3.1 our goals

mecu to be transparent and accountable regarding operational activities, products and services
Procedures and policies to reflect mecu's commitment to sustainability and financial responsibility

3.2 our approach

mecu is committed to maintaining structures and processes which support a system of corporate governance and responsibility that is capable of identifying and managing business opportunities and risks. The Credit Union’s corporate governance framework allocates rights and responsibilities across mecu and defines the rules and procedures for making decisions on all corporate matters. This framework recognises the important relationship we have with our stakeholders, and in particular those people and organisations that place their trust in us and to whom we are accountable.

3.2.1 Board of Directors GRI 4.1

Term

mecu is governed by a Board of Directors elected by our members annually on a rotational basis for a three-year term. A Constitution, Board Charter, Governance and Fit and Proper policies govern Board conduct for Directors.

Role

The Board’s role includes establishing corporate objectives, approving corporate strategy, policy and the budget, as well as appointing and evaluating the CEO’s performance, supervising the operations of mecu and ensuring that Credit Union operations are aligned to our stated values. The Board is responsible for the application of APRA prudential standards, Australian Corporations Law and other regulations as they apply to the Credit Union.

Independence GRI 4.2 GRI 4.3 GRI 4.6

To ensure the Board operates in the interests of all members, all Directors are required to declare any possible conflicts of interest so that the Board can take appropriate action, if such an issue was to arise.

Five out of the six mecu Directors are independent. The Chair of the Board of Directors is not an executive officer of mecu. The only executive officer represented on the Board during the reporting period was the CEO (who resigned as an executive director on the 29 June 2007). The one Director who is not independent is a member-elected Director who also sits as a Director on the Board of Cuscal Limited, a material supplier of the Credit Union.

The Board defines ‘independence’ in accordance with its Governance Policy and the Australian Stock Exchange (ASX) Corporate Governance Council’s Principles of Good Corporate Governance and Best Practice. Collectively, the Board of Directors have a broad skill-set and a range of professional experiences from which knowledge can be drawn.

Expertise and performance evaluation GRI 4.7 GRI 4.10

The process to determine the level of expertise needed by the Board in order to guide mecu’s strategic direction is as follows:

The Nominations Committee interviews Director candidates to assess their fitness and propriety for being a Director of mecu. This includes probity checks and an evaluation of required skills and expertise.
An annual performance review including individual and peer assessment is conducted.
There is an annual performance review of the Board completed by an independent external consultant.
Ongoing professional development is offered.
All Directors are Fellows of the Australian Institute of Company Directors.
A three-year Director election cycle provides the membership with a democratic process to seek renewal on the Board.
The Board conducts annual strategic planning sessions followed by quarterly strategic reviews to assist them in identifying and managing economic, environmental and social risks and opportunities faced by the Credit Union.
The Board of Directors and management team are accountable to mecu members for sound financial decision-making and a personal commitment to the Credit Union’s values.

Director Development and Training

Directors undertake development and training to ensure they keep up to date on the issues, trends, skills and information that are essential for the effective performance of their role.

Directors’ experience and qualifications are reported to members each year in mecu’s Annual Report.

3.2.2 Board Committees

The following Committees advise the Board:

Audit and Risk Management (four Directors, meet quarterly). Provides advice and recommendations to the Board on matters relating to corporate governance, particularly risk management, accounting systems development and operations and reporting practices.
Finance (four Directors, meet monthly). Oversees and reports to the Board on the management of the financial affairs and associated risks of the Credit Union in accordance with the Board-approved budget, policies and APRA prudential standards.
Sustainable Development (four Directors, meet quarterly). Provides advice and recommendations to the Board on matters relating to its responsibilities for ensuring that mecu’s values and stakeholders’ expectations are reflected in its policies and practices. The Committee ensures that these policies and practices have a positive economic outcome and form part of the wider risk management system.
Nominations (a Director – usually the Chairman – plus two expert consultants, meet as required). Provides advice to the Board and members on Director candidates.
Remuneration (a Director, CEO, one independent Board appointee, meet as required). Provides a recommendation to members on the total remuneration payable to Directors per annum; and a recommendation to the Board as to how the total should be allocated.
Due Diligence (CEO, three Directors, Company Secretary and General Manager Operations, meet as required). Provides advice to the Board and members on mergers, demutualisation and takeovers.
Executive (CEO, Chair and Deputy Chair, meet as required). The prime objective of the Board Executive is to manage the governance of the Board.

