you'll listen again soon. This is Mark Treichel signing off with Flying Colors.
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