By Mark H. Smith, Founder

Over my 30+ years working with credit unions, I have often witnessed the trauma that can occur from poorly written or nonexistent policies. When things go well, the lack of a written policy is often overlooked. However, when problems occur, the finger-pointing and blame assignment begin. Written policies empower the credit union’s executive officers to operate the credit union in a manner consistent with the intent of the Board of Directors. Policies should be clearly written and stated. They should be fully understood by the directors who adopt them and the credit union executives and officers who implement them.

In Part One today, we will provide suggestions for writing clearly stated and understandable policies. In Part Two, coming in our May/June issue, we will zero in on the specifics for writing balance-sheet focused policies.

Here are some helpful hints when writing your policies:

  • Summarize the purpose of the policy and its objectives in the introduction.
  • Cite legal authority when appropriate. If the topic covered in the policy pertains to a specific rule or regulation, it should become part of the policy.
  • The scope of the policy should be clearly defined. That would be to whom or what the policy applies.
  • Identify the party or parties responsible for carrying out the policy.
  • Write in easy-to-read, plain language.
  • Keep it simple and stay on task. One of the most common errors I see in policy is mixing objectives; that is, combining the policies for investments and interest rate risk, as an example.
  • Avoid the word “shall.” Be specific. Use the word “must” when the policy is absolute and allows no deviation, and the term “must not” for a prohibited activity with no exceptions. Use “may” when the action is discretionary or subject to the judgement of the user. The term “should” is a recommendation but not necessarily required. We urge caution when using “should.” Think carefully of the meaning when selecting these words.
  • Avoid legalese and wordy documents. Remember that the individuals implementing the policy and also those authorizing the policy are not lawyers. Policies are best written in straightforward, simple sentences.
  • Use common language and avoid the use of jargon. Remember the objective of the policy is to direct and control the actions of those implementing it. As a general rule, use short words and make the wording of the policy as straightforward as possible.
  • Use short sentences. It is usually better to state your policy in two or three short sentences rather than one long, convoluted compound structure. Short sentences are better for communicating complex subjects. They break the subject down into smaller and easier-to-process units.
  • Use bulleted or numbered lists when conveying a series of requirements.
  • Provide a glossary. Uncommon words or those words whose definitions are unique to the definition of the policy should be defined in a glossary and included in the policy.

Lastly, the originators and users of the policy should understand every concept and word contained in the policies that are adopted for the credit union. Clearly, if the policy is not understood, therein lies the potential for misunderstandings and misinterpretation of its intentions and objectives.