All Committee members are appointed annually after mecu’s Annual General Meeting and the Board reviews all Committee charters on an annual basis.

3.2.3 The Board and member involvement GRI 4.4

Members are able to provide feedback, recommendations or direction to the Board in the following ways:

Writing to the Board;
Attending the Annual General Meeting and Special General Meetings; or
Calling a Special General Meeting.

The Board receives a monthly report detailing information on compliments and complaints received from members. It is also committed to engaging with members and stakeholders at events held for the purpose of learning about their needs and expectations of mecu, as well as identifying issues of material importance to them.

3.2.4 Director remuneration

The total amount of Directors’ remuneration is determined annually at the Annual General Meeting as per a recommendation put forward by the Board Remuneration Committee and subject to member vote. In 2006/07, total aggregate director remuneration was $260,817 p.a.

3.2.5 Senior management GRI 4.5

The Chief Executive Officer is charged by the Board with the day-to-day leadership and management of mecu. Approval of the Chief Executive Officer’s compensation and benefits is the responsibility of the Board.

The Chief Executive Officer is supported by a senior management team who meet formally fortnightly and oversee the day-to-day management of the organisation. Recommendations incorporate economic, environmental and social considerations, as appropriate.

Remuneration for senior management is determined annually according to an agreed set of performance outcomes including actions identified in the Sustainability Covenant. Levels of remuneration are set in line with comparable roles in the Australian credit union sector.

Figure 3a: Organisational and management structure

Members

Board of Directors
Peter Crocker (Chairman), Helen Clarke (Deputy Chairman), John Baistow,
Peter Ford, Des Russell, Peter Taylor

Chief Executive Officer
Phylip Doughty

General Manager
Corporate Services
Damien Walsh

Finance
Administation
Human Resources
Information Technology
Company Secretary

General Manager
Marketing and Development
Rowan Dowland

Marketing
Community Relations
Corporate Communications

General Manager
Personal Banking
John Yardley

Retail member service operations (call centres and service centres)
Lending Solutions (personal loans, car loans, home loans and investment loans)

General Manager Operations
Robert Allen

National Access
Insurance
Credit Control
Risk Management (including overall management of Sustainability)

3.2.5a Sustainability CRS2

Responsibility for mecu’s sustainability strategy resides at all levels of the organisation, therefore sustainability is included as an agenda item in departmental team meetings.

Figure 3b: mecu’s sustainability governance structure

Board

Board Sustainable Development Committee

Chief Executive Officer

General Managers (Led by GM – Operations)

Footprints & Sustainability Advisory Network

Staff

A staff member from each division is nominated to participate on the Staff Sustainability Reference Group called ‘Footprints’. Footprints, currently chaired by the Group Manager Marketing and Development, is responsible for helping to champion and implement appropriate sustainability projects and initiatives across the Credit Union.

Footprints is supported by a Sustainability Advisory Network made up of representatives from each of our business locations. This network of mecu staff ensures that sustainability initiatives are implemented across the Credit Union and provides an important channel for disseminating information and collecting ideas on how mecu can become more sustainable and meet its commitments under the mecu and EPA Victoria covenant.

This Committee and Network are all supported by the General Manager Operations who is responsible for coordinating and providing support for mecu’s approach to sustainability across the organisation.

The CEO and senior management team are responsible for embedding sustainability principles within the business and delivering strategy and leadership, product development, overall management, commercial oversight, stakeholder engagement, community partnerships and communications about sustainability.

3.2.6 Management systems GRI 4.8

Our approach to banking means adopting systematic and balanced business strategies that satisfy the economic, social and environmental performance expectations of our stakeholders, while protecting, sustaining and enhancing the financial, human and natural resources needed to develop mecu into the future.

The Board oversees development of the following vision, purpose, values and brand objective, which it reviews annually.

Vision: what we aim to achieve

mecu will enhance the economic wellbeing of our members and their families.

