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Point of Law: E-Election Challenges

January 2011 – Vol: 34 No. 1
by Stephen A.J. Eisenberg

Check the bylaws and secure member consent.

Point of Law artCredit unions do a great job in conducting the democratic election of board members. And, in this day and age, many are moving to electronic ballots as a way to better serve members and reduce election costs.

But some inhibiting factors exist. The first is obtaining consent to communicate electronically from a sufficient percentage of the membership to make the process worthwhile. The second devolves from the current National Credit Union Administration’s standard bylaw requirement that obligates a CU desiring to use electronic voting to provide all members, except those who have chosen to receive electronic communications, a paper ballot when sending a “notice of balloting.”

The ‘Consent’ Obligation

When only a small percentage of members have agreed to electronic communications, the CU has to orchestrate a combined paper/electronic election. Leaders of CUs in this situation may believe it doesn’t pay to waste time implementing an electronic voting procedure.

In this case, a thoughtful assessment of the CU’s operational strategy is warranted. If a CU’s membership is committed to Internet transactions and communications, electronic voting is the way to go. A digital voting protocol will be a clear byproduct of an operational strategy that will annually deliver a larger voting population. This growth, in turn, will reduce election costs.

Note, though, that having a member’s e-mail address does not necessarily legally enable a CU to implement electronic voting.

The Electronic Signatures in Global & National Commerce Act (E-Sign) layers a number of responsibilities on electronic communication users. For example, users’ consent to “go electronic” must provide assurance that the individual has the technological ability to receive the electronic communications transmitted and has been told that his or her consent to use electronic communication may be withdrawn.

Bylaw Requirements

The second challenge to digital voting is, well, a bit more of a challenge. It requires an understanding of the CU’s current bylaws.

The background: Effective April 26, 2006, NCUA promulgated a revised set of standard bylaws. Any CU bylaws adopted before that date continued to be effective; any bylaws established after the date were required to conform to the revised set of standard bylaws unless a nonstandard bylaw amendment approved by NCUA was adopted.

Notably, standard bylaws prior to those established on April 26, 2006, did not require a CU to mail paper ballots with the notice of balloting for electronic elections. Members could be advised to request a paper ballot in a variety of ways, such as by telephone or by writing in for one. CUs that have adopted the April 26, 2006 standard bylaws are obligated to provide a paper ballot with a notice of balloting, obviating the opportunity for a more cost-efficient electronic process.

The standard bylaws were changed because the NCUA Board believed that members who lacked access to electronic devices should be provided paper ballots without having to make a separate request.

Moving Forward

At bottom, if a CU wishes to develop the most cost-effective balloting process possible, it needs to first review its bylaws. The bylaws may already provide the basis for electronic elections to be conducted without having to dispatch paper ballots by mail.

If a CU does not have a pre-April 26, 2006 electronic election bylaw, then serious consideration should be given to seeking a non-standard bylaw amendment from NCUA that does not require sending members a paper ballot. While obtaining an exception approved by NCUA may not be easy, a thoughtful, rational argument can be made that advances the proposition that CU members would not be disenfranchised from voting in an election if they were not, at the outset of the election process, mailed a paper ballot. Consider making the observation that the state and federal governments provide election ballots for absentee voting upon voter request, either by phone, mail or e-mail.

Check the procedure for the state in which your CU is headquartered. Success in establishing an electronic election process will save not only an extraordinary expense, but limit costs moving into the future.

CUES member Stephen A.J. Eisenberg is EVP/general counsel for $14 billion Pentagon Federal
Credit Union
, Alexandria, Va.

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