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					Confidential



     GOVERNANCE REVIEW
     BACKGROUND PAPER
       OCTOBER 2010




                          PREPARED BY:
               Elizabeth Watson, President
CENTRAL 1 CREDIT UNION
GOVERNANCE REVIEW – BACKGROUND PAPER (SEPTEMBER 2010)
TABLE OF CONTENTS                                                                         PAGE I


                                             TABLE OF CONTENTS

      NOTE TO THE MEMBERSHIP OF CENTRAL 1                                                        1

      I.   INTRODUCTION                                                                          2
      1.   Scope of the Review                                                                   2
      2.   Underlying Principles of Review                                                       3
      3.   Process                                                                               3
      4.   This Report                                                                           4

      II. THE NATURE OF CENTRAL 1: NATURAL TENSIONS                                              6

      III. MEANING OF CORPORATE GOVERNANCE                                                       7
      1.   Definition                                                                            7
      2.   The Role of the Board of Directors in Governance                                      7
      3.   The Role of Members in Governance                                                     7
      4.   Oversight of Trade Associational Services as a Governance Function                    8

      IV. CENTRAL 1 OVERVIEW - CURRENT                                                           9
      1. Vision Statement                                                                     9
      2. Mission Statement                                                                    9
      3. Legislative Framework                                                                9
         3.1 Legislation                                                                      9
         3.2 Constitution                                                                     9
         3.3 Rules                                                                           10
         3.4 Formula for Amending Constitution and Rules                                     10
      4. Membership                                                                          10
         4.1 Eligibility for Membership                                                      10
         4.2 Delegate Structure                                                              11
      5. Peer Groups                                                                         11
      6. Board Composition                                                                   12
         6.1 Size                                                                            12
         6.2 Election Process:                                                               12
         6.3 Eligibility                                                                     13
         6.4 Qualifications                                                                  14
         6.5 Term Limits                                                                     14
         6.6 Role of Nominations Committee                                                   15
         6.7 Re-appointment                                                                  15
      7. Board Role                                                                          15
      8. Directors’ Duties                                                                   16
      9. Committees                                                                          16
         9.1 Audit Committee                                                                 17
         9.2 Conduct Review and Corporate Governance                                         17
         9.3 Human Resources                                                                 17
         9.4 Investment and Loan                                                             17



      WATSON ADVISORS INC.                              CONFIDENTIAL            SEPTEMBER 2010
CENTRAL 1 CREDIT UNION
GOVERNANCE REVIEW – BACKGROUND PAPER
TABLE OF CONTENTS                                                             PAGE II

          9.5 Legislative                                                         18
          9.6 System Operations                                                   18
      10. Oversight of Trade Associational Services                               19
      11. Member Engagement                                                       21
      12. Task Forces                                                             21

      V. INTERVIEW FEEDBACK                                                       22
      1. Board Composition                                                        22
          1.1 Eligibility                                                         22
          1.2 Qualifications                                                      22
          1.3 Nominations Committee                                               24
          1.4 Size                                                                25
          1.5 Maximum Term                                                        26
      2. Director Election Process                                                26
      3. Peer Groups                                                              27
      4. Communications                                                           29
      5. Oversight of Trade Associational Services                                29
      6. Eligibility for Membership In Central 1 (As, Bs and Cs)                  30
      7. Delegate Structure                                                       31
      8. Formula for Amending Constitution and Rules                              31
      9. Membership Meetings                                                      31
      10. Other issues                                                            31

      VI. INFLUENCES ON CENTRAL 1’S GOVERNANCE FRAMEWORK                          32
      1. Financial Institution Governance                                         32
         1.1 Mandate                                                              33
         1.2 Role of the Board                                                    33
         1.3 Directors’ Duties                                                    33
         1.4 Board Composition                                                    33
         1.5 Board Size                                                           34
         1.6 Maximum Term                                                         34
         1.7 Role of Nominations Committee                                        34
         1.8 Shareholder/Member Communications                                    34
         1.9 Committees                                                           35
      2. Trade Association Governance                                             35
         2.1 Mandate                                                              37
         2.2 Role of the Board                                                    37
         2.3 Directors’ Duties                                                    38
         2.4 Board Composition                                                    38
         2.5 Board Size                                                           38
         2.6 Maximum terms                                                        39
         2.7 Role of Nominations Committee                                        39
         2.8 Shareholder/Member Communications                                    39
         2.9 Committees                                                           39
         2.10 Representative Boards                                               40
      3. Cooperative Principles                                                   40


      WATSON ADVISORS INC.                            CONFIDENTIAL   SEPTEMBER 2010
CENTRAL 1 CREDIT UNION
GOVERNANCE REVIEW – BACKGROUND PAPER
TABLE OF CONTENTS                                                                              PAGE III

      VII. LEADING GOVERNANCE PRACTICES IN THE CONTEXT OF CENTRAL 1: DISCUSSION AND
           PROPOSED OPTIONS                                                                        42
      1. Board Structure                                                                           43
          1.1 Appointed Positions                                                                  44
          1.2 Categories of Board Seats: Regional                                                  45
          1.3 Categories of Board Seats: By Size of Credit Union                                   47
      2. Voting for Directors                                                                      49
      3. Director Qualifications                                                                   52
      4. Board Size                                                                                55
      5. Maximum Term Limit                                                                        57
      6. Nominations Committee                                                                     58
      7. Eligibility                                                                               61
      8. Oversight of Trade Services                                                               62
      9. Member Engagement and Peer Groups                                                         64
      10. Central Membership Structure                                                             66
      11. Member Delegate Structure                                                                66
      12. Formula for Amending Central’s Constitution and Rules                                    66
      13. Member Meetings                                                                          67

      VIII.PROVIDING FEEDBACK ON THIS REPORT AND NEXT STEPS                                        68

      Appendix A – Governance Review Task Force Members                                            69

      Appendix B – List of Interviewees                                                            70

      Appendix C – Peer Groups as at January 10, 2010                                              72

      Appendix D – Excerpt from Chapter 10 – Desirable Director Attributes                         76

      Appendix E – Typical Services of a Trade Association                                         78

      APPENDIX F – Canadian Chambers of Commerce Bylaws                                            81

      Appendix G – List of services Provided by Central 1                                          84

      APPENDIX H – List of Central 1 Class A Members as of June 30, 2010                           86




      WATSON ADVISORS INC.                           CONFIDENTIAL                     SEPTEMBER 2010
CENTRAL 1 CREDIT UNION
GOVERNANCE REVIEW – BACKGROUND PAPER (SEPTEMBER 2010)
NOTE TO THE MEMBERSHIP OF CENTRAL 1                                                             PAGE 1 OF 90



                                 NOTE TO THE MEMBERSHIP OF CENTRAL 1


      This Background Paper has been prepared for Central 1’s Governance Review Task Force. The
      purpose of the report is to provide sufficient background to enable Central 1 Class A Members to
      review and discuss proposed options to reform Central 1’s governance structure.

      At the end of this report, we have included options for consideration. These options are offered to
      provide a basis for feedback and discussion.

      Following feedback from Central 1 members, the Governance Review Task Force will consider all
      input and oversee the development of a White Paper summarizing the feedback and making
      recommendations. The White Paper will be circulated to the Central 1 membership for review and
      feedback before final specific recommendations are submitted to the general membership in
      advance of the 2011 annual general meeting.




      WATSON ADVISORS INC.                              CONFIDENTIAL                      SEPTEMBER 2010
CENTRAL 1 CREDIT UNION
GOVERNANCE REVIEW – BACKGROUND PAPER (SEPTEMBER 2010)
INTRODUCTION                                                                                      PAGE 2 OF 90



      I.    INTRODUCTION

      In November 2009, the Board of Central 1 Credit Union (“Central” or “Central 1”) determined to
      undertake a review of various aspects of Central 1’s governance structure. Conduct of the review
      was delegated by Central’s Board to the Board’s Conduct Review and Corporate Governance
      Committee (“CRCG Committee”). The CRCG Committee subsequently established a Governance
      Review Task Force (the “Task Force”) to guide the work of the review and, through the CRCG
      Committee, provide comment and recommendations to the Board. The members of the Task Force
      include members of the CRCG Committee and seven additional individuals broadly representative of
      Central’s membership. The names of the Task Force members are listed in Appendix A.

      The purpose of this report is to set out background information relevant to the governance review
      and to articulate proposals for consideration and comment by the Class A members of Central. This
      paper is for information and discussion purposes only. It is not meant to recommend any particular
      solution or to be an exhaustive list of all possible solutions.

      1.    SCOPE OF THE REVIEW
      The areas of inquiry for the review included:
                   a)    board structure, including:
                           the size of the Board;
                           eligibility;
                           the categories of board membership, including:
                              appointed/elected;
                              categories by region;
                              categories by member size;
                           maximum term limits;
                   b)    director qualifications, including:
                           directors’ desirable characteristics and skill sets;
                           the role of a Nominations Committee, if any;
                   c)    the manner in which elected directors are determined, including:
                           the voting process (i.e., how directors are either elected or appointed to the
                             Board);
                   d)    the mechanism for overseeing the provision of trade services, including;
                           the use of Board committees;
                   e)    member engagement, including:
                          the role of Peer Groups;
                          other communication opportunities;




      WATSON ADVISORS INC.                              CONFIDENTIAL                        SEPTEMBER 2010
CENTRAL 1 CREDIT UNION
GOVERNANCE REVIEW – BACKGROUND PAPER (SEPTEMBER 2010)
INTRODUCTION                                                                                      PAGE 3 OF 90

                   f)    control of Central, including:
                           voting entitlement of Members;
                           formulae for amending Central’s Rules;
                           member delegate structure; and
                   g)    the method of holding general membership meetings and communicating with
                         members.

      2.    UNDERLYING PRINCIPLES OF REVIEW
      Central’s Board approved a number of principles to guide the governance review. These are:
                    Central shall be governed effectively on behalf of all of its shareholders, but
                     principally its Class A member credit unions.
                    Central shall adhere to best practices in its corporate governance, adjusted as
                     appropriate to recognize that Central is a cooperative endeavour and, as such,
                     adheres to the International Cooperative Alliance’s Principles of Cooperation.
                    Central shall be governed, efficiently, giving due consideration to its multi-
                     jurisdictional scope, the need to reflect the diverse interests of members and the
                     need to effectively populate Board committees.
                    Central shall attract qualified directors, directors who reflect their constituents
                     and who complement the skill sets, education and experience of other directors.
                    Central’s member credit unions will be equitably represented on the Board of
                     directors.
                    Central shall effectively communicate with all of its members and will utilize
                     communications vehicles that foster dialogue with members.

      3.    PROCESS
      The governance review is taking place in various stages.

            In Stage 1, Elizabeth Watson of Watson Advisors Inc. interviewed 45 individuals who broadly
            represent the diversity of Central’s membership. The names of the interviewees are listed on
            Appendix B. The purpose of Stage 1 was to get a sense of the issues, and potential reforms, as
            seen by these leaders within the membership.

            In Stage 2, the issues identified in Stage 1 were reviewed and discussed by the Task Force. The
            Task Force considered various proposals for reform and narrowed the field of proposals.

            Following Stage 2, this Background Paper was finalized. The purpose of the Background Paper
            is to provide the membership with background information on the governance review issues
            and to outline the proposals for membership consideration and feedback.



      WATSON ADVISORS INC.                              CONFIDENTIAL                          SEPTEMBER 2010
CENTRAL 1 CREDIT UNION
GOVERNANCE REVIEW – BACKGROUND PAPER (SEPTEMBER 2010)
INTRODUCTION                                                                                           PAGE 4 OF 90

            During Stage 3, the Task Force will consult further with the broad membership by seeking
            feedback on the Background Paper through written response, response through a Central 1
            “microsite”, and consultation at peer and contact group meetings.

            During Stage 4, the Task Force will reconvene to review the feedback obtained through the
            Stage 3 consultation and to make recommendations for reform to Central’s membership.

            During Stage 5, a White Paper containing the results of the feedback, and recommendations
            from the Task Force will be circulated to the membership for further review and feedback.

            In the final stage, Stage 6, the membership of Central will be asked to vote on the proposed
            governance reforms at Central’s annual general meeting in April 2011.

      4.    THIS REPORT
      After this introduction, the report is divided into the following sections:

            Part II reflects on the nature of Central as an entity that provides both wholesale financial
            services and trade associational services.

            Part III provides a working definition of corporate governance and considers key issues raised
            in this review in the context of governance.

            Part IV provides an overview of Central’s current governance structure, including the
            legislative and policy framework in which Central currently operates.

            Part V outlines initial member feedback on this issues raised in the review.

            Part VI references the distinct influences on Central 1’s governance framework.

            Part VII provides a discussion on leading governance practices in the context of Central 1 and
            provides proposed options for review and discussion.

            Part VIII provides information on how to provide feedback on the issues raised in this report.

      The report also includes the following Appendices:

      Appendix A provides a list of the members of the Task Force.

      Appendix B provides a list of individuals interviewed in the initial stage of this review.

      Appendix C provides a list of Peer Groups current as at January 1, 2010.

      Appendix D provides a copy of Chapter 10 of Central 1’s Board manual that sets out desirable
      director attributes.



      WATSON ADVISORS INC.                              CONFIDENTIAL                               SEPTEMBER 2010
CENTRAL 1 CREDIT UNION
GOVERNANCE REVIEW – BACKGROUND PAPER (SEPTEMBER 2010)
INTRODUCTION                                                                                   PAGE 5 OF 90

      Appendix E provides a list of typical services provided by trade associations.

      Appendix F provides excerpts from the Canadian Chamber of Commerce Bylaws dealing with
      categories of membership.

      Appendix G provides a list of services provided by Central 1.

      Appendix H provides a list of Central 1 Class A Members and their percentage capital investment in
      Central 1 as of June 30, 2010.




      WATSON ADVISORS INC.                              CONFIDENTIAL                       SEPTEMBER 2010
CENTRAL 1 CREDIT UNION
GOVERNANCE REVIEW – BACKGROUND PAPER (SEPTEMBER 2010)
THE NATURE OF CENTRAL 1: NATURAL TENSIONS                                                            PAGE 6 OF 90



      II.   THE NATURE OF CENTRAL 1: NATURAL TENSIONS

      Central 1 as an organization has a dual mandate. According to interviewees, the most important
      aspect of Central’s activities, and the area that presents the greatest risk, is its wholesale financial
      services business. While it does not directly engage in retail activity, Central manages its members’
      liquidity reserves and excess liquidity, and uses these funds to generate profit for, and provide
      stability for, the system. For this side of the business to be well-managed, Central must have a
      sound strategy and execute effectively on operations and risk management. Leadership at the
      executive and Board level must be highly skilled and experienced in such areas as finance,
      investment management, insurance, product development, business management, risk
      management, legal and compliance.

      At the same time, Central is a trade association for its members. In this capacity, Central’s primary
      objectives are to provide services to members and advocate policy positions on behalf of the
      membership. In order for this side of Central’s business to be successful, there must be meaningful
      input on the needs of member credit unions in terms of regulatory policy and services, advocacy in
      the public arena and the delivery of services that meet member needs. While the leadership of an
      industry association must know about the industry it serves, key leadership skills include the ability
      to gather information about member needs, prioritize needs within the industry, advocate to policy
      makers and assist in resolving conflicts within the industry. The skill set required of trade association
      leadership is different from that required of managers in commercial enterprises and is more akin
      to skills required in government, regulatory or volunteer organizations. The most important
      attribute of a trade association board is that it represent, and be seen to represent the major
      players in the industry and the broader industry.

      The nature of a financial institution and the nature of a trade association are inherently different.
      When these two mandates are fulfilled within one organization, natural tensions are unavoidable,
      at both the Board level and within the organization’s governance structure. For example, each
      mandate requires different considerations in respect of the optimal board role, board size and
      director qualifications.

      As will be seen from the discussion throughout this report, the fact that Central’s core mandate
      includes both financial services and trade associational services creates tensions from a governance
      perspective that affect many aspects of the governance review.




      WATSON ADVISORS INC.                              CONFIDENTIAL                          SEPTEMBER 2010
CENTRAL 1 CREDIT UNION
GOVERNANCE REVIEW – BACKGROUND PAPER (SEPTEMBER 2010)
MEANING OF CORPORATE GOVERNANCE                                                                      PAGE 7 OF 90



      III. MEANING OF CORPORATE GOVERNANCE

      1.    DEFINITION
      Since this review is about governance, it is important that there be a working definition of
      governance as a foundation to the review.

      The word “governance” has a long history and is derived from the Greek word “to steer”.
      Definitions of governance vary according to context. In the context of organizations, governance is
      about the structures, processes, and relationships that are used in making decisions. Governance of
      commercial as well as not-for-profit organizations or associations is often referred to as “corporate
      governance”.

      The OECD, in its Principles of Corporate Governance, describes corporate governance in terms of
      structures and processes for making decisions:

            “The corporate governance structure specifies the distribution of rights and responsibilities
            among many different participants in the corporation, such as the Board, managers,
            shareholders and other stakeholders, and spells out the rules and procedures for making
            decisions on corporate affairs. By doing this, it provides the structures through which the
            company objectives are set, and the means of attaining those objectives and monitoring
            performance.” (OECD, 1999)

      The World Council of Credit Unions describes governance as follows:

             “Governance is the system designed to control and distribute power within an organization.”

      2.     THE ROLE OF THE BOARD OF DIRECTORS IN GOVERNANCE
      The board of directors plays a central role in the governance of any organization. In order to be
      effective, the board must be made up of the right team of people with the necessary attributes and
      skills. The type of skills and attributes required depends on the nature of the organization, its
      strategic objectives and the role the board is expected to play.

      A major component of this review is to look at the composition of Central 1’s Board – including
      what qualifications Board members should have and how Board members are elected. This issue, by
      necessity, involves a consideration of the nature of Central 1, its mandate and priorities, and the
      expected role of the Board.

      3.    THE ROLE OF MEMBERS IN GOVERNANCE
      In the context of governance of a member-owned organization, it is important to identify the role of
      members, including the involvement of members in decision-making processes. A major focus of


      WATSON ADVISORS INC.                              CONFIDENTIAL                        SEPTEMBER 2010
CENTRAL 1 CREDIT UNION
GOVERNANCE REVIEW – BACKGROUND PAPER (SEPTEMBER 2010)
MEANING OF CORPORATE GOVERNANCE                                                                   PAGE 8 OF 90

      this review is to consider how the members of Central 1 can best be engaged in the governance of
      Central 1. One of the specific areas of consideration is the role of Peer Groups in addressing needs
      of members.

      From a governance perspective, the issue of Peer Groups might be re-phrased to ask two questions.

               What is the best process for members to choose their governing body?

               What is the most effective way for members to be involved in Central 1’s policy
                development, organizational priorities and decision-making?

      4.       OVERSIGHT OF TRADE ASSOCIATIONAL SERVICES AS A GOVERNANCE FUNCTION
      Every organization struggles to define the line between governing and managing. In the context of a
      trade association, the purpose of governance is to set priorities, identify goals, measure
      performance, and ensure accountability to the membership. In this review, a key question is: “How
      should Central’s governance structure provide appropriate oversight in respect of trade
      associational services?”




      WATSON ADVISORS INC.                              CONFIDENTIAL                          SEPTEMBER 2010
CENTRAL 1 CREDIT UNION
GOVERNANCE REVIEW – BACKGROUND PAPER (SEPTEMBER 2010)
CENTRAL 1 OVERVIEW - CURRENT                                                                        PAGE 9 OF 90



      IV. CENTRAL 1 OVERVIEW - CURRENT

      Central 1 arose from the combination of Credit Union Central of British Columbia and Credit Union
      Central of Ontario Limited (“CUCO”) in July 2008. Central 1 is a provincially regulated financial
      institution whose main purposes are to operate as a wholesale finance facility and as a trade
      association for approximately 180 credit unions in B.C. and Ontario.

      The English-Canadian credit union system itself is undergoing significant change. On a national level,
      the number of credit unions is decreasing by approximately 20-40 per year, primarily due to
      mergers. Provincial centrals have also merged (e.g., B.C. and Ontario Centrals) or are in the process
      of considering mergers (e.g., Atlantic Central).

      1.    VISION STATEMENT
      Central 1’s Vision Statement is as follows.

            “Relentless pursuit of value and growth, in partnership with credit unions – every day!”