Purpose: what we do

mecu will consistently and effectively provide our members and their families with value for money and compelling integrated banking, insurance and financial planning solutions, as well as memorable superior service in a profitable and sustainable way.

Values: how we earn people’s trust

mecu will:

treat our members with dignity and respect;
value, encourage and support our employees;
operate ethically and with integrity;
apply prudent financial and business practices;
be economically, environmentally and socially responsible; and
care for our communities.

Brand: what we want to be known for

mecu aims to become the pre-eminent socially responsible banking brand in Australia.

3.2.6a Policies and practices

GRI 4.9 GRI 4.12 GRI 4.13 GRI SO8 F6 CSR3 CSR4 CSR5

mecu complies with all relevant legislation and codes that are in place to protect our members’ money and personal information. mecu has had no incidence of non-compliance with any law or regulatory code of conduct where the complaint was upheld and/or resulted in court action.

We are part of a national framework for prudential regulation of approved deposit-taking institutions – including banks, credit unions, building societies and friendly societies – regulated by APRA. Other principal regulators are the Australian Securities and Investments Commission (ASIC), the Australian Competition and Consumer Commission (ACCC) and the Australian Taxation Office (ATO).

mecu has policies covering:

Associations with Related Entities Risk Management
Business Continuity
Capital
Communications
Community Support
Compensation
Complaint and Dispute Resolution
Compliance
Credit Card Risk Management
Credit Control
Dormancy and Unclaimed Monies
Environment
Ethical Lending and Investment
Finance and Accounting
Fit and Proper
Fraud Control
FSRA Monitoring Supervision Training
Funds Management Securitisation
Governance
Human Resources
Large Exposures
Lending
Liquidity Contingency
Liquidity Risk Management
Market Risk Management
Merger Demutualisation Takeover
Operational Risk Management
Outsourcing
Physical Environment Security
Privacy
Purchasing
Research Benefits
Stakeholder Engagement

All policies are reviewed annually and updated where necessary. The Board of Directors approves all amendments to policy.

3.2.6b Licencing

mecu is licenced under the Corporations Act 2001 (Cwth). Under the terms and conditions of our Australian Financial Services Licence (AFSL) (No 238431), we may deal in or advise on deposit and payment products and general insurance products.

3.2.6c Risk management

Risk management assessments are conducted annually. Internally, each department identifies and rates its own potential risks and determines the appropriate actions to be taken to mitigate them.

Internal auditors, Ernst and Young, review all mecu policies and procedures from a risk management perspective and identify possible action items.

The Board also undertakes an annual risk assessment process separately and reviews the results of management’s and Ernst and Young’s assessments.

Action points devised from these three processes form mecu’s risk management framework which is monitored and reported on a quarterly basis to the Audit and Risk Management Committee.

3.2.6d Financial controls

mecu uses independent auditors, KPMG, to conduct an external audit of our financial accounts. Audit findings are presented in a report to APRA.

mecu provides an extra degree of protection for our members through participation in the Credit Union Financial Support System (CUFSS). CUFSS has been set up to protect the interests of members of the organisations participating in the support system and promote financial stability by providing emergency financial support for participants.

Cuscal, CUFSS and all mutual ADIs that are parties to this Industry Support Contract, are participants in the industry support system. The support contract is APRA certified under Banking Act 1959 (Cwth) s11CB.

Purpose of the industry support system:

protect the interests of members of participating mutual ADIs ; and
promote financial sector stability.

CUFSS’ aim is to work together with participants to identify areas of risk and distress and to take a cooperative approach to eliminating those risks.

Participants in the industry support system:

Cuscal is a public company limited by shares. Cuscal provides its clients with a range of banking and non-banking services.
CUFSS is a public company limited by guarantee, owned by all participants in the industry support system.
Credit Unions that are authorised to conduct the business of banking in Australia under the Banking Act 1959 (Cwth) s9 and authorised under the Banking Act to use the name "credit union" or "credit society" in its name.

3.2.6e Anti-bribery and corruption SO3

The Board has adopted a Fraud Control Policy consistent with the Australian Standards AS 8001-2003 Fraud and Corruption Control and AS 8004-2003 Whistleblower Protection Programs for Entities.

mecu’s Staff Charter contains a section pertaining to gifts and benefits, and states that each employee agrees not to engage in any act that could be interpreted as seeking or receiving a bribe, kickback or questionable payment.

