Transform Your Board How to Enhance Board Governance September 6, 2013

1. Transform Your Board How to Enhance Board Governance September 6, 2013

2. Catholic Financial Life Panelists Tom VanHimbergen, Chair of the Board Bill O’Toole, President & CEO Al Lorge, Secretary/Treasurer & Executive VP

3. Overview Governance Oversight Consequences of Poor Governance Board’s Role in Shaping Your Society’s Strategic Direction Effective Board Meetings Case Study--Catholic Financial Life’s Governance Structure

4. Governance Oversight

5. Board Leadership – Oversight of Organization • The day-to-day business is to be conducted by management and employees, under the direction of the CEO, subject to the oversight of the Board • Board’s role is to approve or disapprove of policies, goals, strategic objectives and plans • Board should function as a generalist, not a specialist • The Board is to be a sounding board on management’s proposed future policies and corporate direction • Board should act as an objective, value-added resource for management • A source of constructive advice and guidance • A partner with management in achieving strategic objectives

6. Board Leadership – Evaluate CEO • Help (1) establish, (2) communicate and (3) monitor Board’s expectations of management and management’s goals and objectives • Review performance in achieving the organization’s strategic goals and annual business plan • Ensure that there is a formal organization and manpower plan designed to properly support the Society’s long-term plan • Overseeing succession plan for management – both long-term and emergency basis • Ensure that there is a sound executive compensation plan that is kept competitive

7. Board Leadership – Oversee Financial Results and Condition • The Board should ensure, through the budget review and annual operating plan approval process, • That there is a specific financial program designed to properly support the organization’s long-term plan for growth • Board Audit, Finance & Investment Committees should monitor: • Financial results and condition • Audit of financial statements, • Investment portfolio, strategies and performance • Reasonableness of reserves and adequacy of its capital or surplus

8. Board Leadership – Monitor Business Risks • Ensure that management, through effective processes, is identifying, assessing and mitigating the major enterprise risks facing the organization. • Monitor and assess the steps being taken by management to • Mitigate current risks • Anticipate future unforeseen material risks that may occur. • Oversee the process of evaluating the adequacy of internal and business controls and risk management systems and processes.

9. Board Leadership - Provide Value Added Input and Counsel to Management • Provide your unique business experience, perspectives, insights and expertise to management • Provide your value-added input to enhance and protect the enterprise value • Just because Board or management doesn’t adopt or follow your advice or view point doesn’t mean that you shouldn’t provide your input, or that it wasn’t important to the Board’s or management’s decision-making process

10. Acting in Your Members’ Best Interest • You have three principal fiduciary duties to your Society and its members: • Duty of care • Duty of loyalty • Duty of Confidentiality • These three main fiduciary duties require that you: • Make decisions on a fully informed basis • Not act for personal or non-corporate purposes • Always act in the best interests of your Society, its members and other stakeholder • More details in the Appendix

11. Acting in Your Members’ Best Interest – Business Judgment Rule • You can defend your Board’s decisions from legal challenge if you can demonstrate your Board’s decision was made: • On a fully informed basis; • Without self-interest; • In good faith; and • In the honest belief that the decision was in the best interests of the Society and its members. • The business judgment rule can help protect you against personal liability for Board decisions made in good faith even if those decisions turn out poorly.

12. Consequences of Poor Governance

13. Consequences of Poor Governance • Lack of Focus and Growth • Board is preoccupied with operational detail • Stagnant and declining sales • Inability to move the organization forward • Poor Financial Performance • Regulatory intervention • Assessment of members • Leadership Political Infighting • Contentious conventions • Personal interests before membership interests • Board evaluation and oversight of top management may be lacking

14. Board’s Role in Shaping Your Society’s Strategic Direction

15. Overview ofStrategic Planning Process“Fail to Plan Then Plan to Fail” • Strategic planning is a management tool used to: • Help an organization focus its energy and resources • Ensure that members of the organization are working toward the same goals • Assess and adjust the organization’s direction in response to a changing environment.