      2.    MISSION STATEMENT
      Central 1’s Three Year Plan 2010-2013 sets out Central 1’s Mission Statement as follows.

            “Central 1 will be the preferred partner of credit unions, providing financial stewardship, fair
            value and competitive advantage.”

      3.    LEGISLATIVE FRAMEWORK
            3.1    LEGISLATION

      Central was incorporated under the former Credit Union Act of B.C., and is a financial institution and
      a central credit union under the Credit Union Incorporation Act (B.C.). It is regulated by both the
      Financial Institutions Commission of British Columbia (“FICOM”) and the Office of the
      Superintendent of Financial Institutions (Canada) (“OSFI”), and it is certified under the Cooperative
      Credit Associations Act (Canada).

            3.2    CONSTITUTION

      Central’s Constitution provides that Central was incorporated “for the purpose of raising a fund by
      the subscriptions of members and by such other means as are permissible by law, and of making
      loans thereout to members in accordance with the Acts and to exercise any other powers conferred
      on it by or under any statute”.




      WATSON ADVISORS INC.                              CONFIDENTIAL                          SEPTEMBER 2010
CENTRAL 1 CREDIT UNION
GOVERNANCE REVIEW – BACKGROUND PAPER (SEPTEMBER 2010)
CENTRAL 1 OVERVIEW - CURRENT                                                                         PAGE 10 OF 90

            3.3    RULES

      Pursuant to the Credit Union Incorporation Act, Central has adopted rules (the “Rules”) which
      govern its conduct. The Rules include provisions relating to membership, Board composition,
      member meetings, Peer Groups and the manner by which those Rules may be amended.

            3.4    FORMULA FOR AMENDING CONSTITUTION AND RULES

      Article 18.1 of the Rules provides:

            1.       The Members may, subject to the provisions of any applicable statute, amend the
            Constitution and the Rules of Central by a resolution approved by:

                      (i) a majority of not less than 50% plus one of the Members voting on the resolution;
                      and

                      (ii) a majority of not less than 2/3rds of the votes cast by Members voting on the
                      resolution, in accordance with Rule 1 of Article 111

            provided that no amendment shall come into effect until it has received the consent of the
            Superintendent of Financial Institutions and it has been accepted for filing by the Registrar of
            Companies.

      4.    MEMBERSHIP
            4.1    ELIGIBILITY FOR MEMBERSHIP

      The membership of Central 1 is divided into three categories as follows:

            "Class A Member" means:

                      (a) a credit union, incorporated under the Credit Union Incorporation Act or the Credit
                      Union Act of British Columbia or which is incorporated under the laws of a jurisdiction
                      other than British Columbia and that is, under those laws, licensed or registered to
                      carry on business as a credit union or a caisse populaire in that jurisdiction;



      1
        Rule 1 of Article 11 provides:
      (a) On any roll call or ballot vote, each Delegate representing a Class A Member shall be entitled to cast one
      vote for each Class A Share held by that Member;
      (b) A Delegate representing a Class B Member may cast one vote for each Class B Share held by that
      Member, on any matter on which a Class B Member is entitled to vote;
      (c) A Delegate representing a Class C Member may cast one vote for each Class C Share held by that
      Member, on any matter on which a Class C Member is entitled to vote.



      WATSON ADVISORS INC.                              CONFIDENTIAL                             SEPTEMBER 2010
CENTRAL 1 CREDIT UNION
GOVERNANCE REVIEW – BACKGROUND PAPER (SEPTEMBER 2010)
CENTRAL 1 OVERVIEW - CURRENT                                                                        PAGE 11 OF 90

                      (b) a credit union incorporated under the laws of another jurisdiction as a central
                      credit union or as a corporation which, in the opinion of the Directors, conducts its
                      operations in a manner similar to a central credit union incorporated under the Credit
                      Union Act or the Credit Union Incorporation Act and whose application for
                      membership as a Class A Member is approved as provided in these Rules;

            "Class B Member" means a Member which is a co-operative association incorporated under
            the Cooperative Association Act or a corporation incorporated under another Act of the
            Province of British Columbia or legislation of any other jurisdiction which in the opinion of the
            Directors conducts its operations on a co-operative basis and is designated as a co-operative
            association by the Directors for the purposes of membership in Central;

            "Class C Member" means a Member other than a Class A Member or a Class B Member whose
            application for membership is approved as provided in these Rules;”

      Under the Cooperative Credit Associations Act, Central is effectively precluded from serving natural
      persons or taking natural person into membership. All of its members are corporate entities.

            4.2    DELEGATE STRUCTURE

      Central’s Rules provide that each and every member is entitled to be represented at a meeting of
      Central by a delegate. Each member is entitled to appoint an alternate delegate, who may
      substitute for the delegate, in the absence of the delegate. The delegate is entitled to cast all of the
      votes of the member on any matter. In the absence of its delegate and its alternate delegate, a
      member is not legally represented at a meeting, regardless of whether any other officer or director
      of the credit union is present at a meeting.

      5.    PEER GROUPS
      Central’s membership is currently sub-divided into seven Peer Groups: six largely geographic Peer
      Groups in B.C. and one for all of Ontario. B.C. Peer Groups (or regions) were established historically to
      provide vehicles for networking and communication, and also as vehicles to elect directors. The
      Ontario Peer Group was established for the sake of convenience, to facilitate the combination of B.C.
      Central and CUCO in 2008. In B.C., credit unions within a Peer Group were established with a
      measure of commonality (geography and size), although today there is disparity of size in some Peer
      Groups. No commonality exists among the 136 credit unions in Ontario. They range geographically
      from the Ottawa River to the Manitoba border and in asset size from $5 billion to under $1 million.

      Each B.C. Peer Group has an executive committee which works with Central management to
      arrange (at least) semi-annual meetings of the group, and facilitate communication between Central
      and the group and amongst members of the group.

      No such structures formally exist in Ontario, although there are some loose alliances known as the
      Eastern (Ontario) Alliance, the Advisory Council of Small Credit Unions, the Northern Alliance, and


      WATSON ADVISORS INC.                              CONFIDENTIAL                            SEPTEMBER 2010
CENTRAL 1 CREDIT UNION
GOVERNANCE REVIEW – BACKGROUND PAPER (SEPTEMBER 2010)
CENTRAL 1 OVERVIEW - CURRENT                                                                       PAGE 12 OF 90

      the “Big 12”. These informal groups seem to be evolving into contact groups, similar in purpose to
      Peer Groups in B.C. although without the director election function.

      Historically, Peer Groups in B.C. have played a role in the governance of Central through the election of
      directors.

      A list of Peer Groups (as at January 1, 2010) is attached as Appendix C.

      6.       BOARD COMPOSITION
               6.1   SIZE

      Currently, Central’s Board is comprised of 16 directors.

               6.2   ELECTION PROCESS:

      The 16 directors are elected or appointed as follows:

               11 of the directors (68.8% of the Board) are appointed or elected from Central’s Class A
                members in B.C., which comprise 69.2% of the combined assets of Central’s Class A
                members, as at December 31, 2009; and

               five directors are elected by Central’s member credit unions in Ontario.

      Directors Elected from B.C. member credit unions

      Of the 11 directors elected or appointed by B.C. credit unions:

               two directors (12.5% of the Board) are appointed by Vancouver City Savings (19.9% of
                unaudited, non-consolidated system assets);

               two directors (12.5% of the Board) are appointed by Coast Capital Savings (16% of
                unaudited, non-consolidated system assets);

               seven are elected on the basis of contributed capital, which directly correlates to the audited
                consolidated assets of members, as follows:

                                   two directors (12.5% of the Board) are elected by the other four credit
                                    unions (other than Vancouver City Savings and Coast Capital Savings)
                                    which comprise Peer Group 5 (10.0% of unaudited, non-consolidated
                                    assets);

                                   one director is elected by each of the five other Peer Groups in B.C. (Peer
                                    Groups 1, 2, 3, 4 and 6).




      WATSON ADVISORS INC.                              CONFIDENTIAL                            SEPTEMBER 2010
CENTRAL 1 CREDIT UNION
GOVERNANCE REVIEW – BACKGROUND PAPER (SEPTEMBER 2010)
CENTRAL 1 OVERVIEW - CURRENT                                                                           PAGE 13 OF 90

      No one credit union may cast more than 25% of the votes in the election of a Peer Group director,
      other than in a Peer Group in which four or less credit unions may participate in the election
      process.

      Based on the current Peer Group election process within B.C., the six credit unions in Peer Group 5,
      who represent 69.6% of the B.C. system assets, appoint or elect six of 11 B.C. directors (54.5%).

      Directors Elected from Ontario

      Of the five directors elected by Ontario credit unions:

              three (60%) are determined, at large, on the basis of contributed capital; and

              two (40%) are determined, at large, on the basis of one member credit union, one vote.

      Central’s Rules provide that the election process for Ontario directors may be conducted
      electronically or by mail ballot.

              6.3   ELIGIBILITY

      In order to seek office as a director of Central, a person must be a member of a Class A member
      credit union. To be elected to represent a Peer Group, a person must be a member of one of the
      credit unions that comprise that Peer Group. A person need not be a director or officer of a
      member credit union. However, if a person is a director or officer of a credit union at the time of his
      or her election or appointment and, subsequently loses that office, continued service is subject to
      ratification by a vote of the members of that Peer Group.

      Prior to October 1, 2009, the Credit Unions and Caisses Populaires Act of Ontario precluded a person
      who was a representative of a credit union under supervision from seeking, or from remaining in,
      office as a director of CUCO. Central has no such restriction, nor is any such restriction set out in
      either the Credit Union Incorporation Act (B.C.) or the Cooperative Credit Associations Act (Canada).

      Section 91 of the Credit Union Incorporation Act provides:

              “91. An individual is not eligible to be or to continue to be a director of a central credit union
              unless the individual is a member of a member of the central credit union.”

      Other restrictions on a person’s service as a director of a credit union incorporated in B.C. are set
      out in the Credit Union Incorporation Act (s.84) and the Company Act (B.C.) (s.130).

      Article 13.5 of the Rules provides:

              5. (a) A Director elected by the Class A Members comprising a peer group shall, at the time of
              election, be a member of a Class A Member that belongs to the peer group for which the
              election is to be held;


      WATSON ADVISORS INC.                              CONFIDENTIAL                               SEPTEMBER 2010
CENTRAL 1 CREDIT UNION
GOVERNANCE REVIEW – BACKGROUND PAPER (SEPTEMBER 2010)
CENTRAL 1 OVERVIEW - CURRENT                                                                        PAGE 14 OF 90

            (b) A Director appointed pursuant to Rule 4 (c) or Rule 20 of this Article shall, at the time of
            appointment, be a member of the Class A Member appointing the Director.

            6.4    QUALIFICATIONS

      Central’s Board has identified “desirable director attributes” in Chapter 10 of the Board manual.
      These are summarized below. A copy of Chapter 10 is attached as Appendix D for easy reference.
                   a)    Knowledge:
                         i)   Knowledge of Financial Services Sector, Central and its Executive Team
                         ii)  Knowledge of Board & Role
                         iii) Knowledge of Credit Union System and Cooperative Movement
                   b)    Analytical and Technical Skills
                         i)   Financial Acumen
                         ii)  Group Decision-Making Orientation
                         iii) Process Orientation
                   c)    Thinking
                         i)   Conceptual Thinking Skills
                         ii)  Independent Thinking Skills
                         iii) Open-Minded/Information Seeking Skills
                   d)    Personal Style
                         i)   Ambiguity Tolerance
                         ii)  Effective Judgment
                         iii) Integrity
                         iv) Self Awareness
                         v)   Bias to Learn
                   e)    Social Style
                         i)    Orientation to Resolve Conflict
                         ii)   Effective Communication and Listening Skills
                         iii) Influence and Impact Skills

      Chapter 10 currently makes no specific reference to desirable industry skills and experience.

            6.5    TERM LIMITS

      The Rules of Central provide that directors hold office for three years, unless the Rules specify a
      shorter period of time. “Short terms” generally only come into play on the transitioning from one
      governance framework to another or to fill a casual vacancy on the Board. For example, to
      introduce fixed, staggered terms of Ontario Region directors in 2010, two directors were elected to


      WATSON ADVISORS INC.                              CONFIDENTIAL                             SEPTEMBER 2010
CENTRAL 1 CREDIT UNION
GOVERNANCE REVIEW – BACKGROUND PAPER (SEPTEMBER 2010)
CENTRAL 1 OVERVIEW - CURRENT                                                                       PAGE 15 OF 90

      one-year terms, two to two-year terms and one to a three-year term. Thereafter, all will be filled
      for terms of three years.

      There is no limit on the number of consecutive terms of office to which a director may be elected or
      appointed. Of the incumbent directors, the average tenure, as at the annual general meeting in
      2010, was 3.6 years, with the longest continuously serving director having been in office for 12
      years and three directors completing their first year in office. 2

                6.6   ROLE OF NOMINATIONS COMMITTEE

      Central 1 currently does not have a Nominations Committee.

                6.7   RE-APPOINTMENT

      Currently, the Central 1 Board has no procedure for input into the re-appointment or re-election of
      incumbent directors.

      7.        BOARD ROLE
      Section 167 of the Cooperative Credit Associations Act (Canada) provides:

                 167. (1) Subject to this Act, the directors of an association shall manage or supervise the
                 management of the business and affairs of the association.

      Policy 8.1 of Central’s Board Manual provides:

                “The Board of Directors is responsible for supervising the management of the affairs and
                business of Central.”

      Policy 8.1 provides further that the Board:

                provide leadership and direction to management;

                establish corporate policies;

                enact and ensure adherence to corporate governance “best practices”;

                adopt and monitor a strategic planning process;

                authorize appointment of the President and Chief Executive Officer and the Chief Financial
                 Officer and any other officer that the Board is required by statute to appoint;

                monitor and authorize compensation of senior management;


      2
          These tenure figures include service to the previous organizations.


      WATSON ADVISORS INC.                              CONFIDENTIAL                            SEPTEMBER 2010
CENTRAL 1 CREDIT UNION
GOVERNANCE REVIEW – BACKGROUND PAPER (SEPTEMBER 2010)
CENTRAL 1 OVERVIEW - CURRENT                                                                            PAGE 16 OF 90

               ensure that an appropriate management succession plan is in place;

               ensure enterprise risk is managed;

               ensure policies and procedures are in place for effective communication with shareholders
                and other stakeholders;

               ensure the integrity of internal control and management information systems; and

               ensure that all corporate documents and records have been properly prepared, approved,
                and maintained.

      8.       DIRECTORS’ DUTIES
      Section 101 of the Financial Institutions Act (B.C.) provides:

               101 (1) A director or officer of a financial institution, in exercising the powers and performing
               the functions of a director or officer, must

                        (a) act honestly, in good faith and in the best interests of the financial institution, and

                        (b) exercise the care, diligence and skill of a reasonably prudent person under
                        comparable circumstances,

               and in doing so must take into account the interests of shareholders, depositors, if any, and
               policy holders, if any, and, without limiting this, of those to whom the directors owe a fiduciary
               duty.

               (2) The provisions of this section are in addition to, and not in derogation of, any enactment or
               rule of law or equity relating to the duties or liabilities of directors of a corporation.

      Central’s Directors’ Terms of Reference provide:

               Purpose – a Director's primary duty is to Central.

               Standard of Care – a Director shall always act honestly, in good faith and in the reasonably
               held belief that the act is in the best interests of Central. A Director shall exercise the care,
               diligence and skill of a reasonably prudent person, under comparable circumstances. In
               exercising his or her duty, a Director shall take into account the interests of shareholders,
               depositors and any person to whom a fiduciary responsibility is owed.

      9.       COMMITTEES
      The Board has four standing committees to assist the Board’s traditional areas of functioning.




      WATSON ADVISORS INC.                              CONFIDENTIAL                                 SEPTEMBER 2010
CENTRAL 1 CREDIT UNION
GOVERNANCE REVIEW – BACKGROUND PAPER (SEPTEMBER 2010)
CENTRAL 1 OVERVIEW - CURRENT                                                                          PAGE 17 OF 90

               9.1    AUDIT COMMITTEE

               The Audit Committee comprises five directors.

               The Audit Committee is a committee of the Board of Directors to which the Board has
               delegated responsibility for oversight over the financial reporting process. The Audit
               Committee has oversight over budgets and Enterprise-Wide Risk Management and
               responsibility for oversight of Central’s Information Technology Policy and Central’s
               Outsourcing Policy. The Audit Committee acts as liaison between the external auditors and
               internal auditors and Central’s Board. The Committee assists the Board in meeting its
               responsibilities by ensuring that the review of Central’s financial operations, and that of its
               subsidiaries, by the external auditor provides an independent report on the integrity of the
               financial data and reporting.

               The Audit Committee ensures compliance with financial and accounting policies and the
               Committee may make recommendations to the Board on any matters pertaining to the
               financial reporting process, including the audit process and internal controls.

               9.2    CONDUCT REVIEW AND CORPORATE GOVERNANCE

               The Conduct Review and Corporate Governance Committee comprises six directors, one of
               whom is the Board Chair.3

               The Committee is to perform the duties required of it by Part 5 of the Financial Institutions
               Act, Part XII of the Co-operative Credit Associations Act and the policies and procedures of
               Central. The Committee is also responsible for overseeing the quality and effectiveness of
               Central’s corporate governance.

               9.3    HUMAN RESOURCES

               The Human Resources Committee comprises five directors and is chaired by the Board Chair.

               The Human Resources Committee reviews Human Resources matters including compensation
               of the President and Chief Executive Officer and Central’s senior executive management and
               manages the process of evaluating the President and Chief Executive Officer.

               9.4    INVESTMENT AND LOAN

               The Investment and Loan Committee comprises five directors of whom, by law, one must be
               an officer of Central.




      3
          Board policy precludes the Board Chair from chairing the Committee.


      WATSON ADVISORS INC.                                CONFIDENTIAL                            SEPTEMBER 2010
CENTRAL 1 CREDIT UNION
GOVERNANCE REVIEW – BACKGROUND PAPER (SEPTEMBER 2010)
CENTRAL 1 OVERVIEW - CURRENT                                                                         PAGE 18 OF 90

              The Investment and Loan Committee oversees Central’s financial policies, including its lending
              policy, its investment policy, its borrowing policy, its liquidity policy, its capital policy, its
              pledging, its securitization policy and its outsourcing policy.

      In addition to the standing committees, the Board has established two committees that provide
      advice on operational and strategic matters. These are referenced below.

              9.5   LEGISLATIVE

              The purpose of the Legislative Committee is to review, analyze, monitor, and recommend
              operational policies and strategies in connection with legislative developments at both the
              national and provincial levels.

              The Legislative Committee comprises nine members of which:

              two are directors or officers of Class A Members having their head office in the Ontario
               Region and having more than 10,000 members;

              one is a director or officer of a Class A Member having its head office in the Ontario Region
               and having less than 10,000 members;

              four are directors or officers of Class A Members having their head office in other than the
               Ontario Region and having more than 10,000 members; and

              two are directors or officers of Class A Members having their head office in other than the
               Ontario Region and having less than 10,000 members.

              9.6   SYSTEM OPERATIONS

              The System Operations Committee comprises eight to 12 persons. The Committee:

              has no more than one representative from any one credit union;

              has at least one representative from each of Central’s Peer Groups;

              comprises only employees of Class “A” Members of Central, although the person elected as
               the Committee Chair may be a director of a member credit union; and

              must include three representatives of Class “A” Members from the Ontario Region.

              (By Board policy, one member of the Committee serves as a member of Central’s Province-
              wide Communications Committee.)




      WATSON ADVISORS INC.                              CONFIDENTIAL                             SEPTEMBER 2010
CENTRAL 1 CREDIT UNION
GOVERNANCE REVIEW – BACKGROUND PAPER (SEPTEMBER 2010)
CENTRAL 1 OVERVIEW - CURRENT                                                                       PAGE 19 OF 90

              The purpose of the System Operations Committee is to provide advice to management and
              the Board on strategic or operational issues that affect the strength, competitive positioning
              and operational effectiveness of credit unions.

              The System Operations Committee reviews the recommendation from management on dues
              and recommends it to the Board.

              In the spring of 2010, special resolutions that would have repealed those provisions of the
              Rules that require that the Legislative Committee and the System Operations Committee be
              appointed, annually, as committees of the Board were defeated.