Our Counselling and Performance Policy can manage issues with staff who attempt to mislead or behave dishonestly. Serious misconduct, should it occur, may result in instant termination of employment.

A Whistleblowing Procedure available to staff outlines the steps they might follow in the event they become aware of improper conduct.

3.2.6f Competition and pricing SO7

mecu meets all the requirements of the Trade Practices Act 1974 (Cwth) as it relates to anti-competitive behaviour.

3.2.6g Anti-money laundering

mecu complies with current Anti-Money Laundering (AML) requirements. On commencing employment, personal banking staff members are trained in how to detect and deal with suspect transactions and they receive annual refresher training.

3.2.6h Product information and labelling PR3

mecu complies with the ASIC principles of good disclosure and with all other regulatory requirements relating to the promotion and sale of financial services and products.

3.2.6i Credit Union Code of Practice

mecu complies with the Credit Union Code of Practice, which seeks to foster good relations between credit unions and their members and to promote fair treatment of members by credit unions through a process of formalising standards of behaviour and disclosure.

3.2.6j Sustainability Covenant

mecu’s Sustainability Covenant with the Victorian Government, through the Environment Protection Authority of Victoria (EPA Victoria) focuses on five key areas, which have been derived from our purpose and values:

ethics and governance
employees
social impact
environmental impact; and
leadership and partnerships.

The voluntary Covenant has a three-year time frame. Actions for each year of the Covenant are determined at the beginning of each year.

Actions focus on environmental and social initiatives as the economic aspects of sustainability are already embedded within the organisation. Implementation of the Covenant is being overseen by a Steering Committee. The Committee is made up of four representatives; two from EPA Victoria and two from mecu. Each party has one representative from Senior Management.

The Sustainability Report acts as the key reporting mechanism for Covenant implementation.

3.2.6k UNEP FI

mecu is a signatory to the UNEP Statement by Financial Institutions on the Environment and Sustainable Development.

By signing the statement mecu recognises that sustainable development depends upon a positive interaction between economic and social development, and environmental protection, to balance the interests of this and future generations. mecu further recognises that sustainable development is the collective responsibility of government, business, and individuals and we are committed to working cooperatively with these sectors within the framework of market mechanisms toward common environmental goals.

3.2.6l Staff Charter

The mecu Staff Charter sets out guidelines to help staff understand what is required of them in order to earn the trust and respect of the Credit Union’s stakeholders and to ensure the Credit Union strives to fulfil its vision.

Employment with the Credit Union requires standards of professional behaviour from staff that promote and maintain public confidence and trust in the work of the Credit Union.

While the Staff Charter cannot answer all ethical questions, it is intended to set an ethical framework for the decisions, actions and behaviour of the Credit Union’s staff. The Charter provides a set of guidelines and rules. It explains the principles covering appropriate conduct in a variety of contexts and outlines the minimum standards of behaviour expected of the Credit Union’s staff.

3.2.7 Political lobbying and contributions SO5 SO6

mecu does not participate in direct political lobbying at this time nor does it provide political party contributions.

However, research completed by the Net Balance Management Group in 2007 indicated that mecu stakeholders may support the Credit Union undertaking political lobbying on issues of sustainable development. mecu will give this matter further consideration and develop an appropriate response.

mecu is a shareholder of Cuscal Limited and a member of Abacus – Australian Mutuals (the Association of building societies and credit unions). Abacus is the industry body for Australian credit unions and mutual building societies.

Abacus has been formed as a joint venture between the Credit Union Industry Association (CUIA, a division of Cuscal Limited), the Australian Association of Permanent Building Societies (AAPBS) and the National Credit Union Association (NCUA). Abacus brings together the shared values and professional approach of credit unions and mutual building societies to deliver a strong and clear single voice for Australian mutuals. Abacus promotes the profile and role of the mutual financial services sector and represents the interests of credit unions and mutual building societies to:

Federal and state governments
regulators, such as the Australian Prudential Regulation Authority (APRA) and the Australian Securities and Investment Commission (ASIC)
industry and consumer groups
the media, and
the general public and other stakeholders.