16. Overview ofStrategic Planning Process“Fail to Plan Then Plan to Fail” • In short, strategic planning is a disciplined effort with a focus on the future to produce fundamental decisions and actions that shape and guide: • What an organization is • What it does • Why it does it

17. Overview of Strategic Planning Process • Mission Statement • Why you exist • Your guiding purpose • Vision Statement • Who/What you want to be • Achievable and measurable • Values • What you hold true in all you do • Guiding principles you follow in carrying out your work and service

18. Overview ofStrategic Planning Process • Strategic Planning Defined • Broad Scope • Doing the Right Thing • Concept • Organizing Glue • Central Organizing Statement • Tactical Thinking • Narrow Scope • Doing Things Right • Tools of Execution • What Gets Glued • Day-to-Day Actions • “No plan survives its collision with reality” – S. Herman

19. The Board’s Role In Shaping The Strategic Direction Of Your Society • Assure management has a planning process and it is followed • Planning process provides for appropriate Board input • Board approves strategic plan assuring alignment with long-term best interest of members • Guardians of the mission • Advocates of the vision

20. Key Strategic Issues • Financial Strength and Stability • Growth • Enterprise Risk Management (ERM) • Governance • Qualified Management Leadership • Key Corporate Metrics • (more details in the Appendix)

21. Effective Board Meetings

22. Effective Board Meetings • Qualified Directors • Business experience • Other Board or leadership experience • Specific expertise • Identify quality potential candidates • Board Policy Manual • Outline Board’s responsibility vs. management’s responsibility • Code of ethics • Specific policy statements

23. Effective Board Meetings • Clear Agendas • Identify action vs. discussion items • Indicate specific time for each item • Provide background materials well in advance • Effectively Use Committees • Committee recommendation for every action item • Refer topics needing more research to a committee • Provide Agenda • Time for an Executive Session • With or without management • Optional as needed

24. Annual Board Evaluations • Board and Board Committees • Self assessment • Independent third party assessment • Peer review • Board Chair • Input from all Directors • Report to Board • Feedback to Board chair • President/CEO • Input from all Directors • Report results to Board • Feedback to President/CEO

25. Case Study Catholic Financial Life’s Governance Structure

26. Catholic Financial Life’s Governance Structure • Articles and Bylaws • Board of Directors Policy Manual • Types and Numbers of Directors • Director Election Process • Board Governance Map

27. Articles & Bylaws • High Level and Flexible • Articles only 3 pages • Bylaws in 14 chapters on 16 pages • Chapter operating and governance procedures in separate policies and procedures manual approved by the Board • Amendment Process • Involve chapter officers and convention delegates • Review changes in advance • Provide delegates written report including reasons for changes • Process Takes Years

28. Catholic Financial Life – 1997 Delegate Bylaw Committee

29. Board Policy Manual General • Board of Directors Roles and Responsibilities • Board philosophy • Board role with respect to management • Board standing committees • Society mission and vision statements • Society values and guiding principles • Society long-term strategic direction and strategic statement

30. Board Policy Manual Code of Ethics • Fiduciary duties of care, loyalty and confidentiality • Conflict of interest • Stewardship • Gifts and political contributions

31. Board Policy Manual • Committee Charters • Audit, Finance and Investment • Executive • Governance • Membership • Selection (Board Chair) • Strategy and Risk Oversight

32. Board Policy Manual Board Policy Statements • Policy 1.0 – Chair of Board Position • Policy 2.0 – Director Education • Policy 3.0 – Conflict of Interest • Policy 4.0 – Confidentiality • Policy 5.0 – Communications • Policy 6.0 – Advocates and Ambassadors

33. Board Policy Manual Board Policy Statements • Policy 7.0 – Rules of Engagement • Policy 8.0 – Discipline • Policy 9.0 – Enterprise Risk Management

34. Board Policy Manual Fiscal and Operating Policies • Chapter Policies and Procedures Manual • Anti-Money Laundering Policy • Borrowing Resolution • Capital Improvements Policy • Depository Resolution • Disbursement Authorization Procedures • Indemnification of Board and Officers Resolution • Investment Policy

35. Board Policy Manual Fiscal and Operating Policies • “Non-Catholic” and “Social Member” Defined for Membership Eligibility • Pension Investment Policy • 401 (k) Investment Policy • Privacy Information Procedures for Insurance Contracts • Records Retention Policy • Whistleblower Policy and Procedures

36. Types of Directors Voting Directors • (9-12) Elected at Triennial Convention • (2) Appointed by President • Confirmed by Board • Specific Expertise Board Needs • (2) Society Officers Appointed by the Board • President • Secretary/Treasurer