      10. OVERSIGHT OF TRADE ASSOCIATIONAL SERVICES
      In the negotiations leading to the combination of CUCO and B.C. Central, it was agreed that the
      combined entity would continue to offer the full suite of wholesale financial services and the trade
      associational services then provided by both entities. It was agreed that, after the combination,
      consideration would be given to whether the two lines of business should continue to be provided
      by one organization or separated. For ease of reference, a list of services provided by Central 1 is
      listed in Appendix G.

      In 2009, Central convened an ad hoc Committee on Trade Associational Services. That Committee
      subsequently recommended, and the Board concurred, that trade associational services remain part
      of Central’s mandate.

      In its final report (November 2009) the Committee identified “critical success factors” in the
      provision of trade associational services. These are set out below:

              enhancing the financial health of the credit union systems of Ontario and British Columbia;

              transparency;

              a single voice to government (legislators and regulators);

              efficiency and effectiveness in the provision of services; and

              timely and effective communication between Central and its member credit unions.

      The Committee recommended that Central’s Business Plan should include Key Performance
      Indicators (“KPIs”) specifically related to the provision of trade services.

      The Committee made several recommendations aimed at increasing the level of communication
      between Central and members in this area, as follows.

              Central should enhance its communications capacity, being more responsive to members’
               concerns.


      WATSON ADVISORS INC.                              CONFIDENTIAL                           SEPTEMBER 2010
CENTRAL 1 CREDIT UNION
GOVERNANCE REVIEW – BACKGROUND PAPER (SEPTEMBER 2010)
CENTRAL 1 OVERVIEW - CURRENT                                                                     PAGE 20 OF 90

             Central should reinvigorate its role as an integrator, fostering an environment of innovation,
              facilitating the work of communities of interest and enhancing the capacity of credit unions
              to respond more nimbly to opportunities. Further, Central should identify and support
              champions within the system who have the initiative and the talent to “make things
              happen”.

             Central should seek to better utilize gatherings of members such as its annual general
              meeting and its conferences to promote dialogue amongst members and between members
              and Central.

      The committee also recommended “that the Board’s System Operations Committee could be more
      effective, perhaps in a reconstituted form, as a management advisory committee or as a number of
      advisory committees rather than as a standing committee of the Board of Directors.” As noted
      above, this recommendation was the subject of a special resolution considered by members by mail
      ballot earlier in 2010 and was defeated.

      With respect to governance of trade associational services, the Committee recommended that this
      matter be reviewed as part of Central’s overall governance review.

      At present, the governance framework for trade associational services is as follows.

             Various operational units within Central are responsible, under the overall leadership of the
              CEO, to provide trade services to members (e.g., operating policies, HR consulting, legal,
              marketing, economic forecasting, risk management and insurance, registered plans
              administration).

             The System Operations Committee and Legislative Committee, chaired by directors of
              Central, provide policy advice to the Board and to management on issues relevant to their
              respective mandates. Neither has the authority to act independently of the Board; they
              report to and take direction from the Board.

             From time to time, management of Central convenes management advisory committees,
              generally comprised of management staff of member credit unions, to provide area or issue
              specific advice on both trade associational and wholesale financial matters.

             Management annually seeks membership approval of dues assessments to fund the
              provision of trade associational services. Members can “line-item veto” any function or
              service that they are not prepared to fund/continue to fund. Both the Board’s Audit
              Committee and System Operations Committee vet dues budgets, prior to their
              recommendation to the Board. The Board recommends the dues budget to the membership
              annually.

             The Board receives quarterly reports that summarize the extent to which the provision of
              each trade-related function contributes to, or draws on, Central’s financial margin.


      WATSON ADVISORS INC.                              CONFIDENTIAL                          SEPTEMBER 2010
CENTRAL 1 CREDIT UNION
GOVERNANCE REVIEW – BACKGROUND PAPER (SEPTEMBER 2010)
CENTRAL 1 OVERVIEW - CURRENT                                                                    PAGE 21 OF 90


      11. MEMBER ENGAGEMENT
      Central engages its members on many different levels and for different purposes, including:

             dissemination of information;

             obtaining feedback on desirable member services;

             developing policy positions on behalf of members and the greater credit union industry; and

             providing networking opportunities for members to engage with one another.

      12. TASK FORCES
      As mentioned above, from time to time, Central’s management establishes task forces to provide
      advice to management on matters of interest. These typically relate to trade associational issues or
      services.




      WATSON ADVISORS INC.                              CONFIDENTIAL                        SEPTEMBER 2010
CENTRAL 1 CREDIT UNION
GOVERNANCE REVIEW – BACKGROUND PAPER (SEPTEMBER 2010)
INTERVIEW FEEDBACK                                                                               PAGE 22 OF 90



      V.       INTERVIEW FEEDBACK

      As noted, Elizabeth Watson of Watson Advisors Inc. interviewed 45 individuals who broadly
      represent the diversity of Central’s membership. Interviews were conducted either in person or by
      telephone. Interviewees were provided beforehand with a background document that framed the
      issues for discussion purposes. We found all interviewees to be engaged in the conversation and
      helpful in providing feedback, comments and suggestions. The feedback from interviewees is
      summarized below.

      1.       BOARD COMPOSITION
               1.1   ELIGIBILITY

      The majority of interviewees were of the view that, in order to serve as a director of Central, an
      individual should be a director or officer of a member credit union.

      CEOs were more likely to be in favour of this restriction whereas directors were more in favour of
      keeping eligibility broad, to include members of credit unions as well as officers and directors.

      The main reason given by CEOs for restricting the Board membership was the need to have Board
      members who understand the complexities of financial services and the Central 1 operating
      context.

      The reason given by directors in support of keeping the eligibility class broad (to include credit
      union members as well as directors and officers) was linked to director qualifications. They wanted
      to ensure that the Board had the ability to add individuals having specific skills and experience
      relevant to the needs of Central 1 where such skills and experience may not be present within the
      current population of directors or officers of member credit unions.

               1.2   QUALIFICATIONS

      At present, the Central 1 Board undertakes no process to determine the desired qualifications for
      the Board as a whole and the priority skills and experience to be sought in upcoming elections.

      A large majority of interviewees were in favour of establishing and maintaining a minimum level of
      qualifications for Central Board members. At the same time many members said it was important
      that the Board reflect the diversity of the membership (i.e. geography and size).

      The desirable qualifications most often cited by interviewees included:

               financial expertise;

               understanding of the credit union system;


      WATSON ADVISORS INC.                              CONFIDENTIAL                        SEPTEMBER 2010
CENTRAL 1 CREDIT UNION
GOVERNANCE REVIEW – BACKGROUND PAPER (SEPTEMBER 2010)
INTERVIEW FEEDBACK                                                                                PAGE 23 OF 90

             governance/board experience;

             legal;

             understanding of the legislative process;

             mergers;

             leadership of complex business similar in size to Central 1;

             good relations with leaders of other Canadian centrals; and

             IT.

      Some interviewees were of the view that it would be helpful to Central if the Board had directors
      who had a depth of experience in business outside of the credit union system. The argument in
      favour of having at least one (or even more) Board members with this type of broader experience
      would be to add diversity of thinking to the Board, particularly where the Board is dealing with
      complex issues that may not have been faced in the credit union industry previously.

      In addition to qualifications related to skills and experience, interviewees were of the view that
      Board members should reflect the diversity of the Central 1 membership, particularly:

             directors from both the B.C. and Ontario regions; and

             directors with an understanding of both large and small credit unions.

      One interviewee suggested that there should be at least one director on the Central 1 Board that
      came from a region other than Ontario and BC (e.g., from the Prairies).

      A large majority of interviewees were of the view that larger credit unions should have more
      representation on the Board than smaller credit unions, based on their larger contribution of
      capital.

      There are currently two credit unions (Coast Capital Savings and Vancouver City Savings) that each
      have the right to appoint two positions on the Board. Most interviewees were not opposed to this
      arrangement based on the relatively large capital contribution made by each of these members. For
      their part, interviewees from Coast Capital and Vancity seemed to be open minded as to future
      Board composition formulae, with the overriding interest being to establish a Board composition
      structure that was equitable based on capital contribution and would be scalable should Central 1’s
      membership expand in the future.

      Interviewees affiliated with small credit unions from BC and Ontario felt strongly that they should
      be represented on the Board. The majority of interviewees from small credit unions said they would
      like:


      WATSON ADVISORS INC.                              CONFIDENTIAL                          SEPTEMBER 2010
CENTRAL 1 CREDIT UNION
GOVERNANCE REVIEW – BACKGROUND PAPER (SEPTEMBER 2010)
INTERVIEW FEEDBACK                                                                              PAGE 24 OF 90

              representatives of small credit unions on the Board; and

              small credit union members to have a say in who those Board members are.

      Not all interviewees from small credit unions felt a need for small credit unions to have a
      guaranteed place on the Board. One interviewee stated that to insist on small credit union
      representation indicated a lack of trust in Central’s management and Board.

      Many interviewees supported the concept of seats being allocated for each region – the number of
      seats being roughly equal to the percentage of capital contribution from that region. A number of
      interviewees favoured an at large voting structure whereby all members voted for all Board
      positions. Some interviewees expressed hesitance with respect to this approach, citing the inability
      of members to know board candidates from other regions although others said this could easily be
      remedied through online information or interviews. Some interviewees said the Board composition
      should retain a regional approach at this time but should move to an at large system in the future.

      Another aspect of diversity mentioned by some interviewees was the advantage of having a mix of
      management and independent directors (e.g., volunteers) on Central’s Board.

              1.3   NOMINATIONS COMMITTEE

      Most interviewees were in favour of the Central Board establishing a Nominations Committee to
      support the director election process. The Nominations Committee would play a role in:

              vetting candidates to ensure they met minimum qualifications; and

              ensuring uniform background information was provided in respect of each candidate.

      Some interviewees thought that the Nominations Committee should also be pro-active in seeking
      out qualified candidates and encouraging them to run for the Board.

      Areas that attracted a good deal of discussion with respect to the Nominations Committee were the
      composition of the committee, how it would determine minimum qualifications and how it would
      deal with incumbent directors seeking re-election.

      With respect to the composition of the committee, the major concern of interviewees was to
      ensure that the committee did not become a clique of long-serving members that perpetuated the
      re-election of incumbents.

      Some interviewees suggested that the committee could have members who were not directors in
      an effort to prevent the concern about a long-serving clique. However, other interviewees
      suggested that having non-directors on the committee was not very helpful because it was the
      directors who would be in the best position to understand the needs of the Board and assess the
      performance of any incumbents under consideration.



      WATSON ADVISORS INC.                              CONFIDENTIAL                        SEPTEMBER 2010
CENTRAL 1 CREDIT UNION
GOVERNANCE REVIEW – BACKGROUND PAPER (SEPTEMBER 2010)
INTERVIEW FEEDBACK                                                                               PAGE 25 OF 90

      In terms of establishing the minimum qualifications, the interviewees felt that minimum
      qualifications should be established by the Board and used as an objective guide by the
      Nominations Committee to assess candidates.

      Interviewees felt that all candidates, new or incumbent, should be subject to the review of the
      Nominations Committee. Interviewees were not in favour of the Nominations Committee proposing
      a fixed slate of directors – i.e., a number of recommended candidates equal to the number of
      vacancies. However, interviewees were in favour of some sort of endorsement process so that the
      membership knew which candidates met the minimum qualifications in the view of the
      Nominations Committee, provided that those candidates who were not “endorsed” by the
      committee would still be entitled to run.

      One interviewee commented that directors who are appointed should also be required to be
      endorsed by the Nominations Committee before they are eligible for appointment to the Board.

      Suggestions from interviewees as to how to increase transparency and integrity in the nomination
      process included:

              publish the Nominations Committee membership;

              publish the required director competencies as established by the Board;

              ensure Nominations Committee members had appropriate interviewing skills or were
               supported externally to be able to appropriately assess candidates; and

              require all candidates to complete a uniform expression of interest form outlining their
               education, work experience, board experience, community experience and experience
               within the credit union industry for all members to see, and publish these expressions of
               interest as part of the elections process.

              1.4   SIZE

      Most interviewees recommended a board size smaller than 16 on the basis that a smaller board is
      generally more effective. Of those who recommended a smaller board, the size range most often
      recommended was between nine and 12.

      The majority of interviewees said they thought the Board would function better if it were smaller.
      Many interviewees felt that the Board could still function well at 16, if it were important for
      integration to keep the Board at 16.

      Those interviewees who favoured a larger Board said a larger Board would help members feel well
      represented while Central 1 continues on the path of change.




      WATSON ADVISORS INC.                              CONFIDENTIAL                          SEPTEMBER 2010
CENTRAL 1 CREDIT UNION
GOVERNANCE REVIEW – BACKGROUND PAPER (SEPTEMBER 2010)
INTERVIEW FEEDBACK                                                                                 PAGE 26 OF 90

      Those interviewees who favoured a smaller board said a smaller board would be more effective
      (e.g., more robust discussions related to strategy and oversight) and would allow the addition of
      further members should Central 1 merge with another central credit union (or group of centrals).

      Some interviewees said that, regardless of the Board size, the Board composition structure should
      be scalable if Board membership was notionally divided into regions based on the percentage of
      total capital contribution from each region.

               1.5   MAXIMUM TERM

      Interviewees were fairly evenly split on the subject of a maximum term limit for Central Board
      members with slightly more interviewees favouring a maximum term limit rather than no maximum
      term limit. CEOs were more in favour of a maximum term limit than volunteer directors.

      Of those who favoured a maximum term limit, the maximum term limit mentioned most often was
      either nine or 12 years.

      A couple of interviewees suggested that if a maximum term limit was imposed, the time would start
      running from the time the Rules were changed (i.e., 2011 would be year 0).

      2.       DIRECTOR ELECTION PROCESS
      Interviewees had many different perspectives on the ideal director election process.

      Despite what particular process each interviewee suggested, there appeared to be several common
      themes, as follows.

               There should be a single process that applies to B.C. and Ontario members.

               The process should be scalable.

               The process should support the election of directors having the desired qualifications (as
                discussed in sub-section 1.2 above.)

      Interviewees had various suggestions as to how a revised election process might work. The range of
      suggestions made by the interviewees included:

               “At Large Proportional” where the entire membership votes with proportional voting based
                on capital;

               “At Large One Member One Vote” where the entire membership votes based on one
                member, one vote;




      WATSON ADVISORS INC.                              CONFIDENTIAL                           SEPTEMBER 2010
CENTRAL 1 CREDIT UNION
GOVERNANCE REVIEW – BACKGROUND PAPER (SEPTEMBER 2010)
INTERVIEW FEEDBACK                                                                                  PAGE 27 OF 90

               “At Large Ontario” where the entire membership votes on all directors and some directors
                are elected on a proportional basis (based on capital) and some are elected on the basis of
                one member, one vote;

               “Regional Ontario” where each of B.C. and Ontario elect directors from their own region and
                for directors from each region, some are elected on a proportional basis (based on capital)
                and some are elected on the basis of one member, one vote;

               “Tiered At Large” – where all member credit unions are divided into tiers (e.g., 4 tiers of 25%
                capital each; 10 tiers of 10% capital each) and each tier elects a certain number of directors;

               “Tiered Regional” – where a proportion of Board members are assigned to each region
                based on the proportion of capital contributed from each region and then, within each
                region, there are a number of tiers and each tier elects a certain number of directors;

               “Peer Group” (as in B.C. currently) – where the entire system is broken into smaller groups
                (generally based on sub-regions and each region is entitled to elect one or more directors
                according to a formula;

               “Regional/At Large Combination” where there are some Board positions are elected
                regionally and others are elected at large;

               “At Large Categories” where there are at large elections for specific categories – e.g., “X
                number” from certain size credit union and/or certain regions.

      The reasoning of those who supported the Peer Group election process was this process would ensure
      that there was representation for the region and accountability to the members of the region.

      While a few interviewees were very fixed in their views, most interviewees were open to
      suggestions and were more concerned with ensuring that the election process reflected the themes
      outlined above.

      3.       PEER GROUPS
      Peer Groups exist in a formal way in B.C. and, some would say, in an informal way in Ontario. The
      basis of inquiry with respect to Peer Groups was whether they should continue to exist and, if so,
      what were their most important functions and what should be the basis of affiliation. There were
      mixed views on whether Peer Groups should continue to exist in their current form. The majority of
      those who favoured the continuation of Peer Groups cited the benefits of sharing information.

      With respect to the most important functions of Peer Groups, interviewees were of the view that
      their most important functions were communications with Central (80%), networking among credit
      unions (65%) and education for directors (47%). Some believed the Peer Groups should continue to
      elect directors but this was a minority of respondents (about 24%).



      WATSON ADVISORS INC.                              CONFIDENTIAL                             SEPTEMBER 2010
CENTRAL 1 CREDIT UNION
GOVERNANCE REVIEW – BACKGROUND PAPER (SEPTEMBER 2010)
INTERVIEW FEEDBACK                                                                                PAGE 28 OF 90

      By far the most important function of Peer Groups was seen to be communications between Central
      management and member credit unions. Most interviewees said that, while this was the most
      important function, it was not handled as well as it could be. The issue of communications was seen
      by interviewees as so important that we have included a separate section on this topic (see sub-
      section V.4 below).

      Those interviewees who wished to retain Peer Groups as election vehicles were of the view that
      election through the Peer Group process provided for accountability to the membership,
      particularly to smaller credit unions. It appeared that the concept of accountability was the
      dominant reason for wanting to retain the Peer Group election process.

      The reasons given by those who felt there should no longer be a connection between Peer Groups
      and elections were that:

             tying elections to Peer Groups resulted in the director representative being too focused on
              operational matters (which were often of the most interest to Peer Groups); and

             despite the provision for a formal election process in the Peer Group:

                                   individuals were often elected based on local politics (e.g., a side
                                    agreement made ahead of the meeting as to whom would be elected);

                                   there was a lack of willingness to challenge candidates;

                                   the election was often a popularity contest rather than a consideration
                                    of the Board’s needs.

      While some Peer Groups in B.C. were seen to work well (e.g., Northline), many interviewees said
      that they did not get much value out of their Peer Groups. Some said they attended Peer Group
      meetings more out of a sense of tradition rather than for identifiable benefits.

      While some interviewees from Ontario said they would like to know more about the Peer Group
      model in B.C., the majority were not in favour of tying elections to Peer Groups.

      Some interviewees from B.C. felt strongly about the importance of Peer Groups while some thought
      Peer Groups should be disbanded completely because they no longer served a useful purpose from
      a governance perspective, particularly with the advent of technology.

      On the issue of affiliation (i.e., on what basis should credit union members be assigned to the same
      group), the factors cited most often by interviewees were size of credit union and geographic
      location.




      WATSON ADVISORS INC.                              CONFIDENTIAL                           SEPTEMBER 2010
CENTRAL 1 CREDIT UNION
GOVERNANCE REVIEW – BACKGROUND PAPER (SEPTEMBER 2010)
INTERVIEW FEEDBACK                                                                               PAGE 29 OF 90


      4.    COMMUNICATIONS
      The one main theme that came out of the conversations about Peer Groups was the need for
      enhanced communications processes between Central management and Peer Group members. We
      have chosen to create a separate heading for this issue although it was not an area specifically
      identified in the original terms of reference for the governance review.

      Interviewees stated that Central management was very good at responding to requests for
      information or for someone to attend Peer Group meetings, but that communications were mostly
      one-way – where Central 1 management provided Peer Groups with an update on happenings at
      Central 1. Interviewees expressed interest in establishing a more comprehensive system of two-way
      communication between Central 1 and members. A number of interviewees from B.C. believed the
      Peer Group meetings provided the right venue for this type of communication.

      On the issue of input from members, some interviewees stated that, while they were aware of the
      two formal consultative committees, Legislative and System Operations, they believed there were
      other advisory committees where input from the system was received. These interviewees
      suggested there should be more transparency in this process and better communication around the
      establishment of advisory committees and their activities.

      The area of communications is a particularly important issue in terms of governance, because one
      of the main trade association functions is to gather feedback from members on a wide range of
      issues, ranging from policy to legislation to the types and cost of proposed services. This area is
      particularly important to Central as it looks at its governance structure and how the provision of
      trade associational services falls within that structure.