Abacus also provides its member institutions with advice and support services, including specialist teams dealing with public affairs, overseeing representation, providing input to reforms and policy, and liaison with media and other stakeholders.

Abacus has represented the industry in the following areas during the reporting period:

Red tape: Abacus is opposed to expansion of regulation without proportionate benefits for members. Credit unions and building societies operate under onerous and costly regulatory standards.
Member Registers: Abacus wants new laws to protect the valuable details on a mutual’s member register, and to protect members’ interests in takeovers and demutualisations.
Anti-Money Laundering: Abacus sits on Ministerial and industry groups on AML. New draft laws could impact on privacy and have high costs. Abacus supports proportionate laws that promote a robust system while recognising that the vast majority of consumers are not money launderers.
Prudential issues: Abacus works on matters arising from the impact of the new Basel II capital accord to deposit insurance and APRA prudential supervision.
Credit: Abacus aims to ensure reform of the laws covering consumer credit balance access to credit with protection and disclosure for consumers.
Payments reform: Abacus is concerned about RBA intervention in the payment system market that shifts payment system costs from merchants to credit unions and participates actively in payments reforms debates.

Abacus has met with consumer groups Choice and Consumer Action on fee issues, as a part of these groups’ consumer fee campaign, and is conducting consultations with Abacus members, including mecu on approaches to fees and charges.

3.2.8 Stakeholder engagement GRI 4.14 GRI 4.15 GRI 4.16 GRI 4.17 F7

As a mutual organisation, we are committed to operating the Credit Union for the benefit of all members and others who have a ‘stake’ in mecu, which may not be financial. Our mutual ownership means our customers and shareholders are one and the same, an important distinction from many of our banking competitors.

Apart from our members, employees are one of the most important stakeholder groups. Indeed our success is heavily dependent upon our people and the influence they have over mecu.

Along with all other businesses we compete for people in the marketplace and we aim to create a working environment at mecu that attracts and retains people who can make a positive contribution to our future. Members also indicate that they place a significant importance on mecu’s capacity to manage employee relationships when assessing the performance of their Credit Union.

mecu defines ‘stakeholders’ as individuals or groups who could be affected by its operations, or who could through their own actions affect the Credit Union’s business. Identification and selection of stakeholders is based on this definition. Stakeholders include:

members
employees
key representatives of the Credit Union’s strategic communities
suppliers and contractors
regulators and political leaders
Credit Union industry representatives.

We aim to align our values with those of our stakeholders as well as ensure their expectations of us form a key part of our organisational strategy, culture, operations and products.

mecu is committed to transparency and disclosure of stakeholder’s opinions and queries. Our Stakeholder Engagement Policy provides a framework for the management of our stakeholder engagement process. Specifically, the policy aims to:

provide a basis for identification and selection of major stakeholders;
clearly allocate roles and responsibilities for the prudent management and control of stakeholder issues;
provide regular reporting to the Board, relevant committees, senior management and stakeholders;
articulate forms of stakeholder engagement and principles that will be adhered to; and
specify how information from stakeholder engagement will be used and the type of information that is expected to be generated.

Reporting on Stakeholder Engagement actions to the Sustainable Development Committee occurs quarterly.

3.2.8a Stakeholder Engagement activities

The following information is a summary of mecu’s major Stakeholder Engagement activities during 2006/07. Some of these results are discussed in this Report.

Members:

Annual: Cannex ‘member benefit dividend’ Valuation Report, April 2007
Annual: Member Insight Survey
Ad hoc: Request Manager Reporting (stores member feedback)
Ad hoc: Complaints and Compliments Register

Staff:

Annual: 2007 annual mecu employee attitude survey
Monthly: The CEO provides monthly Board meeting debriefs to senior and middle management
Monthly: Footprints Sustainability Reference Group
Monthly: Staff Occupational Health and Safety Committee
Ad hoc: Intranet feedback (mecu’s internal site).

Key representatives of the Credit Union’s strategic communities

Ad hoc: Community Relations staff manage mecu’s relationships with each of its strategic communities. Each month staff report on community activities and issues relevant to mecu’s operations.

