Director Liabilities
and the Fun of
Being a Board Member
U.S. Senate
Federal Credit Union
and their CUSO’s

kaufCAN.com
Basic Roles and Responsibilities
• Decision making
• Oversight
• Duty of loyalty
• Duty of care

kaufCAN.com
General Standards
• Standards of Conduct
– Good faith
– Reasonable belief
– Best interests of credit union

kaufCAN.com
• Standards of Liability
– Lack of good faith
– Unreasonable belief
– Lack of information
– Lack of objectivity
Always put...
• Business Judgment Rule (std. defense)
– Business decision
– Good faith
– Disinterested parties
– Informed judgment
– Rea...
Recent Influences
• Sarbanes – Oxley
• Murdock
• Corporates
• CFPB

kaufCAN.com
Sarbanes - Oxley
• Corporate disclosure and governance
• Insider Accountability and disclosure
obligations
• Auditor indep...
Selected Provisions
• Safety and soundness
• Corporate governance practices
• Corporate Responsibility
• Enhanced Financia...
Potential Trend
• Breach of duty
• Shift in application of business judgment rule
• Suggests personal liability may be imp...
Federal Credit Union Context
• NCUA
• State corporate law
– Bylaws
– Model Business Corporation Act

• Other federal laws
...
Areas of Interest
Now or in the Future
• Risk Management
– Risk Assessment & Planning
• Compliance and ethics training
• I...
Principles of Corporate Governance
• Board Structure
– Size of board
– Director qualifications
– Selection of new director...
• Board Meetings
– Agenda
– Advance distribution of materials
– Access to employees
– Executive sessions
– Regular attenda...
• Performance Evaluation
– Board effectiveness
– Director evaluation
– Director orientation and continuing education
– CEO...
CU Strategic Partners, LLC
* 2013 Fidelity Bonds Insurance Summary
Annual
Aggregate
Limit

Employee [or Director] Dishones...
United States Federal Credit Union
* 2013 Fidelity Bonds Insurance Summary
Annual
Aggregate
Limit

$25,000

$5,000,000

Em...
What if you breach?
• Breach of duty + damages = potential liability
• Indemnification, insurance
• Who would sue?
– NCUA,...
Indemnification
• FCU Bylaws
• FCUs may not indemnify officials or
employees for personal liability
– Where decision givin...
Indemnification 12 CFR 701.33
• Exception will allow advance of funds
before final disposition if:
– Disinterested board m...
Directors are Responsible for
General Direction and Control
of the Credit Union
• Duty of good faith
• Best interests of m...
kaufCAN.com
Director Liabilities
and the Fun of
Being a Board Member
U.S. Senate
Federal Credit Union
and their CUSO’s

kaufCAN.com
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U.S. Senate FCU Director Liabilities and the Fun of Being a Board Member

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U.S. Senate FCU Director Liabilities and the Fun of Being a Board Member