      5.    OVERSIGHT OF TRADE ASSOCIATIONAL SERVICES
      All interviewees acknowledged the decision to retain trade associational services within Central and
      agreed that the provision of these services was an important part of services provided by Central.

      A number of interviewees expressed the perception that Central 1, as an organization, was not
      committed to providing the degree of trade associational services needed and expected by the
      system. This concern was not just raised by smaller credit unions, although it is smaller credit unions
      who feel most vulnerable in this area and are most affected by whether trade associational services
      are provided as part of a comprehensive program. Many interviewees were of the view that there
      was room for Central 1 to execute better in this area.

      Several interviewees expressed the view that the System Operations Committee, although stated to
      be a Board committee, did not provide oversight.

      At the time the interviews were conducted, there was an outstanding proposal from the Board to
      amend Central’s Rules to repeal the requirement that the Board annually appoint the System
      Operations Committee, replacing it with a management advisory committee as per the


      WATSON ADVISORS INC.                              CONFIDENTIAL                          SEPTEMBER 2010
CENTRAL 1 CREDIT UNION
GOVERNANCE REVIEW – BACKGROUND PAPER (SEPTEMBER 2010)
INTERVIEW FEEDBACK                                                                                PAGE 30 OF 90

      recommendation from the ad hoc Committee on Trade Associational Services. During our
      interviews, most interviewees were comfortable with the concept of having a broad-based
      management advisory committee in this area provided there was a clear process for oversight at
      the Board level and a commitment by Central that trade association services would remain an
      important area of execution for Central. However, subsequent to our interviews, a special
      resolution to repeal the rule that requires that the Board appoint, annually, a System Operations
      Committee of the Board, was defeated.

      Many interviewees supported the concept of management advisory committees on trade
      associational services. A few interviewees suggested there should be regional committees to ensure
      that regional perspectives are heard.

      Several smaller credit union representatives noted that they do not believe that larger credit unions
      support Central’s continued provision of trade associational services, in any meaningful way.
      However, in our discussions, representatives of larger credit unions expressed no such desire to see
      Central 1 decrease its efforts in this area.

      In terms of Board oversight of trade services, many interviewees were supportive of the Board
      creating a Trade Services Oversight Committee. The concept discussed was a three-person
      committee of directors, likely populated by directors from smaller credit unions, to provide
      focussed oversight on trade associational issues at the Board level. The committee would be
      responsible for such things as recommending KPIs for trade services to be included in Central’s
      business plans, including recommended standards of service delivery in the trade associational area;
      overseeing the systems of communication between Central and members in relation to trade
      associational matters and reviewing member satisfaction feedback in the area of trade association
      services (e.g., by reviewing member surveys conducted by management).

      Some interviewees did not feel that a Board oversight committee on Trade Associational Services
      was required. They said that that having such a committee would increase the Board’s workload
      and was not necessary at this time because the Board as a whole should oversee this area as a
      priority.

      6.    ELIGIBILITY FOR MEMBERSHIP IN CENTRAL 1 (AS, BS AND CS)
      While some interviewees expressed the concern that credit unions who want to use Central’s
      services should be required to put up capital, overall, there appears to be little appetite to change
      the current membership structure. It is key for interviewees that only the Class A members have
      control through the voting structure.

      With respect to those unaffiliated credit unions in Ontario that are Class B members of Central and
      have access to services but are not required to pay dues, most interviewees felt that it was better to
      leave the class structure as is for now and entice current non-affiliated independent credit unions to
      join Central rather than cut them off from membership by requiring them to apply for Class A
      membership or leave.


      WATSON ADVISORS INC.                              CONFIDENTIAL                          SEPTEMBER 2010
CENTRAL 1 CREDIT UNION
GOVERNANCE REVIEW – BACKGROUND PAPER (SEPTEMBER 2010)
INTERVIEW FEEDBACK                                                                              PAGE 31 OF 90


      7.        DELEGATE STRUCTURE
      A large majority of interviewees is of the view that the current member delegate structure is
      appropriate and recommends no change. One person suggested that a credit union be able to
      appoint more alternates in case the delegate and alternate are both unable to attend meetings.4

      Another interviewee said the delegate structure was cumbersome in the Peer Group setting but if
      director elections were conducted through a process other than Peer Groups, this would no longer
      be an issue.

      8.        FORMULA FOR AMENDING CONSTITUTION AND RULES
      A large majority of interviewees is satisfied with the current requirements for amending the
      Constitution and Rules and recommend no changes.

      One interviewee questioned whether the current structure gives medium sized credit unions a
      double vote.

      9.        MEMBERSHIP MEETINGS
      Almost all interviewees believe the annual meeting of members should be alternated between B.C.
      and Ontario to provide an opportunity for credit union representatives in both regions to attend the
      meetings.

      Interviewees were in favour of holding a simulcast of the annual general meeting proceedings in the
      region other than where the live meeting was being held. This would provide an opportunity for
      representatives in the other region to meet with each other and for all members to “attend”.

      10. OTHER ISSUES
      Other issues raised during the interviews are set out below.

                One interviewee raised a concern that Central was starting to act more independently and
                 moving away from its shareholders.

                One interviewee said that there needs to be more clarity around Central’s committees – and
                 specifically whether a committee is a management advisory committee or a Board oversight
                 committee.




      4
          Members are entitled to amend their delegate appointments at any time.


      WATSON ADVISORS INC.                               CONFIDENTIAL                        SEPTEMBER 2010
CENTRAL 1 CREDIT UNION
GOVERNANCE REVIEW – BACKGROUND PAPER (SEPTEMBER 2010)
INFLUENCES ON CENTRAL 1’S GOVERNANCE FRAMEWORK                                                        PAGE 32 OF 90



      VI. INFLUENCES ON CENTRAL 1’S GOVERNANCE FRAMEWORK

      The governance framework of an organization articulates the roles and responsibilities of the Board,
      management and the shareholders/members and clarifies decision-making processes and
      accountability. The appropriate governance framework for an organization is influenced by its
      ownership structure, its mandate and industry.

      In addressing the specific aspects of governance raised in this review, it is useful to consider the
      nature of Central 1 and how this affects its approach to governance.

      Central 1 has three distinct influences on its governance framework.

               First, it is a financial institution that provides financial services to its members. There has
                been much focus in the last two years on the need for financial institutions to have an
                approach to governance that focuses on expertise at the Board level, a system of financial
                controls and risk management.

               Second, Central 1 is a trade association. Trade associations organize their governance to
                ensure effective member engagement and processes for carefully managing decision-making
                to balance the needs of the industry as a whole with the needs of individual members.

               Third, Central 1 is a cooperative and as such adheres to well-established cooperative
                principles.

      Before addressing the issues raised in the Central 1 governance review, it is useful to consider the
      approach to governance from these three perspectives.

      1.       FINANCIAL INSTITUTION GOVERNANCE
      Financial institutions are typically stand alone corporate entities that exist to provide financial
      products and services and generate a return for shareholders (or in the case of credit unions, for
      members).

      The financial services sector came under increased scrutiny following the global financial crisis and,
      as a result, there have been numerous discussions recently about aspects of financial institution
      governance. For example:

               In February 2009, as a result of the global financial crisis, the UK government asked Sir David
                Walker to undertake an independent review of governance of UK banks and other financial
                institutions and make recommendations on best governance practices within the financial
                institution context. Sir Walker issued his final recommendations (the “Walker Review”) in
                November 2009.



      WATSON ADVISORS INC.                              CONFIDENTIAL                             SEPTEMBER 2010
CENTRAL 1 CREDIT UNION
GOVERNANCE REVIEW – BACKGROUND PAPER (SEPTEMBER 2010)
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                 On November 4, 2009, 51 prominent men and women from international financial
                  institutions, major accounting and law firms, academia, media, and research and policy
                  institutions, gathered at The University Club in New York City for a colloquium (the
                  “Colloquium”) entitled “Governance of Financial Institutions”, the purpose of which was to
                  examine policies, approaches, and strategies aimed at improving the governance of financial
                  institutions both in the United States and elsewhere.

                 OFSI, the Canadian federal regulator of financial institutions, has been outspoken on the
                  issue of financial institution governance.

      Sir Walker made the point that banks are different from other corporate entities because public
      confidence is critical to their survival in a way and to an extent that does not arise even in the wake
      of serious brand damage sustained by a major consumer-oriented non-financial business. When
      depositor confidence is lost in a financial institution, its whole survival is put in jeopardy.
      Regulators are therefore keenly interested in the effectiveness of the corporate governance of the
      entity.

      Key components of financial institution governance, as relevant to the Central 1 governance review,
      are considered below.

                 1.1   MANDATE

      The typical mandate of a financial institution is to promote the long term sustainability of the
      organization to the ultimate benefit of its owners.

                 1.2   ROLE OF THE BOARD

      The role of the board of a financial institution, like any other business entity, is to provide strategic
      guidance and effective oversight of management. While the board may take into account the
      interests of the shareholders and stakeholders, the main focus of the board is the entity itself.

                 1.3   DIRECTORS’ DUTIES

      Directors owe a fiduciary duty and duty of care to the organization. The trend today is towards a
      majority of independent directors5 to ensure board members are not conflicted in their duties.

                 1.4   BOARD COMPOSITION

      Regarding board composition and qualifications, the Walker Review adopted a summary
      qualification for non-executive directors as follows: “Non-executive directors need experience at
      high level in business, public affairs and other relevant fields, the personal qualities to obtain clear
      and full answers from management, and the ability to understand the bank’s businesses and the
      risks being undertaken.”

      5
          This is a regulated requirement for many organizations. (Note: 14 of 16 Central 1 directors are considered “independent”.)


      WATSON ADVISORS INC.                                  CONFIDENTIAL                                       SEPTEMBER 2010
CENTRAL 1 CREDIT UNION
GOVERNANCE REVIEW – BACKGROUND PAPER (SEPTEMBER 2010)
INFLUENCES ON CENTRAL 1’S GOVERNANCE FRAMEWORK                                                    PAGE 34 OF 90

      Speakers at the Colloquium emphasized the need for directors to have special skills and experience.
      One speaker stated, “Directors should have the intellectual capacities and background to
      understand how the extremely complicated financial industry works.” One participant also said,
      “Financial institution boards are going to have to start thinking a lot differently about the kind of
      experience they want for people who go on the compensation committee.”

      Several speakers stressed the need for board members to have continued special education and
      training in specialty areas important to financial institution governance.

            1.5    BOARD SIZE

      The average board size for publicly traded corporations in Canada is 11 members. For larger credit
      unions within Canada, the average board size is 12.

            1.6    MAXIMUM TERM

      Regarding term limits, the Walker Review supported less turnover (terms longer than nine years) to
      ensure a build up of expertise on the board.

            1.7    ROLE OF NOMINATIONS COMMITTEE

      Board members are elected by the shareholders. Shareholders vote in proportion to their
      shareholdings. It is quite common today for boards of financial institutions to have nominations
      committees. The role of the nominations committee is to identify and recommend candidates to
      run for election based on the board composition criteria established by the board. It is typical that
      the nominations committee recommends the exact number of directors as there are vacant
      positions and present the slate of candidates for election by the shareholders.

      At the Colloquium, speakers agreed that boards should “identify the knowledge, skills, and
      experience the board needs and the skills, knowledge, and experience it has [and to] identify the
      gaps and then prepare specifications for filling those gaps.” The resulting specification would be
      used, normally with external assistance, to seek qualified candidates.

      Several interviewees stated that their credit unions had established nominations committees that
      interviewed potential candidates against criteria established by their boards and recommended
      candidates for election.

            1.8    SHAREHOLDER/MEMBER COMMUNICATIONS

      In the financial institution model, communication with shareholders is very formal. The typical
      methods include the annual report, the annual general meeting, quarterly financial statements (if
      required) and news releases.

      In the banking sector, only major shareholders (e.g., institutional investors) communicate with the
      board. This is usually done through a formal meeting between the board chair, CEO and the


      WATSON ADVISORS INC.                              CONFIDENTIAL                          SEPTEMBER 2010
CENTRAL 1 CREDIT UNION
GOVERNANCE REVIEW – BACKGROUND PAPER (SEPTEMBER 2010)
INFLUENCES ON CENTRAL 1’S GOVERNANCE FRAMEWORK                                                     PAGE 35 OF 90

      investor. While the shareholders can’t tell the directors what to do, they may comment on such
      issues as executive compensation, board composition and certain strategic level decisions.
      Shareholders may advance resolutions at the annual general meeting for consideration by all the
      shareholders.

            1.9    COMMITTEES

      The boards of financial institutions typically establish a number of standing committees to assist the
      board in its work. The three most common committees are: Audit, Governance and Compensation.
      Today, many financial institutions also have a Risk Committee to assist the board with the oversight
      of risk management.

      Some boards have advisory committees although this is still not common. Advisory committees are
      most commonly established when the company is entering business in a new geographical region
      (in which case there may be a local advisory committee to provide advice on local issues).

      2.    TRADE ASSOCIATION GOVERNANCE
      Trade associations typically are not-for-profit organizations established by entities operating in the
      same industry (and often in competition with each other) to represent the industry on legislative
      and policy related issues and provide members with information and services.

      The focus of the trade association’s activities is to understand the needs of members, represent the
      industry to government and other stakeholders, provide information to members, and develop
      policies and products to meet members’ needs.

      A primary rationale of trade associations is that they are better able to represent the interests of an
      industry than are individual companies in that industry. Any industrial or commercial company
      arguing for a particular policy measure is likely to be seen as seeking a competitive advantage for
      itself as against other organizations in the same sector. If one organization is making
      representations that protect its interests then others will follow suit, and as a result, there may be a
      confused message from the industry. There will be issues where there is common ground between
      all organizations in a sector or where the organizations are prepared to sacrifice some of their own
      interests in exchange for a package of measures that on balance will benefit them. A trade
      association can exercise the representative function more effectively than its constituent members
      precisely because it does not have a direct commercial interest. Trade associations can also become
      expert at exercising the representative function and are therefore able to take advantage of
      economies of scale by providing the same service to a large number of organizations.

      More generally, trade associations exploit economies of scale for the benefit of their members. If
      there is, for example, an Act of Parliament or a court case which has a material effect on members
      then it makes sense for one expert lawyer to analyze the effect and advise all members than for this
      to be done in perhaps hundreds of different companies. Similarly, most companies want detailed



      WATSON ADVISORS INC.                              CONFIDENTIAL                           SEPTEMBER 2010
CENTRAL 1 CREDIT UNION
GOVERNANCE REVIEW – BACKGROUND PAPER (SEPTEMBER 2010)
INFLUENCES ON CENTRAL 1’S GOVERNANCE FRAMEWORK                                                        PAGE 36 OF 90

      industry statistics but are unwilling to let any one member compile these because it would have
      access to information about its competitors. Again, trade associations fulfill this function.

      The UK Trade Association Forum, an association of trade associations, recently published a best
      practice guide6 for trade associations which sets out the key characteristics that a modern best
      practice trade association should display and the nature of the services it should provide. These
      include7:

                 supplying information and advice;

                 representing members’ interests in the legislative and regulatory process;

                 public relations and communications on behalf of the sector;

                 education and training;

                 standards and product/service quality;

                 innovation and technology transfer; and

                 commercial benefits.

      Governance of a trade association is different from governance of a business corporation in several
      ways. Underlying the difference is the fact that the trade association is typically set up by a group of
      individuals or businesses that have common interests. The purpose of the trade association is to
      advance the common interests of the members and to provide the members with services designed
      to provide competitive advantage to the group of members as a whole. The members are typically
      engaged in their own businesses and are not merely investors in the trade association as
      shareholders of a typical business corporation would be.

      Trade associations governance is based on a number of key principles set out below.

                 Representative: The first principle is that the board should be representative of the
                 membership. This principle is often the most difficult to achieve, particularly for associations
                 with many members or where the members have widely differing characteristics. It may not
                 be possible to please everyone all the time. It is sometimes said that every member of a trade
                 association believes that the association is dominated by a group of members of whom they
                 are not one. Depending on the nature of the association, representativeness can be achieved
                 by election or selection. It is common practice to reserve a particular number of seats for
                 certain categories of members. However, once elected, board members must serve the
                 interests of the whole association.


      6
          Trade Association Forum Best Practice Guide for Trade Associations, 2006.
      7
          For details of what is included in each area, see Appendix E.


      WATSON ADVISORS INC.                                 CONFIDENTIAL                            SEPTEMBER 2010
CENTRAL 1 CREDIT UNION
GOVERNANCE REVIEW – BACKGROUND PAPER (SEPTEMBER 2010)
INFLUENCES ON CENTRAL 1’S GOVERNANCE FRAMEWORK                                                               PAGE 37 OF 90

            Accountability: The second principle is that the board should be accountable to the members.
            In some cases accountability can be achieved by elections although this is not generally
            effective in a trade association. Accountability is better achieved by effective two-way
            communication with the members within a framework that includes the purpose and
            objectives of the association.

            Transparency: The third principle is that the governance arrangements should be transparent.
            This follows on from the accountability principle. The selection process for board members, if
            there is one, must be transparent. More generally the entire governance arrangements should
            be documented and readily accessible to the members.

            Distinction between governance and management: The fourth principle is that there must be
            a proper distinction between governance and management, one of the principles in the
            Combined Code8 in respect of listed companies. Boards must concentrate on the major issues
            such as the strategy and direction of the association, possible restructuring, the budget and
            policy priorities. The chief executive must be allowed to get on with the day-to-day
            management. Only if there is such a distinction will industry leaders be willing to become
            involved in the association.

            Flexibility: The fifth principle is that governance arrangement should be sufficiently flexible
            such that they do not quickly become outdated as circumstances change. One way to achieve
            this flexibility is to have a short simple constitution which delegates as much as possible to the
            board. A second way to achieve flexibility is to move away from working through standing
            committees and towards working with time limited project groups.

      Commentary on “best practices” of trade association governance, as relevant to Central’s
      governance review, is set out below. The commentary is based on a UK publication by Mark Boleat
      entitled “Good Practice in Trade Association Governance”.9

            2.1    MANDATE

      The typical mandate of a trade association is to advance the common interests of members and to
      provide members with services designed to provide competitive advantage to the group of
      members as a whole.

            2.2    ROLE OF THE BOARD

      At the highest level, the board of a trade association exercises the same general roles as the board
      of a financial institution – to provide strategic direction and oversight – but it does so in a different
      context. The focus of the board in the case of a trade association is to the members and the
      industry as a whole rather than to the entity only.
      8
        The Combined Code on Corporate Governance is a set of principles of good corporate governance and provides a code of
      best practice aimed at companies listed on the London Stock Exchange.
      9
        Mark Boleat: Managing Trade Associations, UK Trade Association Forum, 2003.


      WATSON ADVISORS INC.                              CONFIDENTIAL                                     SEPTEMBER 2010
CENTRAL 1 CREDIT UNION
GOVERNANCE REVIEW – BACKGROUND PAPER (SEPTEMBER 2010)
INFLUENCES ON CENTRAL 1’S GOVERNANCE FRAMEWORK                                                    PAGE 38 OF 90

            2.3    DIRECTORS’ DUTIES

      Board members of trade associations sometimes feel they have a competing role in that they are
      responsible for governing the association while at the same time representing the interests of their
      organizations.

      While the fiduciary duty of board members is to the trade association, this is typically translated to
      be a duty to the membership as a whole as reflected in the trade association’s mission statement.

            2.4    BOARD COMPOSITION

      The most important features of a trade association board are that the board represents the
      diversity of members and includes people who are recognized inside and outside the industry as
      industry leaders.

      Depending on the nature of the association it sometimes makes sense to have a specific number of
      places reserved for certain categories of members. This is least appropriate where an association
      has a small number of members that are broadly similar to each other. It is most appropriate where
      there are many members that neatly fall into certain categories. Over half of all trade associations
      have such provisions.

      A trade association’s credibility and effectiveness are enhanced if the chief executives of the largest
      members are on the board. It also makes sound sense for any organization to keep its largest
      members satisfied, and for a trade association board membership is a way of achieving this. Many
      associations have rules that automatically provide for the largest members (between two and five)
      to nominate a member of the board. This is appropriate only if the largest members are significant
      is size in relation to the whole membership.

      The remaining members of the board can be selected/elected on a single national basis or on a size
      basis, a regional basis or a category basis. Which basis is appropriate will depend on the association;
      generally it is fairly obvious. However, many associations find that a basis can become
      inappropriate. For example, some associations have had a regional basis that has become
      increasingly inappropriate as a result of restructuring of the industry. It can then make sense to
      move to a size basis.

