Compliance Blog

Mar 14, 2022
Categories: Board and Governance

Vacancies After the Nominating Process Closes

The bylaws are generally clear on what to do in the event of a board of director vacancy before the annual meeting occurs. Under the current model bylaws and the Federal Credit Union Act, the board of directors appoints a replacement and the vacancy is filled at the next annual meeting through the “normal membership voting process.” What happens when the vacancy occurs outside the general process? What does a federal credit union do if the vacancy occurs after the nominating process is closed, but before the annual meeting? If there is no time to nominate a candidate under the bylaws, what is a federal credit union supposed to do? A federal credit union may have several options based on NCUA’s own guidance and a federal credit union’s own bylaws. I review both options below.

NCUA Legal Opinion Letter

NCUA addressed this issue in NCUA Legal Opinion Letter 91-0118 (letter). In the letter, NCUA rejected a proposed bylaw amendment that would “provide that an individual appointed by the board of directors to fill a vacancy on the board within one hundred days before the next annual meeting will serve until the second annual meeting after his appointment.” In essence, a federal credit union proposed a fix to the vacancy question by adopting a bylaw amendment that would allow the current board to fill the vacancy and the person chosen would then serve until the second annual meeting after their appointment, as in the next annual meeting for which the nominating process had not already been completed. NCUA rejected this proposed fix, noting the Federal Credit Union Act says a vacancy “shall be filled until the next annual election.” Here is an excerpt of NCUA’s analysis:

Section 111(a) of the Act (12 U.S.C. §1761(a)) states, in part, "Any vacancy occurring on the board shall be filled until the next annual election by appointment by the remainder of the directors." A board of directors is precluded by Section 111(a) from appointing a director to serve beyond the next annual election.

[…]

While we cannot support the proposed-amendments, we understand the concerns expressed[.] We suggest one of the following alternatives for changes to Article VII, Section 3.

1. The board of directors would appoint someone to fill the position until the next annual meeting, and then the new board elected at that meeting would appoint an individual to serve until the following annual meeting.

2. The nominating committee would be required always to nominate at least one more individual than the number of positions to be filled at any given election. Then, if a position became vacant after the nominations had been filed, that extra nominee would be elected to fill the slot; if only the expected number of vacancies occurred, all of the expected slots would still be filled and one individual would not be elected. For example, if the board expected four vacancies, the nominating committee would nominate five individuals. If an unexpected vacancy occurred after the nominations had been filed, all five candidates would be elected; if not, the top four vote-getters would be elected. Of course, the board of directors serving at the time that the vacancy occurred would still have the power to appoint someone to fill the vacancy until the election took place. If this option were implemented, no change in Article VI, Section 2 would be necessary.

The letter emphasizes a federal credit union’s board cannot appointment someone to fill the vacancy beyond the next annual meeting, even if that meeting is only weeks or even days away. NCUA offers two solutions to this issue. First, a federal credit union may appoint someone to serve until the annual meeting and then, when the vacancy is not filled at the annual meeting, the newly-elected board then fills the vacancy by appointment. The appointed director then holds the vacant board position until the following annual meeting. Second, a federal credit union’s nominating committee could nominate more candidates than there are existing vacancies. The NCUA letter indicates that a change to the bylaws may be needed to implement these suggestions.

A Federal Credit Union’s Bylaws

Another option available to a federal credit union is if a nomination is made from the floor to fill the vacancy. The Federal Credit Union Model Bylaws allow federal credit unions to choose from four possible voting options. Only one of the options (Option A1 – “In-Person Elections; Nominating Committee and Nominations From Floor”) permits nominations from the floor. However, Option A1 is only a solution if the federal credit union’s bylaws allow for this voting option at annual meetings. On the other hand, if a federal credit union selects voting options A2, A3 or A4, then nominations from the floor are not permitted and is not a potential solution.

There are several options available to a federal credit union in the event a vacancy occurs after the nominating process closes for an upcoming annual meeting. Please do not hesitate to contact the compliance team if there are any remaining questions about how a federal credit union may respond to a scenario similar to the one described above, federal credit union bylaws, or the nominating process in general.

About the Author

Justin White, Regulatory Compliance Counsel, NAFCU

Justin White, NAFCU-Regulatory-Compliance-Counsel

Justin joined NAFCU as a regulatory compliance counsel in August 2021. As part of the Regulatory Compliance Team, he provides daily compliance assistance to member credit unions on a variety of topics.

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