Suppliers and contractors

Ad hoc: Regular meetings throughout the year with major suppliers and on ad hoc basis with contractors.

Regulators and political leaders

Ad hoc: mecu Directors and management engage in discussions with government and industry in order to stay abreast of emerging issues, identify opportunities for partnerships and to work collaboratively by sharing experiences

Credit Union industry representatives

Ad hoc: Directors and senior management hold positions on a range of Credit Union and Community Committees and Boards relevant to mecu’s operations including: Cuscal, CUFSS, Data Action, Gippsland Area Consultative Committee, Victorian Consumer Credit Fund Advisory Committee and the Credit Union Dispute Resolution Centre. Management’s sustainability expertise is shared among their respective affiliations.

All Stakeholders

Weekly: Weekly web polling on various topics
Ad hoc: feedback from sustainability report via sustainability@mecu.com.au

mecu identified several issues of importance to members in the 2007 Member Insight Survey. These included perceptions of interest rate competitiveness and the pricing of transactions fees. Responses to both issues have been reflected in mecu’s 2007–08 marketing plan.

Findings from this member research are shared across the business and staff are encouraged to continually improve performance in line with members’ expectations.

We recognise opportunities exist to further develop our stakeholder engagement process. In particular, we aim to develop stronger evidence of engagement and the impacts of dialogue in our learning, policy and strategy development with the aim of better quantifying the extent to which stakeholder engagement is integrated into mecu’s decision-making process.

mecu engaged the services of the Net Balance Management Group to complete an assessment of stakeholder’s views of our 2006 Sustainability Report. In total ten stakeholders were consulted as part of the research program which included equal numbers of internal and external stakeholders. This feedback has influenced the content and development of the 2007 Report.

3.2.8b Stakeholder engagement outcome

The following were some of the suggestions provided by our stakeholders:

Presenting more in-depth and informative discussion of the key issues stakeholders indicate they would like covered in the Report. They would like specific attention to be given to issues of mecu’s environmental impacts, community engagement, vision and strategy, and impact on climate change, as these are the areas of greatest interest or concern.
Demonstrating our commitment to becoming the pre-eminent socially responsible banking brand in Australia.
Improving reporting of material issues pertaining to economic, environmental and integrated sustainability performance.
Improving integration of sustainability into day-to-day business operations and how core business activities impact the organisation’s triple bottom line performance.
Expanding discussion on supply chain and procurement policy and practice.
Ascertaining their views on relevant issues in order to ensure that issues which may be the focus of political lobbying are directly relevant to members and mecu’s core business.

In 2007 we shall invest in the development of mecu’s on-line presence, which will provide mecu and its stakeholders greater opportunities to share views on our approach to banking and sustainability. Indeed it is our aim to better connect the mecu community wherever they live and work, giving individual members the opportunity to engage together with other mecu people with whom they share not just ownership of a credit union, but a range of views on important economic, social and environmental issues.

Again this year mecu was recognised for its leadership in sustainable finance and invited to participate in a range of industry, community and Government led forums and round table discussions. These events provide invaluable opportunities to obtain feedback on mecu’s strategies and to gain insights from best practice organisations. This year’s events included:

Australian Green Banking Conference, Sydney, June 2007.
CUNA Mutual Discovery Conference, "Differentiation Through Social Consideration", Nashville, June 2007.
ACCA Conference – “The Rules of Engagement: climate change and sustainability reporting” panel session: Sustainability reporting – challenges and opportunities, 17 April 2007.
2nd Annual Best Practice Sustainability Reporting, Melbourne, April 2007.
Al Gore Australian Climate Change Program, Sydney, November 2006.
UNEP FI Annual General Meeting. Presented the proposal for the water workstream, Geneva, 8–9 November 2006.
Sustainable Business Forum: Towards Transparency – "The Why, What and How of Sustainability Reporting", Sydney, October 2006.
ACCA Sustainability Reporting Awards launch, Melbourne, 10 October 2006.
Abacus Australian Mutuals Conference, "People as a Source of Competitive Advantage", Perth, October 2006.
World Council of Credit Union’s International Conference, Ireland, 2006.