      Where there are genuine elections then the question of voting rights arises. In an association of
      many small members, one member one vote on a national/regional/size/category basis makes
      sense. Generally, however, larger members will expect more votes.

            2.5    BOARD SIZE

      Trade association boards vary considerably in size. A 1999 benchmarking study in the UK showed a
      range from three to 129 directors. The lower and upper quartiles were 12 and 23, and the median




      WATSON ADVISORS INC.                              CONFIDENTIAL                           SEPTEMBER 2010
CENTRAL 1 CREDIT UNION
GOVERNANCE REVIEW – BACKGROUND PAPER (SEPTEMBER 2010)
INFLUENCES ON CENTRAL 1’S GOVERNANCE FRAMEWORK                                                  PAGE 39 OF 90

      was 17. Larger associations tend to have larger boards. The median for small associations was 11,
      for medium sized association 18 and for larger associations 22.

            2.6    MAXIMUM TERMS

      It is typical for trade association boards to have limited maximum terms of service.

            2.7    ROLE OF NOMINATIONS COMMITTEE

      Modern trade associations have nominations committees that assist in the process of identifying
      and recruiting suitable candidates for appointment or election to the board. Their role may include
      persuading candidates’ companies to allow them to serve on the board.

            2.8    SHAREHOLDER/MEMBER COMMUNICATIONS

      Communication with members is a critical component of any successful trade association.
      Communication must be two way – the association should receive input from members on priority
      issues for the industry in terms of advocacy, policy development and required services and the
      association should provide members with regular updates on its performance and current issues.

      Management’s role in communications is to set up the communications structure to ensure
      meaningful and timely two-way communication.

      The board’s role in communications is to ensure the organization has a comprehensive, effective
      communications policy that is working well. Whether or not board members are part of the
      communications protocol varies among associations. While it is hoped that board members will
      bring their knowledge of local issues to board discussions, individual directors may not always be
      part of the process to communicate directly with members. In terms of reporting to members, it is
      generally considered best if the organization itself manages communications, to make sure all
      communications are consistent both in content and timing.

            2.9    COMMITTEES

      Until recently the typical trade association had a network of standing committees, subcommittees
      and panels to which issues were referred as they arose. The system was time consuming for both
      the members and the secretariat.

      The modern trade association has relatively few standing committees, and those that remain may
      do so for political reasons. The modern approach is to have time-limited project groups to handle
      particular issues. Such working groups are given a specific task and are expected to cease to exist
      when that task is finished. They may have delegated authority to settle an issue (for example to
      establish an electronic marketplace for the sector or to settle the terms of an agreement with
      another industry body) or they may be instructed to report back to the board (for example on
      matters such as a new subscription scale).



      WATSON ADVISORS INC.                              CONFIDENTIAL                         SEPTEMBER 2010
CENTRAL 1 CREDIT UNION
GOVERNANCE REVIEW – BACKGROUND PAPER (SEPTEMBER 2010)
INFLUENCES ON CENTRAL 1’S GOVERNANCE FRAMEWORK                                                    PAGE 40 OF 90

            2.10 REPRESENTATIVE BOARDS

      Given that the objective in trade association boards is for board members to be drawn from certain
      segments of the membership (and some would say, to “represent” that segment), it is useful to be
      aware of some of the advantages and disadvantages of this type of board composition model.

      The creation of a representative board is typically premised on the idea that those who will benefit
      from, or be affected by, the organization’s activities should have a say in providing direction to the
      organization. This type of board composition is attractive based on the theory that having a
      governing body representative of all interests is designed to maximize the sense of ownership and
      engagement by the stakeholders who sit on the board. However, from a corporate governance
      perspective, there can be several concerns.

      We have addressed above the need for Board members who are not just representative but who
      possess the critical skills and experience relevant to the issues being faced by the organization.

      In some organizations there may be a tension between the directors’ obligations to the organization
      and their commitments to at least some of the goals of their constituency. This tension and degree
      of conflict of interest is most acute the closer the election process is to the constituency that elects
      the director.

      Finally, but not least, is that there can be confusion around the respective roles of the board and
      the organization with respect to member/stakeholder engagement. The role of a board is to provide
      strategic direction and oversight. The board should not spend its time engaging in discussion with
      management about the plethora of operational issues that are usually of interest to stakeholders –
      if this happens, board discussions can become sidetracked and the board’s governance role
      becomes less effective. The better practice is to charge management with the responsibility to
      ensure there is a robust program of stakeholder engagement and to provide proper oversight at the
      board level.

      It is important that the board understand and have credibility with its stakeholders. However, it is
      also important that one considers board structure in a holistic context to ensure the board’s role
      contributes to the overall effectiveness of the organization.

      3.    COOPERATIVE PRINCIPLES
      Central, as a cooperative venture, adheres to the principles set down by the International Co-
      operative which are set out below.

      1st Principle: Voluntary and Open Membership: Cooperatives are voluntary organizations, open to
      all persons able to use their services and willing to accept the responsibilities of membership,
      without gender, social, racial, political or religious discrimination.




      WATSON ADVISORS INC.                              CONFIDENTIAL                           SEPTEMBER 2010
CENTRAL 1 CREDIT UNION
GOVERNANCE REVIEW – BACKGROUND PAPER (SEPTEMBER 2010)
INFLUENCES ON CENTRAL 1’S GOVERNANCE FRAMEWORK                                                     PAGE 41 OF 90

      2nd Principle: Democratic Member Control: Cooperatives are democratic organizations controlled
      by their members, who actively participate in setting their policies and making decisions. Men and
      women serving as elected representatives are accountable to the membership. In primary
      cooperatives members have equal voting rights (one member, one vote) and cooperatives at other
      levels are also organized in a democratic manner.

      3rd Principle: Member Economic Participation: Members contribute equitably to, and
      democratically control, the capital of their cooperative. At least part of that capital is usually the
      common property of the cooperative. Members usually receive limited compensation, if any, on
      capital subscribed as a condition of membership. Members allocate surpluses for any or all of the
      following purposes: developing their cooperative, possibly by setting up reserves, part of which at
      least would be indivisible; benefiting members in proportion to their transactions with the
      cooperative; and supporting other activities approved by the membership.

      4th Principle: Autonomy and Independence: Cooperatives are autonomous, self-help organizations
      controlled by their members. If they enter into agreements with other organizations, including
      governments, or raise capital from external sources, they do so on terms that ensure democratic
      control by their members and maintain their cooperative autonomy.

      5th Principle: Education, Training, and Information: Cooperatives provide education and training
      for their members, elected representatives, managers and employees so they can contribute
      effectively to the development of their cooperatives. They inform the general public – particularly
      young people and opinion leaders – about the nature and benefits of cooperation.

      6th Principle: Cooperation among Cooperatives: Cooperatives serve their members most
      effectively and strengthen the cooperative movement by working together through local, national,
      regional and international structures.

      7th Principle: Concern for Community: Cooperatives work for the sustainable development of their
      communities through policies approved by their members.

      The co-op principles broadly sketch out the practice of cooperation, but do not comment
      specifically on issues of corporate governance. Typically the framework adopted has remained
      relatively simple – there is a general assembly of members held annually which elects the board of
      directors from amongst the membership. The board is responsible to supervise the business and
      paid management reports to the board.

      With respect to the voting control of the membership, the 2 nd and 3rd Principles appear to recognize
      a difference between a primary cooperative, where “members have equal voting rights” (i.e., one
      member one vote) and “contribute equitably to capital” and other levels of cooperatives which are
      “organized in a democratic manner”. This has significance in respect of Central 1 that is considered
      a second tier cooperative and specifically with respect to whether voting by members for directors
      should be tied to the proportion of their capital investment.



      WATSON ADVISORS INC.                              CONFIDENTIAL                           SEPTEMBER 2010
CENTRAL 1 CREDIT UNION
GOVERNANCE REVIEW – BACKGROUND PAPER (SEPTEMBER 2010)
LEADING GOVERNANCE PRACTICES IN THE CONTEXT OF CENTRAL 1: OPTIONS, CONSIDERATIONS AND QUESTIONS       PAGE 42 OF 90



      VII. LEADING GOVERNANCE PRACTICES IN THE CONTEXT OF CENTRAL 1:
           DISCUSSION AND PROPOSED OPTIONS

      Over the last number of years, much has been written about governance and a body of consensus
      has developed around the concept of “best practices” in governance. However, there is no single
      “best practice” that applies in every situation; rather principles of “best practice” must be
      considered and then applied in the context of each individual organization according to the
      organization’s ownership structure, mandate and culture. Indeed, the determination of “best
      practice” may change over time as the organization changes.

      The purpose of this governance review is to identify ways in which Central 1’s governance might be
      strengthened for the benefit of Central 1 members. While many interviewees had different
      approaches as to how this could best be achieved, there was some consensus on the desired
      outcome and the principles that should be considered to assess each potential election mechanism.
      These are reproduced here for easy reference.

              The director election process should be consistent between B.C. and Ontario.

              Central 1 should move towards becoming a cohesive, national organization.

              The Board as a whole should have the ability to provide sound advice and oversight in
               respect of the wholesale financial aspect of the business given that this part of the business
               is complex and represents the largest area of risk.

              Larger credit unions should have greater representation on the Board than smaller credit
               unions because they have more capital invested in Central.

              There should be Board members who come from smaller credit unions and smaller credit
               union members should have a say in who is elected to the Board.

              There should be Board members from both B.C. and Ontario.

              The board composition and election process should be scalable and attractive to potential
               merger partners.

      Throughout our initial interview process, we sensed a fair degree of mistrust throughout the
      system. Some smaller credit union representatives expressed mistrust of the larger credit unions,
      and a belief that, if allowed, larger credit unions would vote to discontinue services and support
      that is deemed valuable to smaller credit unions. A few other credit union representatives
      expressed the view that Central as an organization appeared to be more interested in its future as a
      stand alone entity and was becoming disconnected from its members. In our view, these elements
      of mistrust cause representatives to seek governance solutions that are not so much aimed at
      better governance but are aimed at defending against their concerns. This was most evident in the


      WATSON ADVISORS INC.                                CONFIDENTIAL                            SEPTEMBER 2010
CENTRAL 1 CREDIT UNION
GOVERNANCE REVIEW – BACKGROUND PAPER (SEPTEMBER 2010)
LEADING GOVERNANCE PRACTICES IN THE CONTEXT OF CENTRAL 1: OPTIONS, CONSIDERATIONS AND QUESTIONS      PAGE 43 OF 90

      discussion around board composition and trade services and was expressed by some as a need to
      be “at the board table” to influence the decision making.

      The following sections address the specific governance issues raised in the governance review. Each
      section starts with a summary of the issue under consideration. This is followed by commentary and
      options for consideration. Each section concludes with specific questions which are designed to
      prompt feedback from members as part of the consultation process.

      1.         BOARD STRUCTURE
      Board structure in the context of this review is focused on a consideration of whether the Board
      positions should be all open or whether some or all of the Board positions should be restricted to
      certain categories of directors. In the case of Central 1, the categories that are under consideration
      include:

                 positions that are appointed rather than elected;

                 categories of Board membership based on residence; and

                 categories of Board membership based on size of credit union.

      It should be noted that the issue of how directors are elected (i.e., the voting process) is a separate
      issue that is discussed separately in Section VII.2 below. Having said this, if the Board positions are
      all open positions, the voting procedures will influence the outcome and for that reason, this
      section should be read in conjunction with Section VII.2.

      Board structure is governed by an organization’s enabling legislation and is usually addressed in
      more detail in the organization’s articles or bylaws. Typically, the enabling legislation sets out very
      basic requirements (e.g., the minimum number of directors required) and it is up to the
      organization to determine whether they want to include any specific categories or special methods
      of becoming a board member.

      In most commercial entities, there are no stipulated categories. The board is described as being
      composed of “x” number of directors and shareholders vote on who they wish to fill those seats.
      The boards of companies that are joint ventures between two organizations typically do have
      categories of board positions where some directors come from each joint venture partner.

      In the not-for-profit sector, the practice is varied. Some associations have no specified categories of
      membership whereas others create a detailed scheme of categories. For example of the latter, the
      Canadian Chamber of Commerce has a board of 32 of which certain seats are required to be filled
      by designated categories of membership and certain seats are required to be filled by individuals
      from certain regions.10

      10
           Excerpts from the Canadian Chamber of Commerce Bylaws are attached as Appendix F.


      WATSON ADVISORS INC.                                CONFIDENTIAL                            SEPTEMBER 2010
CENTRAL 1 CREDIT UNION
GOVERNANCE REVIEW – BACKGROUND PAPER (SEPTEMBER 2010)
LEADING GOVERNANCE PRACTICES IN THE CONTEXT OF CENTRAL 1: OPTIONS, CONSIDERATIONS AND QUESTIONS      PAGE 44 OF 90

      As an aside, it is very common today for both for-profit and not-for-profit entities, regardless of
      whether the board structure stipulates categories of board membership, to go through an internal
      process to establish a board profile that identifies the types of director attributes that should be
      present on the board as a whole. These may include executive skills and experience as well as
      geographical diversity or an understanding of the various members or stakeholders.

      For Central 1, the Financial Institutions Act (B.C.) requires that a financial institution have at least
      five directors. There is no stated requirement for categories of directorship. The members of
      Central 1, through the authority of the Rules, set the Board composition. The Rules currently
      provide that four out of 16 members are appointed and of the remaining directors, five are elected
      by Ontario members (which effectively means that five directors are from Ontario) and seven are
      elected by B.C. directors (which effectively means that those seven are chosen from B.C.). There are
      currently no stipulations that directors must be chosen from, or represent, large or small credit
      unions although historically there has been a mix of directors from both large and small credit
      unions on the Central and predecessor boards.

      The three potential Board categories of appointed, regional and size are discussed separately
      below.

               1.1   APPOINTED POSITIONS

      Currently, both Vancity Savings and Coast Capital Savings each have the right to appoint two
      positions each on the Board. As stated previously, the appointed positions represent 25% of the
      Board seats (four of 16) whereas together Vancity and Coast Capital represent approximately 35%
      of the capital investment in Central 1. In return for this right of appointment, neither credit union is
      allowed to vote for any of the elected director positions.
                     a)    Options

      Should larger members of Central 1 have designated seats on the Board or should all positions be
      elected by the membership?
                     b)    Considerations

      Most interviewees supported the view that larger organizations (i.e., those holding a significant
      proportion of system assets and membership) should be entitled to have more say in the
      governance of Central 1. In the commercial sector, where voting is based on share capital in the
      company, larger shareholders have more say in who is elected to the Board. It is also quite common
      for trade associations to have specified positions for larger members or at the very least to
      encourage larger members to participate on the Board.

      In the case of Central 1, large members would be able to influence the Board make-up by either:

               appointing members directly to the Board; or




      WATSON ADVISORS INC.                                CONFIDENTIAL                            SEPTEMBER 2010
CENTRAL 1 CREDIT UNION
GOVERNANCE REVIEW – BACKGROUND PAPER (SEPTEMBER 2010)
LEADING GOVERNANCE PRACTICES IN THE CONTEXT OF CENTRAL 1: OPTIONS, CONSIDERATIONS AND QUESTIONS        PAGE 45 OF 90

               voting for directors under a scheme where member voting is proportional based on their
                capital contribution.11

      To date, the appointed positions are specific to Vancity and Coast Capital by virtue of their Class A
      Shareholdings in 2004. If other members become as large as, or larger than, these two entities,
      consideration would have to be given to whether those other entities should also be allocated
      specific seats on the board. One way to address this possibility would be to specify in the Rules that
      credit unions having more than “X” percent of capital investment in Central 1 were entitled to one
      appointed seat for every certain percentage of investment.

      While some interviewees thought the appointed positions give undue advantage to Vancity and
      Coast Capital, others felt that Vancity and Coast Capital would have more influence on the Board
      positions if they were able to fully participate in the election process. This is based on a
      consideration that together they represent approximately 35% of capital invested in Central 1.
                     c)    Questions for Feedback

      In providing feedback on this section, please consider the following question.

                      Question #1: Should larger members of Central 1 (i.e., those having
                      significant capital investment in Central 1) have the right to appoint
                      individuals to positions on the Central 1 Board? Alternatively, should
                      they have the right to elect directors as part of the election process?

               1.2   CATEGORIES OF BOARD SEATS: REGIONAL

      Currently, of the 16 board seats, it is specified that 11 will be from credit unions situated in B.C.
      (four appointed and seven elected) and five will be from credit unions situated in Ontario.
                     a)    Options

      Should the Board structure continue to require a specified number of Board seats from each of B.C.
      and Ontario and, if so, how should the number of seats for each province be determined?
                     b)    Considerations

      Most interviewees were supportive of the concept that the Board be made up of directors from
      both Ontario and B.C. although there is flexibility as to how this can be accomplished.

      There are various ways this could be achieved.

               The Rules could stipulate that a specified minimum number of directors are from each of
                B.C. and Ontario (with the balance of Board seats being open for individuals from either

      11
        Under such a scheme, one might expect larger credit unions to elect candidates from their own credit union or
      others like them.


      WATSON ADVISORS INC.                                CONFIDENTIAL                              SEPTEMBER 2010
CENTRAL 1 CREDIT UNION
GOVERNANCE REVIEW – BACKGROUND PAPER (SEPTEMBER 2010)
LEADING GOVERNANCE PRACTICES IN THE CONTEXT OF CENTRAL 1: OPTIONS, CONSIDERATIONS AND QUESTIONS          PAGE 46 OF 90

               region). If Central merged with another Provincial Central, the minimum number of directors
               from each Province could be adjusted as appropriate.

              The Rules could provide that a certain percentage (or specified number) of directors come
               from each province. For example, the current Rules provide that 11 directors are required to
               come from B.C. and five directors are required to come from Ontario. When determining the
               appropriate split of directors between provinces, the split could be determined by specifying
               exact numbers (e.g., 11 and 5) as it is now, or it could be based on a formula where the
               number of positions allocated to each provincial region is equal to the percentage capital
               invested in Central 1 from member credit unions in that region.

              The Rules could provide for unrestricted Board seats but provide that the Board ensure that
               in putting forward “qualified” candidates to the membership, it use its best efforts to ensure
               candidates from all regions are put forward for election. This option would give the most
               flexibility to the Board.12 This option might also provide the most flexibility for members.
               Members would be free to vote for whomever they wish (i.e., “the best person”) and they
               would not be restricted by categories.

      There are various perspectives on whether it would be useful to have regional categories of board
      seats.

      Those who argue against regional categories say that Central 1 should act as a single, unified
      organization and that requiring regional Board seats creates a sense of “us” and “them”. They
      further argue that Central 1 as an organization, and the Board, is committed to the needs of
      members in both provinces and that, to continue this holistic focus, specified categories of Board
      seats are not required.

      Those who argue in favour of regional categories would say that regional seats are necessary to
      ensure that the needs of credit unions in each province are met by Central 1. They would further
      argue that a Board made up of regional categories is scalable and might be attractive to new regions
      who might consider merging with Central 1 because that region would be assured Board seats. If
      the allocation of Board seats was based on the percentage of capital invested in Central 1, this
      formula could be easily adjusted if and when new centrals merged with Central 1.

      Many interviewees stated that stipulating Board seats of any kind (e.g., based on region or size of
      credit union) would unduly restrict the ability of the board to recruit individuals having certain
      minimum qualifications and that the board would be better served by delegating to a Nominations
      Committee (see Section VII.5) the responsibility to identify candidates from diverse backgrounds
      within the Central 1 membership, depending on the specific needs of Central 1 from time to time.


      12
        This option would only be effective if the Board establishes a Nominations Committee (discussed further in
      Section VII.6) and that the Nominations Committee takes an active role in identifying potential candidates and
      approving “qualified” candidates to seek election to the board.


      WATSON ADVISORS INC.                                CONFIDENTIAL                               SEPTEMBER 2010
CENTRAL 1 CREDIT UNION
GOVERNANCE REVIEW – BACKGROUND PAPER (SEPTEMBER 2010)
LEADING GOVERNANCE PRACTICES IN THE CONTEXT OF CENTRAL 1: OPTIONS, CONSIDERATIONS AND QUESTIONS      PAGE 47 OF 90

                     c)    Questions for Feedback

      In providing feedback on this section, please consider the following questions.