  1. 1. Director Liabilities and the Fun of Being a Board Member U.S. Senate Federal Credit Union and their CUSO’s kaufCAN.com
  2. 2. Basic Roles and Responsibilities • Decision making • Oversight • Duty of loyalty • Duty of care kaufCAN.com
  3. 3. General Standards • Standards of Conduct – Good faith – Reasonable belief – Best interests of credit union kaufCAN.com
  4. 4. • Standards of Liability – Lack of good faith – Unreasonable belief – Lack of information – Lack of objectivity Always put the interest of the Credit Union or CUSO first! kaufCAN.com
  5. 5. • Business Judgment Rule (std. defense) – Business decision – Good faith – Disinterested parties – Informed judgment – Reasonable belief – Best interests of U.S. Senate FCU – Best interests of Strategic Services, LLC kaufCAN.com
  6. 6. Recent Influences • Sarbanes – Oxley • Murdock • Corporates • CFPB kaufCAN.com
  7. 7. Sarbanes - Oxley • Corporate disclosure and governance • Insider Accountability and disclosure obligations • Auditor independence • Sanctions for criminal and civil wrongdoing kaufCAN.com
  8. 8. Selected Provisions • Safety and soundness • Corporate governance practices • Corporate Responsibility • Enhanced Financial Disclosures kaufCAN.com
  9. 9. Potential Trend • Breach of duty • Shift in application of business judgment rule • Suggests personal liability may be imposed where directors fail to adopt and implement a compliance plan • Trend of NCUA kaufCAN.com
  10. 10. Federal Credit Union Context • NCUA • State corporate law – Bylaws – Model Business Corporation Act • Other federal laws • Sarbanes – Oxley • Financial Literacy kaufCAN.com
  11. 11. Areas of Interest Now or in the Future • Risk Management – Risk Assessment & Planning • Compliance and ethics training • Internal control standards • Written documentation • Effective Due Diligence • Financial Literacy kaufCAN.com
  12. 12. Principles of Corporate Governance • Board Structure – Size of board – Director qualifications – Selection of new directors – Term limits kaufCAN.com
  13. 13. • Board Meetings – Agenda – Advance distribution of materials – Access to employees – Executive sessions – Regular attendance kaufCAN.com
  14. 14. • Performance Evaluation – Board effectiveness – Director evaluation – Director orientation and continuing education – CEO evaluation kaufCAN.com
  15. 15. CU Strategic Partners, LLC * 2013 Fidelity Bonds Insurance Summary Annual Aggregate Limit Employee [or Director] Dishonesty Single Loss Limit $1,000,000 Coverage $1,000 $500,000 $2,500 Deductible Premium for Basic Bond Coverages Above [Faithful Performance] Financial Services Professional Liability Coverage Annual Aggregate Limit Directors, Volunteers & Employees No Coverage Employees Per Claim Deductible No Coverage Officer Limit of Liability Endorsement No Coverage Entity Endorsement No Coverage Fiduciary Liability No Coverage Employment Practices Liability No Coverage * Policy Certificate from 8/1/11 – 8/1/12 kaufCAN.com
  16. 16. United States Federal Credit Union * 2013 Fidelity Bonds Insurance Summary Annual Aggregate Limit $25,000 $5,000,000 Employee or Director Dishonesty Single Loss Limit $6,000,000 Coverage $25,000 Deductible Premium for Basic Bond Coverages Above Faithful Performance Annual Aggregate Limit Per Claim Deductible $10,000,000 0 Fiduciary Liability $1,000,000 $1,000 Employment Practices Liability $5,000,000 $100,000 Coverage Directors, Volunteers & Employees Employees/Management Liability Officer Limit of Liability Endorsement Entity Endorsement * Policy Certificate from 8/1/12 – 8/1/13 kaufCAN.com
  17. 17. What if you breach? • Breach of duty + damages = potential liability • Indemnification, insurance • Who would sue? – NCUA, members with uninsured shares, disgruntled ex employees, those not elected to the Board – Many “members” threaten a lawsuit kaufCAN.com
  18. 18. Indemnification • FCU Bylaws • FCUs may not indemnify officials or employees for personal liability – Where decision giving rise to claim is determined by a court to have constituted: • Gross negligence • Recklessness • Willful misconduct kaufCAN.com
  19. 19. Indemnification 12 CFR 701.33 • Exception will allow advance of funds before final disposition if: – Disinterested board members/supervisory committee deem officials acted in good faith – Disinterested individuals determine that payment will not harm safety and soundness – Corporate governance/Board resolution kaufCAN.com
  20. 20. Directors are Responsible for General Direction and Control of the Credit Union • Duty of good faith • Best interests of membership • Fairly, impartially and without discrimination in favor of any particular member • New regulation/financial literacy • Be prepared kaufCAN.com
  21. 21. kaufCAN.com
  22. 22. Director Liabilities and the Fun of Being a Board Member U.S. Senate Federal Credit Union and their CUSO’s kaufCAN.com

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