37. Types of Directors Non-Voting Directors • (1) Spiritual Director • Appointed by President • Chair of the Board • Elected Annually from Elected Directors • Selection Committee Evaluates and Nominates

38. Minimum Eligibility for Directors Required in Bylaws • Submit request to be candidate 120 days prior to the Council meeting • Own a financial product for at least two (2) years prior to the Council meeting • Have attended at least six (6) fraternal functions since the last regular meeting of the Council • Not be a former agent or employee whose service was terminated since the last regular meeting of the Council • Be a member of a Catholic parish and not be an agent or employee • Not be age 75 or older • Comply with all rules and regulations that the Nominating Committee establishes

39. Desired Attributes for DirectorsSpecified in Bylaws • Demonstrates sound judgment • Prior board or other leadership experience • Personality conducive to working in a group and to challenging management • Business experience • Fraternal experience • Ethical values • Ability and willingness to commit the required time and energy • Any specific expertise or qualities needed by the Board

40. Board of Directors Election Process • Elected by Delegates of Triennial Council • Three-year terms • Term limit of three consecutive terms • Nominating Committee of Nine Delegates • Certifies candidates’ eligibility • Review candidates’ qualifications compared to bylaws “desired attributes” for Directors • Interviews candidates • Recommends the most qualified candidates

41. Catholic Financial Life Governance Map

42. Effective Board Governance Key Takeaways • Partnership of Board and Top Management • Stay at the Strategic Level • Focus on Policies, Plans and Goals • Management handles day-to-day business • Educate Directors • Society’s Business and Industry Trends • Governance Best Practices • It Takes Time • Always Act in Member’s Best Interest

43. Questions? bill.otoole@catholicfinanciallife.org tvanhim@aol.com al.lorge@catholicfinanciallife.org

44. APPENDIX

45. Acting in Your Members’ Best Interest – Duty of Care • Compliance with your directors’ fiduciary duty of care requires that you make Board decisions on a fully informed basis, including: • Generally understanding in reasonable detail the Society’s business. • Reading and understanding, in advance of meetings, all background materials and documents provided to you by management. • Asking for and receiving any needed additional explanatory materials and/or summary reports. • After reading Board/committee materials, call CEO or Secretary with any questions/clarifications before meeting

46. Acting in Your Members’ Best Interest – Duty of Care • Asking pertinent and probing questions and receiving satisfactory answers from management or other knowledgeable sources. • Taking the time (perhaps, over more than one meeting of Committees/Board) to carefully evaluate very important decisions so that you may make decisions deliberately, after candid discussion and due consideration and on a fully informed basis. • Attending Board/committee meetings in person regularly and being an active and engaged participant in such meetings.

47. Acting in Your Members’ Best Interest – Duty of Care • Remaining informed about the Society’s operations, performance and challenges and, in particular, ensuring you maintain current knowledge of all: • Press releases, media reports and articles about your society • Society’s membership publication • Society’s website • Annual audit report • Periodic regulatory examination reports • Pertinent industry information, publications and reports

48. Acting in Your Members’ Best Interest – Duty of Care • Holding regular Board/committee meeting executive sessions of non-management directors. • Never closing eyes to “red flags” or even “orange flags” • Ignorance is not bliss • Ensuring that an effective legal and ethical compliance corporate monitoring and reporting system is in place. • Society has a written management/internal Whistle Blower policy

49. Acting in Your Members’ Best Interest – Duty of Loyalty • Put the interests of the Society, its members and other stakeholders above the director’s own personal interests. • If you have a conflict of interest associated with a particular decision or transaction submitted for Board/Committee approval, then • Your should fully disclose in advance all aspects of your conflict, • abstain from voting on such matter and • preferably recuse yourself and leave the room prior to any discussion or vote for approval by the other directors.

50. Acting in Your Members’ Best Interest – Duty of Loyalty • Typical potential breaches of your duty of loyalty include: • Pursuing a conflict of interest situation or transaction • Unless it is fully disclosed in advance and approved or ratified by non-interested directors. • Misappropriating or usurping corporate opportunities for your personal benefit. • Competing with the Society or otherwise adversely affecting the Society’s business interests or prospects. • Misappropriating confidential corporate information for your personal benefit.