                     Question #2: Should Central’s Rules stipulate that a certain number of
                     Board seats be allocated to provincial regions or should all of the
                     elected seats be open to candidates from anywhere in the system?

                     Question #3: If you believe that a certain number of seats be allocated
                     to provincial regions, should ALL of the seats be allocated to a
                     specific province or should there only be a minimum allocated to
                     provincial seats with the rest to be chosen “at large” from anywhere in
                     the system?

                     Question #4: If all of the Board seats should be provincial seats,
                     should the number of seats for each province be determined as a
                     specified number/percentage of Board seats or should they be
                     allocated based on the relative capital contribution of the credit
                     unions in each province?

               1.3   CATEGORIES OF BOARD SEATS: BY SIZE OF CREDIT UNION

      Currently, there are no provisions in Central’s Rules that specify categories of Board seats based on
      the size of credit union although currently the Board has directors from both large and small credit
      unions.
                     a)    Options

      Should the Board structure require a specified number of Board seats to be based on size of credit
      union and, if so, how should this be accomplished?
                     b)    Considerations

      During the interviews, many interviewees felt the Board membership should include directors from
      both large and small credit unions so that discussions at the Board table could be informed by
      different perspectives. For easy reference, a list of Central 1 members as of June 30, 2010, together
      with their capital investment in Central 1, is attached as Appendix H.

      There are various ways this might be achieved.

               The Rules could specify that a minimum number of directors come from large and small (or
                large, medium and small) credit unions. The terms “large”, “medium” and “small” would
                have to be defined and they might require different definitions in each of Ontario and B.C.




      WATSON ADVISORS INC.                                CONFIDENTIAL                            SEPTEMBER 2010
CENTRAL 1 CREDIT UNION
GOVERNANCE REVIEW – BACKGROUND PAPER (SEPTEMBER 2010)
LEADING GOVERNANCE PRACTICES IN THE CONTEXT OF CENTRAL 1: OPTIONS, CONSIDERATIONS AND QUESTIONS          PAGE 48 OF 90

              The Rules could specify that the Central 1 Class A membership be divided into tiers according
               to the size of credit union. For example, the membership could be divided into four tiers
               where Tier 1 comprised the credit unions representing the top 25% of capital (e.g., the
               largest credit unions), Tier 2 comprised credit unions representing the next 25% of capital
               and so on. The Rules would further provide that the Board must have a minimum number of
               directors affiliated with credit unions from each tier. For example, the Rules could say that at
               least one director must come from each tier.

              The Rules could provide for open Board seats (i.e., no specified categories) but the voting
               process could require that a certain number of positions be elected on the basis of one
               member one vote and the other positions elected on the basis of a proportional vote based
               on capital. Given the fact that there are many, many small credit unions and fewer larger
               credit unions, the logic would follow that the positions elected on the basis of one member
               one vote would likely be from the smaller credit union category whereas the positions
               elected on the basis of a proportional vote based on capital would likely be from the larger
               credit union categories.

              The Rules could provide for unrestricted Board seats but provide that the Board ensure that
               in putting forward “qualified” candidates to the membership use its best efforts to ensure
               candidates from large and small credit unions are put forward for election. This option
               would give the most flexibility to the Board.13 This option might also provide the most
               flexibility for members. Members would be free to vote for whomever they wish (i.e., “the
               best person”) and they would not be restricted by categories. As with the section above
               dealing with regional categories, there are various perspectives on whether specifying
               categories of Board seats based on credit union size would assist the Board in being more
               effective.




      13
        This option would only be effective if the Board establishes a Nominations Committee (discussed further in
      Section VII.6) and that the Nominations Committee takes an active role in identifying potential candidates and
      approving “qualified” candidates to seek election to the board.


      WATSON ADVISORS INC.                                CONFIDENTIAL                               SEPTEMBER 2010
CENTRAL 1 CREDIT UNION
GOVERNANCE REVIEW – BACKGROUND PAPER (SEPTEMBER 2010)
LEADING GOVERNANCE PRACTICES IN THE CONTEXT OF CENTRAL 1: OPTIONS, CONSIDERATIONS AND QUESTIONS      PAGE 49 OF 90

      As with the discussion on regional seats, the fact that certain seats are reserved for a particular
      category of director does put some limitation on the ability of the Board to create an optimal team
      of board members. Other boards who are required to have categories of membership have had the
      experience where they have been unable to identify a strong board member to run for the board
      position at the time the particular category is open. On the other hand, if the minimum requirement
      from each size category is limited and there are open seats as well, given the number of credit
      union members, one would expect there to be sufficient strong candidates to fill the positions.

      One of the arguments in favour of having mandated positions for small credit unions is that it is
      important to have the voice of small credit unions at the Board table. There is concern by some
      small credit unions in the system that their needs are not always discussed sufficiently at the Board
      table although Board members who are part of those discussions may not agree.
                    c)     Questions for Feedback

      In providing feedback on this section, please consider the following questions.

                    Question #5: Should Central’s Rules stipulate that a certain number of
                    Board seats be allocated to certain size categories of membership?

                    Question #6: If you are in favour of Board seats being allocated to
                    certain size categories of membership, are you in favour of ALL seats
                    being allocated to tiers or do you prefer there to be a minimum
                    number of seats required from certain size categories with the rest
                    being chosen “at large” from any sized credit union within the
                    system?

                    Question #7: If you are in favour of categories of Board seats based
                    on tiers, should this be done on an “at large” basis or should it be
                    done on a regional basis (e.g., In B.C., there would be “X” directors of
                    whom “Y” directors must come from each tier”?

      2.       VOTING FOR DIRECTORS
      As stated above, while the process of how directors are elected to the Board is a separate topic
      from Board composition, the two subjects can be inter-related.
                    a)     Options

      While many different suggestions were made during the interview stage, the main options
      advanced for consideration are as follows:

               “Voting at Large” where all positions are voted on by all members;




      WATSON ADVISORS INC.                                CONFIDENTIAL                            SEPTEMBER 2010
CENTRAL 1 CREDIT UNION
GOVERNANCE REVIEW – BACKGROUND PAPER (SEPTEMBER 2010)
LEADING GOVERNANCE PRACTICES IN THE CONTEXT OF CENTRAL 1: OPTIONS, CONSIDERATIONS AND QUESTIONS      PAGE 50 OF 90

               “Voting by Provincial Membership” where certain positions are voted on by B.C. members
                only and certain positions are voted on by Ontario members only;

                “Voting by Peer Groups” where individual Board positions are voted on only by regional
                membership groups affiliated on the basis of region, size, or some combination thereof
                (similar to the current B.C. method); and

               “Voting by Tiers” where certain positions designated to represent certain tiers within the
                organization are voted on only by members of that tier group.
                     b)    Considerations

      An important point to note when considering the voting process is that the more restricted the
      voting process, (e.g., where only certain sections of the membership nominate and vote for certain
      Board positions), the more difficult it is to create a board of directors having a diverse range of
      specified skill sets. Even if the Board outlines for the membership the desired qualities in new Board
      members, if each constituency nominates and votes for individuals from its own region, the
      constituency has no way of knowing how the other constituencies will vote so it is impossible from a
      practical perspective to coordinate the election of a Board having a balance of desired skills and
      experience.

      The majority of interviewees were of the view that the Board of Central 1 should be proactive in
      identifying qualified individuals14 and creating a team of directors with an optimal mix of skills and
      experience relevant to the needs of Central 1. Those directors who favoured this approach favoured
      at large voting with the ability of the Board to recommend candidates for election.

      Some other interviewees were of the view specific skills were not that important and that
      “creating” the ideal board composition was not necessary for effective governance. Those directors
      tended to favour continued election by Peer Groups.

      There has been a good deal of discussion over the last number of years about how boards can best
      exercise their responsibilities and add value to their organizations. The consensus among experts in
      corporate governance is that the most effective boards are composed of individuals having diverse
      skills sets relevant to the needs of the board, together with the necessary personal attributes to be
      a good director. If this is the outcome sought by Central 1 membership, consideration should be
      given to a voting process that allows the Board to provide thoughtful leadership around the needs
      of the Board (a Board profile) and potential candidates.

      As part of the election process, it is important that all candidates provide consistent information as
      to their qualifications. This would include, at a minimum, their educational background, education,
      work experience, board experience and community contributions. The same level of detailed
      information should be made available to all members.


      14
           The concept of “qualified” is discussed in Section VII.3.


      WATSON ADVISORS INC.                                CONFIDENTIAL                            SEPTEMBER 2010
CENTRAL 1 CREDIT UNION
GOVERNANCE REVIEW – BACKGROUND PAPER (SEPTEMBER 2010)
LEADING GOVERNANCE PRACTICES IN THE CONTEXT OF CENTRAL 1: OPTIONS, CONSIDERATIONS AND QUESTIONS      PAGE 51 OF 90

      Much of the discussion at the interview stage revolved around whether voting should continue to
      be by way of Peer Groups. The majority of interviewees (approximately 75%) were not in favour of
      electing directors by regional Peer Groups. Interviewees who were not in favour of electing
      directors regionally by Peer Groups said they preferred a process where the Board could identify
      the desired mix of skills and personal attributes for the Board and then pro-actively identify director
      candidates from throughout the entire system.

      Another level of discussion revolved around voting for specific categories of Board seat. For
      example, if the Board structure required a certain number of individuals from certain regions or size
      of credit union, should those positions be voted on by the membership at large or by only those
      members who fall within the stated category? It is possible to specify that the Board will have
      certain categories of director but to have the membership as a whole vote on those categories.

      When board members are elected only by their own constituency, it can sometimes cause
      challenges from a governance perspective. These directors are known as “representative” directors
      and while they presumably bring the knowledge of their constituency to board discussions, they
      sometimes have trouble analyzing and deciding issues from the perspective of the best interests of
      the organization as a whole rather than their particular constituency. As mentioned above, it is also
      more difficult to compile a board with diverse skill sets when directors are elected by individual
      constituencies.

      Another significant area of discussion in this area was whether voting for directors should be on the
      basis of one member one vote or proportional based on the level of capital investment in Central 1.
      Many interviewees favoured a voting process that would provide some avenue for smaller credit
      unions to influence certain positions and larger credit unions to influence other positions. The
      methodology most often referenced was referred to as the “Ontario model” where some directors
      are elected on the basis of one member one vote and some are elected based on proportional
      voting.

      Based on the options considered to date, it appears that small credit unions could best be assured
      positions on the board either through guaranteed size categories (as discussed above) or by voting
      under the “Ontario model”.




      WATSON ADVISORS INC.                                CONFIDENTIAL                            SEPTEMBER 2010
CENTRAL 1 CREDIT UNION
GOVERNANCE REVIEW – BACKGROUND PAPER (SEPTEMBER 2010)
LEADING GOVERNANCE PRACTICES IN THE CONTEXT OF CENTRAL 1: OPTIONS, CONSIDERATIONS AND QUESTIONS      PAGE 52 OF 90




                    c)     Questions for Feedback

      In providing feedback on this section, please consider the following questions.

                    Question #8: Are you in favour of “Voting At Large”?

                    Question # 9: If you are in favour of “Voting at Large”, do you think
                    voting should be based on capital, one member-one vote, or a
                    combination of capital and one member-one vote (similar to the
                    current Ontario model)?

                    Question #10: Are you in favour of “Voting by provincial
                    Membership”?

                    Question # 11: If you are in favour of “Voting by provincial
                    Membership”, do you think voting in each province should be based
                    on capital, one member-one vote, or a combination of capital and one
                    member-one vote (similar to the current Ontario model)?

                    Question #12: Are you in favour of “Voting by Peer Groups”?

                    Question # 13: If you are in favour of “Voting by Peer Groups”, how
                    many Peer Groups should there be for the Central 1 membership?

                    Question #14: Are you in favour of “Voting by Tier Groups”?

                    Question # 15: If you are in favour of “Voting by Tier Groups”, how
                    many Tiers should there be for the Central 1 membership?

      3.       DIRECTOR QUALIFICATIONS
      The approach of director qualifications is one of the most significant changes that has taken place in
      corporate governance in the last decade. In the past, board members were recruited through an
      informal process where current board members and the CEO nominated their friends and business
      associates. Today, boards in all sectors identify the optimal mix of skills and experience that would
      help the board be effective and pro-actively recruit directors to fill those needs. Qualifications are
      typically discussed in four broad categories:

      Relevant Skills, Knowledge and Experience: Directors must, collectively, have relevant skills,
      experience and knowledge that equip them to:

               add value to management’s thinking in the area of the organization’s strategic opportunities
                and challenges; and



      WATSON ADVISORS INC.                                CONFIDENTIAL                            SEPTEMBER 2010
CENTRAL 1 CREDIT UNION
GOVERNANCE REVIEW – BACKGROUND PAPER (SEPTEMBER 2010)
LEADING GOVERNANCE PRACTICES IN THE CONTEXT OF CENTRAL 1: OPTIONS, CONSIDERATIONS AND QUESTIONS      PAGE 53 OF 90

              provide knowledgeable oversight to fiduciary responsibilities such as audit and finance,
               human resource management and compensation, and governance.

      While it is very important that some members of the board have deep knowledge of the industry in
      which the organization operates, it is not generally seen as a requirement that every board member
      have industry experience. In fact, today boards are seeking greater diversity in their membership to
      gain knowledge and perspective from individuals who have faced similar strategic issues in other
      contexts.

      Personal Attributes: In addition to industry knowledge and specific competencies relating to the
      strategic management of the corporation, directors must possess appropriate personal attributes.
      These include integrity and high ethical standards, sound judgment, an ability and willingness to
      question conventional assumptions, strong interpersonal skills, and a high level of commitment to
      the organization and its success. Each director should have something important to contribute and
      should be able to function well in a group of equals.

      Board Leadership: There must be directors on the board who are willing and able to take on key
      leadership roles such as board chair and committee chairs.

      Diversity: Research indicates that diverse groups make better decisions because individuals within
      the team approach issues from different perspectives. Diversity may include business approach
      (e.g., entrepreneurial vs. corporate), problem solving style, gender, cultural heritage and
      geographical knowledge.

      All four categories are critical to optimizing the board’s composition. A director who has impeccable
      professional qualifications but is not a constructive team player can be marginally effective or even
      dysfunctional. Similarly, achieving broad representation at the expense of critical skills will not help
      the board’s effectiveness.

      The key to effective board composition is to ensure that each individual has the breadth and depth
      of experience that allows him or her to understand the business issues, ask the right questions,
      demand the right information and make the best possible decisions. Ideally, a director’s scope of
      experience should be equal to or greater than that of the management team and he or she should
      bring knowledge and experience to the table gained independently of the organization.
                    a)     Options

      Should directors of Central 1 be required meet minimum levels of qualification and, if so, should the
      minimum level of qualifications be specified in the Rules or set, and amended from time to time as
      required, by the Board.
                    b)     Considerations

      In considering what qualifications, if any, are required for board membership, it is necessary to first
      consider the nature of the organization and the board’s role.


      WATSON ADVISORS INC.                                CONFIDENTIAL                            SEPTEMBER 2010
CENTRAL 1 CREDIT UNION
GOVERNANCE REVIEW – BACKGROUND PAPER (SEPTEMBER 2010)
LEADING GOVERNANCE PRACTICES IN THE CONTEXT OF CENTRAL 1: OPTIONS, CONSIDERATIONS AND QUESTIONS      PAGE 54 OF 90

      Because Central 1 exercises the dual mandate of wholesale financial services and trade association,
      the qualifications required for each side of the mandate should be considered. When canvassing the
      issue of the dual mandate with interviewees, we asked if one mandate was more important than
      the other. While most interviewees said that both aspects of the mandate were important, they
      said there was a significantly higher risk profile and complexity associated with the wholesale
      financial services mandate and for this reason it was necessary to ensure Board members had a
      minimum level of business qualifications relevant to this part of the mandate. In addition, they
      thought it was important to ensure that directors serving on the Board should come from diverse
      parts of the system so there would be an understanding of trade services from various perspectives
      at the Board table.

      The types of qualifications that were considered relevant included:

              qualifications relevant to Central 1’s wholesale financial services business, including: senior
               leadership experience in organizations of a similar size to Central 1; financial services; capital
               markets; audit; finance and treasury; risk management and regulatory;

              qualifications relevant to Central 1’s trade services activities, including: an understanding of
               government; experience in a trade association or member services organization; credibility
               within the Canadian credit union system; understanding of the needs of small credit unions;
               and understanding of issues (legal, business, etc.) relevant to credit unions in the B.C. and
               Ontario regions; and

              personal qualifications such as personal integrity, basic financial literacy, mature confidence,
               prior relevant Board experience, high personal performance standards, etc.

      It is common practice among boards today that the board takes responsibility for creating a board
      profile that outlines the skills and experience and behavioural traits sought for the board as a whole
      (“Board Profile”). When vacancies arise, the board reviews and updates the Board Profile, reviews
      the skills and experience of current directors and identifies the areas of highest priorities in new
      director positions. Many interviewees stated that their own boards used this approach and found it
      to be very helpful in building the effectiveness of the board.
                    c)     Questions for Feedback

      In providing feedback on this section, please consider the following question.

                    Question #16: Should the Rules specify that the Board must be
                    composed of individuals who meet minimum skills and experience
                    qualifications in three categories: Business; Trade Services and
                    General or should they stay silent with respect to qualifications?




      WATSON ADVISORS INC.                                CONFIDENTIAL                            SEPTEMBER 2010
CENTRAL 1 CREDIT UNION
GOVERNANCE REVIEW – BACKGROUND PAPER (SEPTEMBER 2010)
LEADING GOVERNANCE PRACTICES IN THE CONTEXT OF CENTRAL 1: OPTIONS, CONSIDERATIONS AND QUESTIONS      PAGE 55 OF 90


      4.       BOARD SIZE
      There is no right or wrong board size for an organization. The challenge for all organizations in
      choosing the ideal board size is to balance broad skill sets or representation with efficiency. A board
      should have enough members to present the required skills and experience and be large enough to
      populate the required committees, yet not so large as to make communication and consensus more
      difficult to achieve.

      Some common characteristics of large and small boards are set out below.

           Large boards:

               Pros:

                    o A larger size provides enough people to more easily manage the workload of the
                      board.

                    o More perspectives are represented.

               Cons:

                    o Bigger boards may not be able to engage every board member in a meaningful
                      activity, which can result in apathy and loss of interest.

                    o Meetings are difficult to schedule.

                    o There is a tendency to form cliques and core groups, thus deteriorating overall
                      cohesion.

                    o There is a danger of loss of individual accountability.

                    o It may be difficult to create opportunities for interactive discussions.

           Small boards:

               Pros:

                    o Communication and interaction is easier. Board members get to know each other as
                      individuals.

                    o Potential satisfaction from service can be greater due to constant and meaningful
                      involvement.

                    o Every person’s participation counts.

               Cons:


      WATSON ADVISORS INC.                                CONFIDENTIAL                            SEPTEMBER 2010
CENTRAL 1 CREDIT UNION
GOVERNANCE REVIEW – BACKGROUND PAPER (SEPTEMBER 2010)
LEADING GOVERNANCE PRACTICES IN THE CONTEXT OF CENTRAL 1: OPTIONS, CONSIDERATIONS AND QUESTIONS      PAGE 56 OF 90

                    o Heavy workload may create burnout.

                    o Important opinions or points of view might not be represented.

      In Canada, the average corporate board size is nine directors and the average size of the largest
      credit union board is between 11 and 12. Boards typically have three to five standing committees
      and board members spend on average approximately 200 hours per year on board related activity.

      A recent UK study on trade associations said the median size for small UK trade associations was 11,
      for medium sized associations was 18 and for large associations was 22.
                    a)     Options

      Should the size of the Central 1 Board should stay as is (16) or be reduced in size (e.g., 11).
                    b)     Considerations

      Central 1 currently has a board of 16. Many board members felt that a smaller board would be
      more conducive to robust dialogue on issues (and hence the Board would be more effective in
      providing guidance on strategy and drilling down on oversight) although they felt they could
      continue with 16 if this was seen to be an important factor in ensuring inclusivity within the system.

      Most interviewees felt that the ideal Board size for Central 1 was between nine and 11. They felt
      that the smaller board would allow more in-depth discussion and closer teamwork.

      Those that favoured a larger Board pointed to the need to populate committees (and other external
      board appointments fulfilled by Central 1 directors) and to ensure that a wide range of viewpoints is
      considered at the Board table.

      Some interviewees felt that, given that Central 1 is still dealing with integration, the dual mandate,
      and the perceived benefits of more inclusiveness, Central 1 should err on the side of a larger rather
      than smaller Board. Others felt that the need for a more nimble and cohesive board was paramount
      and that the Board size should be reduced immediately.




      WATSON ADVISORS INC.                                CONFIDENTIAL                            SEPTEMBER 2010
CENTRAL 1 CREDIT UNION
GOVERNANCE REVIEW – BACKGROUND PAPER (SEPTEMBER 2010)
LEADING GOVERNANCE PRACTICES IN THE CONTEXT OF CENTRAL 1: OPTIONS, CONSIDERATIONS AND QUESTIONS      PAGE 57 OF 90




                    c)     Questions for Feedback

      In providing feedback on this section, please consider the following questions.

                    Question #17: Should the Board size be reduced?

                    Question #18: If the Board size should be reduced, what size is
                    appropriate?

      5.     MAXIMUM TERM LIMIT
      Central 1 Board members are currently appointed for three years and can be reappointed in
      definitely. There is no maximum term of service on Board directors.
                    a)     Options

      Should directors be subject to a maximum term of service?
                    b)     Consideration

      When considering whether to impose term limits for directors, boards try to balance the
      advantages of continuity on the board with the need for fresh perspective and input.

      Term limits create a certain culture within an organization of shared leadership. Leaders in the
      system know that others may not serve forever and that they must take their turn in leadership
      positions. Looked at from another point of view, term limits can also provide a more conducive
      environment for members to seek board positions because they can see the beginning and end of
      their leadership commitment.

      In the commercial sector (publicly traded corporate entities) boards have historically imposed
      retirement age restrictions on board service. Some boards are moving away from such restrictions
      on the principle that directors should be re-nominated (or not) based on their contribution rather
      than an arbitrary age limit. Many believe that maximum term limits are artificial and can result in
      effective directors leaving the board.

      As an alternative to term limits or age restrictions, many boards today put more emphasis on
      director performance and take steps to formally evaluate directors. This is typically done through a
      director evaluation process (e.g., peer review) and underperforming directors are not re-nominated
      for continued service.

      Interviewees were evenly split on the issue of whether there should maximum term limits on the
      Central 1 Board. Those who supported a maximum term cited the need for fresh ideas and the need
      to avoid any sense of a long-serving clique at the Board table. They thought that a maximum term in



      WATSON ADVISORS INC.                                CONFIDENTIAL                            SEPTEMBER 2010
CENTRAL 1 CREDIT UNION
GOVERNANCE REVIEW – BACKGROUND PAPER (SEPTEMBER 2010)
LEADING GOVERNANCE PRACTICES IN THE CONTEXT OF CENTRAL 1: OPTIONS, CONSIDERATIONS AND QUESTIONS      PAGE 58 OF 90

      the range of nine to 12 years would be appropriate. Those who did not support a maximum term
      cited the need to have qualified directors continue to serve and recommended that the board adopt
      a peer review process to provide directors with performance feedback and to inform the re-
      nomination process.

      While the concept of peer review and the weeding out of underperforming directors sounds
      attractive in theory, it is a difficult in practice. Fellow board members are required to tell their peers
      that they are not meeting board expectations and will not be recommended for re-appointment.
      Given that this is a difficult enough conversation in the public company realm, where directors are
      more or less independent from one another, it is particularly difficult in an association setting where
      board members may very well have to do business with that same person the next day.
                    c)     Questions for Feedback

      In providing feedback on this section, please consider the following questions.

                    Question #19: Should there be a maximum term limit?

                    Question #20: If there should be a maximum term limit, what should
                    the maximum be (e.g., nine years, 12 years)?

      6.     NOMINATIONS COMMITTEE
      Over the last 10 years there has been a significant change in the way board members are recruited
      to boards. The common approach today for business entities is for the board to follow a more
      formal process to identify candidate for appointment, as summarized below.

      Board Profile: The board starts by identifying the specific skills and experience required on the
      board as a whole. The board profile is unique to each organization – varying depending on the
      organization’s mandate and operating context and reflecting the relevant criteria.

      Gap Analysis: The board then identifies the required skills and experience provided by current board
      members, and identifies “gaps” that exist.

      Recruit to Fill Gaps: As vacancies arise, the board (usually with help from a nominations committee)
      engages in a pro-active search to identify individuals to fill the gaps. Many boards in the private
      sector seek the assistance of search professionals. This approach is not as common in the credit
      union sector.

      Time and Effort: The increased time and effort that boards spend on the recruitment process today
      reflects the importance that boards now place on the recruitment process and the value of
      recruiting qualified directors.




      WATSON ADVISORS INC.                                CONFIDENTIAL                            SEPTEMBER 2010
CENTRAL 1 CREDIT UNION
GOVERNANCE REVIEW – BACKGROUND PAPER (SEPTEMBER 2010)
LEADING GOVERNANCE PRACTICES IN THE CONTEXT OF CENTRAL 1: OPTIONS, CONSIDERATIONS AND QUESTIONS      PAGE 59 OF 90

      Board Process: Boards typically charge the governance or nominations committee with the job of
      identifying the Board Profile for the board as a whole. This is reviewed and approved by the board.
      As vacancies arise, the nominations committee is charged with pro-actively searching for directors
      based on the priorities identified by the board. The nominations committee typically engages in a
      thoughtful and strategic process to identify candidates with the relevant skills and attributes and,
      together with the board chair, meets with potential candidates to ascertain qualifications and
      interest. Recommendations are discussed with the entire board and approved or altered as
      determined by the board after a fulsome discussion.

      In the credit union sector, there is a wide range of practices with respect to director recruitment. In
      some credit unions, there is no pro-active activity at the board level to identify the needs, gaps or
      potential candidates. Interested members can run for the board and the members elect who they
      see fit. At the other end of the spectrum, many credit union boards today go through the process of
      identifying the board’s overall needs and the gaps which are sought to be filled in upcoming
      vacancies. Many boards have established nominations committees whose job is to review
      candidates’ qualifications and make recommendations as to candidates who are deemed qualified
      based on the criteria. Typically, non-endorsed candidates are also able to run.

      The practice in trade associations is varied. Many more associations today are taking the approach
      of a formal recruitment process to ensure the board as a whole meets the needs of the
      organization.

      While Central 1 has a list of desired director attributes in its Board manual, it currently has no
      formal process for identifying the skills and experience required at the Board level or assessing
      director candidates. A majority of interviewees were supportive of Central 1 taking a more formal
      approach to director recruitment. Interviewees thought there should be a Nominations Committee
      that evaluates all director candidates, including incumbents, against a desired Board Profile. In
      addition to considering the required director attributes, interviewees thought the Nominations
      Committee should also consider the past performance of incumbent director candidates when
      deciding on its recommendations. Interviewees thought that the Nominations Committee should
      interview all candidates as part of its process.

      It is considered best practice today for business boards to establish a nominations committee to
      assist with the director recruitment process. The committee typically assesses the needs of the
      board based on the board skills profile and identifies potential candidates on behalf of the board for
      recommendation to the shareholders/members for election.

      At its basic level, the role of the nominations committee could be to review director candidates and
      confirm that they meet minimum qualifications as established by the board. The nominations
      committee could also be more pro-active by recommending candidates to fill specific vacancies. Its
      role would include assessment of incumbent director performance.




      WATSON ADVISORS INC.                                CONFIDENTIAL                            SEPTEMBER 2010
CENTRAL 1 CREDIT UNION
GOVERNANCE REVIEW – BACKGROUND PAPER (SEPTEMBER 2010)
LEADING GOVERNANCE PRACTICES IN THE CONTEXT OF CENTRAL 1: OPTIONS, CONSIDERATIONS AND QUESTIONS      PAGE 60 OF 90

                    a)     Options

      Should Central 1 establish a Nominations Committee to assist with director recruitment? If Central 1
      should establish a Nominations Committee, how should the Committee be composed and what
      should be the extent of its role in the director recruitment and election process?
                    b)     Considerations

      On the issue of the Nominations Committee’s composition, most interviewees were of the view that
      the Committee should be composed of current directors who are not up for re-election. Some
      interviewees queried whether the committee should have any outside directors to prevent the
      creation of a real or perceived clique on the Board that re-nominated incumbents and did not
      seriously consider fresh faces. It is most common for Nominations Committees to comprise only
      board members. These individuals know in more depth the needs of the board than could an
      outsider. If a clique develops, one would expect members to band together to support their own
      candidate.

      On the second issue, of whether the Nominations Committee should recommend a slate to fill
      specific vacancies, most interviewees were not in favour of a slate. Their reference point was their
      own credit unions where many believe it to be against democratic principles for the board of a
      credit union (or its committee) to recommend specific candidates to fill specific vacancies. Outside
      of the credit union sector, in both the business and not-for-profit sectors where nominations
      committees are used, they typically nominate a specific number of candidates to fill specific
      vacancies. Their action in this regard is based on the principle that it is the board’s role to ensure
      there is appropriate board succession. In order for the board to be strategic about board succession,
      it has to consider building a team of specific individuals to match the identified needs.




      WATSON ADVISORS INC.                                CONFIDENTIAL                            SEPTEMBER 2010
CENTRAL 1 CREDIT UNION
GOVERNANCE REVIEW – BACKGROUND PAPER (SEPTEMBER 2010)
LEADING GOVERNANCE PRACTICES IN THE CONTEXT OF CENTRAL 1: OPTIONS, CONSIDERATIONS AND QUESTIONS      PAGE 61 OF 90

                    a)     Questions for Feedback

      In providing feedback on this section, please consider the following questions.

                    Question #21: Should the Board establish a Nominations Committee
                    whose responsibility would be to compare the Board Profile to the
                    current directors and identify those skills and experience that would
                    be a priority in filling upcoming vacancies?

                    Question #22: If the Board should establish a Nominations Committee,
                    should the Committee be composed of directors only or should the
                    Board be required to appoint external members to the Committee?

                    Question #23: If the Board should establish a Nominations Committee,
                    should the Committee pro-actively identify candidates?

                    Question #24: If the Board should establish a Nominations Committee,
                    should the Committee have the right to determine whether director
                    candidates (elected and appointed) meet minimum qualifications set
                    by the Board?

      7.     ELIGIBILITY
      Central’s Rules currently provide that a director of Central 1 may be a member, officer or director of
      a member credit union.
                    a)     Options

      Should Board membership be restricted to directors/officers of member credit unions?
                    b)     Considerations:

      Most interviewees were content to leave the Board eligibility provisions as currently worded, to
      allow members of credit unions who are not directors or officers to serve as directors of Central on
      the basis that this provided maximum flexibility for Central.

      Those interviewees who wanted to restrict eligibility to directors or officers focused on the need for
      directors of Central to understand Central’s business and its issues and the need to provide the
      Central 1 Board with more flexibility to recruit Board members having certain skills and experience.

      It is common in the business environment today that directors are recruited specifically from
      outside an industry in order to provide perspectives through a different lens and to provide
      expertise that is not usually available within the industry. This type of reasoning would support the
      inclusion of credit union “members” as eligible to serve on the Central 1 board.




      WATSON ADVISORS INC.                                CONFIDENTIAL                            SEPTEMBER 2010
CENTRAL 1 CREDIT UNION
GOVERNANCE REVIEW – BACKGROUND PAPER (SEPTEMBER 2010)
LEADING GOVERNANCE PRACTICES IN THE CONTEXT OF CENTRAL 1: OPTIONS, CONSIDERATIONS AND QUESTIONS      PAGE 62 OF 90

                    a)     Questions for Feedback

      In providing feedback on this section, please consider the following questions.

                    Question #25: Should eligibility to serve as a director of Central 1 be
                    restricted to directors/officers ONLY of member credit unions or
                    should it be open to members of member credit unions as the Rules
                    provide currently?

                    Question #26: If a Central Board member is a director/officer of a
                    member credit union when elected, and ceases to be a director/officer,
                    should he/she tender his/her resignation for consideration by the
                    Board?

      8.       OVERSIGHT OF TRADE SERVICES
      Central 1 provides trade services to members and obtains input from members on trade services
      issues through the System Operations Committee and various ad hoc committees established from
      time to time to provide advice, input and guidance on specific issues.

      The System Operations Committee is constituted under the Rules as a Board committee. It is
      composed of Board members and system members and its purpose is to provide advice to
      management and sometimes to the Board in relations to system issues. The issues typically
      discussed in the System Operations Committee relate to operations.

      Feedback from the interview process indicated some dissatisfaction with Central’s provision of
      trade services and a concern as to whether the Board effectively provided oversight in this area.
      Those interviewees who argued strongly for small credit union representation on the Board often
      pointed to the need to ensure the Board maintained focus on the trade services aspect of the
      business which they saw as serving primarily the smaller credit unions.

      From a governance perspective, it is not clear what role the System Operations Committee plays in
      terms of oversight. Based on discussions to date, it appears that the System Operations Committee,
      while constituted as a Board committee, spends the majority of its time discussing operational
      issues rather than playing an oversight role.

      Many interviewees supported the idea of establishing a new Board committee to oversee
      management performance in the trade services side of Central’s business. The new Board
      committee, for argument’s sake called the Trade Services Oversight Committee, would be a
      committee of directors and would support the Board in trade services oversight. The Committee’s
      functions would include such things as:

               recommending to the Board the range and categories of trade services to be provided to
                Members within principles established by the Board;


      WATSON ADVISORS INC.                                CONFIDENTIAL                            SEPTEMBER 2010
CENTRAL 1 CREDIT UNION
GOVERNANCE REVIEW – BACKGROUND PAPER (SEPTEMBER 2010)
LEADING GOVERNANCE PRACTICES IN THE CONTEXT OF CENTRAL 1: OPTIONS, CONSIDERATIONS AND QUESTIONS      PAGE 63 OF 90

              reviewing and providing advice to the Board on the adequacy of the organizational structure
               within which trade services are provided to members;

              through discussions with management, obtaining reasonable assurance that Central 1 has
               implemented appropriate systems to consult with members with respect to the provision of
               trade services;

              reviewing the results of all Member surveys with respect to the provision of Trade Services;
               and

              reviewing management’s progress towards meeting goals set by the Board in the area of
               trade services.
                    a)     Options

      Should the Board establish a Trade Services Oversight Committee to assist Central 1 with its
      responsibility to oversee Central 1’s performance in the area of trade services?
                    b)     Considerations

      Some interviewees thought that the Board did not require an additional committee to provide
      adequate oversight of trade services. They felt that this would unnecessarily add to directors’
      workloads.

      Those who the supported the establishment of a new Board committee cited a lack of satisfaction
      with the level of Central’s service to members in the area of trade services. Dissatisfaction was
      expressed most often by smaller credit unions.

      While the System Operations Committee provides advice to management and the Board in the area
      trade services, it is not seen as an oversight body and in fact it is very difficult for a committee of
      this type to play a dual role.

      The advantage of establishing a Trade Services Oversight Committee is that it would provide clear
      responsibility for oversight at the Board level. It is expected that the Trade Services Oversight
      Committee would include directors from smaller credit unions. Once the Trade Services Oversight
      Committee is established, it is possible that the System Operations Committee mandate could be
      broadened to provide even more operational advice.
                    a)     Questions for Feedback

      In providing feedback on this section, please consider the following questions.

                    Question #27: Should the Board establish a Trade Services Oversight
                    Committee to oversee Central 1’s performance in the area of Trade
                    Services?



      WATSON ADVISORS INC.                                CONFIDENTIAL                            SEPTEMBER 2010
CENTRAL 1 CREDIT UNION
GOVERNANCE REVIEW – BACKGROUND PAPER (SEPTEMBER 2010)
LEADING GOVERNANCE PRACTICES IN THE CONTEXT OF CENTRAL 1: OPTIONS, CONSIDERATIONS AND QUESTIONS      PAGE 64 OF 90


                     Question #28: If you are in favour of a Trade Services Oversight
                     Committee, should it be named as a standing committee in the Rules?

      9.       MEMBER ENGAGEMENT AND PEER GROUPS
      One of the important issues in the governance review was to review the role of Peer Groups. Peer
      Groups have existed for some time in B.C. and exist in a less formal way (contact groups) in Ontario.
      When asked about the important functions of Peer Groups, interviewees reported communication
      with Central 1 management (80%), networking among themselves (65%) and education (47%). A
      minority of interviewees (approximately 25%) favoured the retention of Peer Groups for director
      election purposes15.

      While much of the discussion around Peer Groups focused on whether they should still be involved
      in the election process, it became apparent during the review that the real value of Peer Groups
      was seen to be as an avenue of communication between members and management and as an
      avenue of networking between members.

      The backbone of every successful trade association is a system of effective member engagement
      and communication. The system of member engagement is typically multi-pronged with the
      purpose of establishing effective two-way communication and involving members in important
      decisions in the areas of policy development or service delivery. Effective two-way communication
      also provides an avenue for management to be accountable to the members.

      Trade associations also typically facilitate networking between members within the same industry.
      It is not uncommon for trade associations to set up contact groups for companies with similar
      interests within the industry so those groups can discuss and work on issues of common interest.
                     a)    Options

      Should Peer Groups continue to exist as the main source of member communications and
      networking? If they should continue exist, what should be the basis of affiliation?
                     b)    Considerations

      With respect to the issue of member networking, interviewees had mixed views. While some said
      their Peer Group was highly functional and effective, many were of the view that their Peer Groups
      did not provide much value and should be disbanded. Those who called to disband Peer Groups said
      that the members within a group often were not “peers” and no value was gained from attending
      Peer Group meetings. Some said they would prefer to be affiliated with other members from
      throughout the system who more closely resembled their own business profile.




      15
           The role of Peer Groups in the election process is addressed in Section VII.2 above.


      WATSON ADVISORS INC.                                CONFIDENTIAL                            SEPTEMBER 2010
CENTRAL 1 CREDIT UNION
GOVERNANCE REVIEW – BACKGROUND PAPER (SEPTEMBER 2010)
LEADING GOVERNANCE PRACTICES IN THE CONTEXT OF CENTRAL 1: OPTIONS, CONSIDERATIONS AND QUESTIONS      PAGE 65 OF 90

      Many interviewees also stated that Peer Groups were not effective as communication vehicles
      because they tended to facilitate only one way communication (from Central 1 management to the
      Peer Group). Those interviewees would be in favour of enhancing the opportunities for real, two-
      way dialogue between management and members.

      While citing dissatisfaction with some aspects of Peer Groups, many interviewees felt that Peer
      Groups could be better used as communication and networking vehicles and that Central 1 could
      provide better member engagement and support for members by using Peer Groups as one of
      various methods to facilitate member engagement and networking. In addition to Peer Groups,
      potential avenues of member engagement include:

              Standing committees on items requiring continued feedback.

              Ad hoc working groups – to tackle important issues as they arise.

              Online communities of interest – to provide an avenue for particular interest groups within
               the system to share common concerns, innovative ideas, etc.– e.g., smaller credit unions,
               large credit unions, special interest credit unions.

              Regional chapters – to provide a regional forum for networking and education.

              Executive forums – for executives only, to share issues of common concern, interest.

              Director forums – for directors only, to share issues of common concern, interest.

              Weekly “Question of the Week” that gathers and disseminates the system’s views on topics
               of interests.

              Webinars – to provide leadership on regulatory issues or education.

      In order for Peer Groups to be most effective, it may be useful for Peer Groups to be reconstituted
      in a way such that the basis of affiliation align with their purpose. Most interviewees suggested that
      the basis of affiliation for establishing Peer Groups should be geography (i.e., credit unions
      operating in the same area) or size (i.e., credit unions of a similar size).
                    c)     Questions for Feedback

      In providing feedback on this section, please consider the following questions.

                    Question #29: Should Peer Groups continue to exist in their current
                    form? If they should be re-organized, what should be their basis for
                    affiliation?

                    Question #30: Should Central 1 establish other forums for member
                    credit unions to network and provide feedback to Central 1.


      WATSON ADVISORS INC.                                CONFIDENTIAL                            SEPTEMBER 2010
CENTRAL 1 CREDIT UNION
GOVERNANCE REVIEW – BACKGROUND PAPER (SEPTEMBER 2010)
LEADING GOVERNANCE PRACTICES IN THE CONTEXT OF CENTRAL 1: OPTIONS, CONSIDERATIONS AND QUESTIONS      PAGE 66 OF 90


                    Question #31: Which of the following communications vehicles do you
                    think would be effective?

                    - Standing committees on items requiring continued feedback

                    - Ad hoc working groups – to tackle important issues as they arise

                    - Online communities of interest – to provide an avenue for particular
                      interest groups within the system to share common concerns,
                      innovative ideas, etc.– e.g., smaller credit unions, large credit
                      unions, special interest credit unions

                    - Regional chapters – to provide a regional forum for networking and
                      education

                    - Executive forums – for executives only, to share issues of common
                      concern, interest

                    - Director forums – for directors only, to share issues of common
                      concern, interest

                    - Weekly “Question of the Week” that gathers and disseminates the
                      system’s views on topics of interests

                    - Webinars – to provide though leadership on regulatory issues or
                      education




      10. CENTRAL MEMBERSHIP STRUCTURE
      Based on our review, there is presently no desire by members to change Central’s membership
      structure.

      11. MEMBER DELEGATE STRUCTURE
      Based on our review, there is presently no desire by members to change Central’s member delegate
      structure.

      12. FORMULA FOR AMENDING CENTRAL’S CONSTITUTION AND RULES
      Based on our review, there is presently no desire to change Central’s formula for amending the
      Central’s Constitution and Rules.




      WATSON ADVISORS INC.                                CONFIDENTIAL                            SEPTEMBER 2010
CENTRAL 1 CREDIT UNION
GOVERNANCE REVIEW – BACKGROUND PAPER (SEPTEMBER 2010)
LEADING GOVERNANCE PRACTICES IN THE CONTEXT OF CENTRAL 1: OPTIONS, CONSIDERATIONS AND QUESTIONS      PAGE 67 OF 90


      13. MEMBER MEETINGS
      Based on our review, there appears to be consensus that Central’s annual general meeting be held
      in B.C. and Ontario in alternating years and simulcast in the other location. Central may also wish to
      make the meeting proceedings available online.




      WATSON ADVISORS INC.                                CONFIDENTIAL                            SEPTEMBER 2010
CENTRAL 1 CREDIT UNION
GOVERNANCE REVIEW – BACKGROUND PAPER (SEPTEMBER 2010)
PROVIDING FEEDBACK ON THIS REPORT AND NEXT STEPS                                                  PAGE 68 OF 90



      VIII. PROVIDING FEEDBACK ON THIS REPORT AND NEXT STEPS

      Members are invited to submit their views on the issues set out in this Background Paper with a
      view to establishing a broad consensus on any reforms that could be envisaged for the next stage of
      Central 1. Members are invited in particular to provide their position with respect to the questions
      set out in Part VII.

      Several avenues are available to ensure all members are able to comment:

              You can provide comments on Central 1’s “microsite” on central1.com that is dedicated to
               the Review.

              You can participate in a series of “webinars” that will be administered through the
               “microsite” and scheduled to provide facilitated discussions on the Review. Details of the
               webinars will be circulated to member credit unions.

              In both Ontario and British Columbia, contact/Peer Group meetings will be held in October.
               A member of the Task Force will attend each of these meetings to discuss the highlights of
               the Review and to hear your feedback.

              You may contact any member of the Task Force at any time to offer a point of view or to ask
               a question. Task Force Members’ contact details are at the end of this letter. If you wish to
               speak with someone in person, any of them will be glad to hear from you.

              You may make a written submission by letter to Central 1, Attention: Chair, Governance
               Review Task Force.

      All feedback obtained through all sources will be analyzed and the results, together with
      recommendations by the Task Force, will be published in a White Paper in January 2011.




      WATSON ADVISORS INC.                              CONFIDENTIAL                        SEPTEMBER 2010
CENTRAL 1 CREDIT UNION
GOVERNANCE REVIEW – BACKGROUND PAPER (SEPTEMBER 2010)
APPENDIX B – LIST OF INTERVIEWEES                                          PAGE 69 OF 90



      APPENDIX A – GOVERNANCE REVIEW TASK FORCE MEMBERS

      Catherine McCreary Chairperson, Governance Review Task Force
      catherinermccreary@shaw.ca or (778) 988-4714

      Beth Bruesch, Peterborough Community
      beth@pboccu.com or (705) 748-4481

      Dave Craigen, First
      dave.craigen@firstcu.ca or (604) 489-2009

      Theresa Dergousoff, Grand Forks District Savings
      tdergousoff@gfdscu.com

      Terry Enns, First West
      tjenns@uniserve.com or (778) 823-2426

      Bruce Howell, Prospera
      bhowell@prospera.ca or (604) 864-6510

      Sean Jackson, Meridian
      sean.jackson@meridiancu.ca or (905) 988-4010

      Wayne Lee, Community First
      wayne.lee1@shaw.ca

      Phil Moore, Greater Vancouver Community
      pmoore@gvccu.com or (604) 298-3344

      John Morton, Williams Lake & District
      johnmorton@wldcu.com

      Jack Smit, Libro
      jack.smit@libro.ca or (519) 672-0130 ext 4326

      Kathy Stevenson, Interior Savings
      kstevenson@interiorsavings.com or (250) 869-8337

      Jack Whittaker, Osoyoos
      jwhit@persona.ca




      WATSON ADVISORS INC.                              CONFIDENTIAL   SEPTEMBER 2010
CENTRAL 1 CREDIT UNION
GOVERNANCE REVIEW – BACKGROUND PAPER (SEPTEMBER 2010)
APPENDIX B – LIST OF INTERVIEWEES                                                                         PAGE 70 OF 90


      APPENDIX B – LIST OF INTERVIEWEES


             Name                           Position                                  Credit Union
      Board of Directors
      Richard Allen           Director                                 Coastal Community Credit Union
      Daniel Burns            Director                                 Coast Capital Savings Credit Union
      Forest Drinnan          Director                                 Kootenay Savings Credit Union
      Terry Enns              Director                                 Envision Credit Union
      Bob Garnett             Appointee                                Coast Capital Savings Credit Union
      Fred Gorbet             Director                                 Credit Union Central of Ontario
      Sean Jackson            President & Chief Executive Officer      Meridian Credit Union
      Scott Kennedy           Chief Executive Officer                  Superior Credit Union
      Catherine McCreary      Director                                 Vancity Credit Union
      Ross Montgomery         Director                                 Westminster Savings Credit Union
      Phil Moore              General Manager                          Greater Vancouver Community Credit Union
      Dave Sitaram            Director                                 Credit Union Central of Ontario
      Jack Smit               President & Chief Executive Officer      Libro Credit Union
      Tamara Vrooman          Chief Executive Officer                  Vancity Credit Union
      Fred Wagner             Chief Executive Officer                  Williams Lake & District Credit Union
      Jack Whittaker          Director                                 Osoyoos Credit Union
      Other Opinion Leaders
      Gene Blishen            General Manager                          Mount Lehman Credit Union
      Jody Burk               Chief Executive Officer                  East Kootenay Community Credit Union
      Bill Burleigh           Director                                 Alterna Savings Credit Union
      Chris Catliff           President & Chief Executive Officer      North Shore Credit Union
      Dave Craigen            Chief Executive Officer                  First Credit Union
      Richard Davies          Chief Executive Officer                  Gulf and Fraser Fishermen’s Credit Union
      Theresa Dergousoff      Director                                 Kootenay Savings Credit Union
      Rod Dewar               President & Chief Executive Officer      Island Savings Credit Union
      Barry Forbes            President & Chief Executive Officer      Westminster Savings Credit Union
      Marty Gillis            Director                                 Windsor Family Credit Union
      Janet Grantham          Chief Executive Officer                  Sydenham Community Credit Union
      Kerry Hadad             Chief Executive Officer                  Your Neighbourhood Credit Union
      Bruce Howell            President & Chief Executive Officer      Prospera Credit Union
      Denis Laframboise       Chief Executive Officer                  Your Credit Union
      John Lahey              President & Chief Executive Officer      Alterna Savings Credit Union
      Doug Lang               Director                                 Coastal Community Credit Union
      Sheena Lucas            Director                                 Unity Savings Credit Union
      Ralph Luimes            Chief Executive Officer                  Hald-Nor Community Credit Union


      WATSON ADVISORS INC.                              CONFIDENTIAL                                  SEPTEMBER 2010
CENTRAL 1 CREDIT UNION
GOVERNANCE REVIEW – BACKGROUND PAPER (SEPTEMBER 2010)
APPENDIX B – LIST OF INTERVIEWEES                                                                          PAGE 71 OF 90

              Name                          Position                                    Credit Union
      Kelly Marshall          Chief Executive Officer                  Summerland & District Credit Union
      Barry Meckler           President & Chief Executive Officer      Interior Savings Credit Union
      John Morton             Director                                 Williams Lake & District Credit Union
      Lorne Myhra             Chief Executive Officer                  Heritage Credit Union
      Patrice Pratt           Director                                 Vancouver City Savings Credit Union
      Dave Stene              Chief Executive Officer                  Bulkley Valley Credit Union
      Jolanta Swiatek         General Manager                          Health Care Credit Union
      Mike Tarr               President & Chief Executive Officer      Northern Savings Credit Union
      Michael Wagner          Chief Executive Officer                  Salmon Arm Savings Credit Union
      Bill Wellburn           Director                                 Coast Capital Savings Credit Union
      Rob Wellstood           Chief Executive Officer                  Kawartha Credit Union




      WATSON ADVISORS INC.                              CONFIDENTIAL                                   SEPTEMBER 2010
CENTRAL 1 CREDIT UNION
GOVERNANCE REVIEW – BACKGROUND PAPER (SEPTEMBER 2010)
APPENDIX C – LIST OF PEER GROUPS                                                                   PAGE 72 OF 90



      APPENDIX C – PEER GROUPS AS AT JANUARY 10, 2010

       GROUP ONE (Northline)                                      GROUP TWO (Okanagan)

       Bulkley Valley Credit Union                                Enderby & District Credit Union
       Integris Credit Union                                      Interior Savings Credit Union
       Lake View Credit Union                                     Osoyoos Credit Union
       North Peace Savings and Credit Union                       Revelstoke Credit Union
       Northern Savings Credit Union                              Salmon Arm Savings and Credit Union
       Spruce Credit Union                                        Summerland & District Credit Union
       Williams Lake and District Credit Union                    VantageOne Credit Union

       GROUP THREE (Kootenay)                                     GROUP FOUR (Vancouver Island)

       Columbia Valley Credit Union                               Coastal Community Credit Union
       Creston & District Credit Union                            Cumberland & District Credit Union
       East Kootenay Community Credit Union                       First Credit Union
       Grand Forks District Savings Credit Union                  Island Savings Credit Union
       Heritage Credit Union                                      Ladysmith & District Credit Union
       Kootenay Savings Credit Union                              Union Bay Credit Union
       Nelson & District Credit Union

       GROUP FIVE                                                 GROUP SIX


       Coast Capital Savings Credit Union                         Aldergrove Credit Union
       First West Credit Union                                    CCEC Credit Union
       North Shore Credit Union                                   Community Savings Credit Union
       Prospera Credit Union                                      Compensation Employees Credit Union
       Vancouver City Savings Credit Union                        Greater Vancouver Community
       Westminster Savings Credit Union                            Credit Union
                                                                  Gulf and Fraser Fishermen’s Credit
                                                                  Union
                                                                  Khalsa Credit Union
                                                                  Mount Lehman Credit Union
                                                                  Sharons Credit Union
                                                                  Sunshine Coast Credit Union
                                                                  Vancouver Firefighters Credit Union
                                                                  V.P. Credit Union




      WATSON ADVISORS INC.                              CONFIDENTIAL                           SEPTEMBER 2010
CENTRAL 1 CREDIT UNION
GOVERNANCE REVIEW – BACKGROUND PAPER (SEPTEMBER 2010)
APPENDIX C – LIST OF PEER GROUPS                                                                   PAGE 73 OF 90

       GROUP SEVEN (Ontario)

       3M Employees (London) Credit Union Limited                 FirstOntario Credit Union Limited
       Adjala Credit Union Limited                                Food Family Credit Union Limited
       Air-Toronto Credit Union Limited                           Fort Erie Community Credit Union Limited
       Alterna Savings & Credit Union Limited                     Fort York Community Credit Union Limited
       Anishinabek Nation Credit Union Inc.                       Frontline Financial Credit Union Limited
       APPLE Community Credit Union Limited                       G.S.W. (Fergus) Credit Union Limited
       Auto Workers Community Credit Union Limited                Ganaraska Credit Union Ltd
       Bay Credit Union Limited                                   Goodyear Employees (Bowmanville) Credit
       Bayshore Credit Union Limited                              Union Limited
       Brewers Warehousing Employees’ (Hamilton)                  Grey Bruce Health Services Credit Union
       Credit Union Limited                                       Limited
       Brewers Warehousing Employees (Kitchener)                  Hald-Nor Community Credit Union Ltd.
       Credit Union Ltd.                                          Hamilton Community Credit Union Limited
       Budd Automotive Employees (Kitchener)                      Hamilton Municipal Employees’ Credit
       Credit Union Limited                                       Union Ltd.
       Buduchnist Credit Union Limited                            Hamilton Teachers Credit Union Limited
       C.N.R. Employees’ (Lakehead Terminal) Credit               Health Care Credit Union Limited
       Union Ltd.                                                 Heritage Savings & Credit Union Inc.
       Campbell’s Employees (Toronto) Credit Union                Hir-Walk Employees’ (Windsor) Credit
       Limited                                                    Union Limited
       Canada Sand Papers Employees’ (Plattsville)                Hobart Employees’ (Owen Sound) Credit
       Credit Union Limited                                       Union Limited
       Canal City Savings and Credit Union Limited                Holy Angels & St. Anne’s Parish (St.
       Cataract Savings & Credit Union Limited                    Thomas) Credit Union Limited
       CCB Employees Credit Union Limited                         Italian Canadian Savings & Credit Union
       City Savings & Credit Union Limited                        Limited
       CN London Credit Union                                     Kawartha Credit Union Limited
       Community First Credit Union Limited                       Kellogg Employees Credit Union Ltd.
       Community Savings and Credit Union Limited                 Kingston Community Credit Union Limited
       Copperfin Credit Union Limited                             King-York Newsmen Toronto Credit Union
       Creative Arts Savings & Credit Union Limited               Limited
       Croatian (Toronto) Credit Union Limited                    Korean Catholic Church Credit Union
       Crown Cork & Seal Employees Credit Union                   Limited
       Limited                                                    Korean (Toronto) Credit Union Limited
       Domtar Newsprint Employees (Trenton) Credit                Krek Slovenian Credit Union Ltd.
       Union Limited                                              L.I.U.N.A. Local 183 Credit Union Limited
       Dunnville & District Credit Union Limited                  Lasco Employees’ (Whitby) Credit Union
       Durham Educational Employees Credit Union                  Limited
       Limited                                                    Libro Credit Union Limited
       Education Credit Union Limited                             London Civic Employees’ Credit Union


      WATSON ADVISORS INC.                              CONFIDENTIAL                            SEPTEMBER 2010
CENTRAL 1 CREDIT UNION
GOVERNANCE REVIEW – BACKGROUND PAPER (SEPTEMBER 2010)
APPENDIX C – LIST OF PEER GROUPS                                                                      PAGE 74 OF 90

       Equity Credit Union Inc.                                   Limited
       Espanola & District Credit Union Limited                   London Diesel Employees’ Credit Union
       Estonian (Toronto) Credit Union Ltd.                       Limited
       ETCU Financial Credit Union Ltd.                           London Fire Fighters’ Credit Union Limited
       Etobicoke Aluminum Employees Credit Union                  McMaster Savings and Credit Union
       Limited                                                    Limited
       Federal Employees (Kingston) Credit Union                  Margosa Credit Union Limited
       Limited                                                    Media Group Financial Credit Union Ltd.
       Fiberglas Employees (Guelph) Credit Union                  Member Savings Credit Union Limited
       Limited                                                    MemberOne Credit Union Ltd.
       Finnish Credit Union Limited                               Mennonite Savings and Credit Union
                                                                   (Ontario) Limited

       Meridian Credit Union Limited                              Starnews Credit Union Limited
       Miracle Credit Union Ltd.                                  State Farm (Toronto) Credit Union Limited
       Motor City Community Credit Union Limited                  Sudbury Credit Union Limited
       Municipal Employees (Chatham) Credit Union                 Sunnybrook Credit Union Limited
       Ltd.                                                       Superior Credit Union Limited
       Nasco Employees Credit Union Limited                       Sydenham Community Credit Union
       Northern Credit Union Limited                              Limited
       Northern Lights Credit Union Limited                       Taiwanese Canadian Toronto Credit Union
       Northridge Savings & Credit Union Limited                  Limited
       Ontario Educational Credit Union Limited                   Talka Lithuanian Credit Union Limited
       Ontario Provincial Police Association Credit               Thamesville Community Credit Union
       Union Limited                                              Limited
       Oshawa Community Credit Union Ltd.                         The Fire Department Employees Credit
       Ottawa Police Credit Union Limited                         Union
       Ottawa Women’s Credit Union Limited                        The Police Credit Union Limited
       PACE Savings & Credit Union Limited                        The Toronto Electrical Utilities Credit Union
       Parama Lithuanian Credit Union Limited                     Limited
       Pedeco (Brockville) Credit Union Limited                   The Toronto Municipal Employees’ Credit
       Peek Frean Employees’ (Toronto) Credit Union               Union Limited
       Limited                                                    Thorold Community Credit Union
       Penfinancial Credit Union Limited                          Thunder Bay Elevators Employees’ Credit
       Peoples Credit Union Limited                               Union Limited
       Peterborough Community Credit Union Limited                Toronto Catholic School Board Employees
       Polish Alliance (Brant) Credit Union Limited               Credit Union Limited
       Prime Savings Credit Union Limited                         Twin Oak Credit Union Ltd.
       Prosperity One Credit Union Limited                        Ukrainian Credit Union Limited
       Provincial Alliance Credit Union Limited                   Unigasco Community Credit Union Limited
       QuintEssential Credit Union Limited                        United Communities Credit Union Limited
       R.B.W. Employees’ (Owen Sound) Credit                      United Employees Credit Union Limited
       Union Limited                                              United Ukrainian Credit Union Limited


      WATSON ADVISORS INC.                              CONFIDENTIAL                               SEPTEMBER 2010
CENTRAL 1 CREDIT UNION
GOVERNANCE REVIEW – BACKGROUND PAPER (SEPTEMBER 2010)
APPENDIX C – LIST OF PEER GROUPS                                                                    PAGE 75 OF 90

       Railway Employees’ (Sarnia) Credit Union                   Unity Savings and Credit Union Limited
       Limited                                                    Utilities Employees Credit Union (Windsor)
       Resurrection Credit Union Limited                          Limited
       Rochdale Credit Union Limited                              Victory Community Credit Union Limited
       Saugeen Community Credit Union Limited                     Wallace Barnes Employees’ Credit Union
       Scarborough Hospitals Employees’ Credit                    Limited
       Union Limited                                              Windsor Family Credit Union Limited
       Sheridan Park Credit Union Limited                         Your Credit Union Limited
       Slovenia Parishes (Toronto) Credit Union                   Your Neighbourhood Credit Union Ltd.
       Limited
       Smiths Falls Community Credit Union Limited
       So-Use Credit Union Limited
       Southlake Regional Health Centre Employees’
       Credit Union Limited
       Southwest Regional Credit Union Ltd.




      WATSON ADVISORS INC.                              CONFIDENTIAL                             SEPTEMBER 2010
CENTRAL 1 CREDIT UNION
GOVERNANCE REVIEW – BACKGROUND PAPER (SEPTEMBER 2010)
APPENDIX D – EXCERPT FROM CHAPTER 10, CENTRAL 1 BOARD MANUAL                                                         PAGE 76 OF 90



     APPENDIX D – EXCERPT FROM CHAPTER 10 – DESIRABLE DIRECTOR ATTRIBUTES


     Adapted from Key Competencies of Director Effectiveness, published by the Institute of Corporate
     Directors.

     10.2         Knowledge

     RevDate: 12/06
     Knowledge
     Knowledge of Financial Services Understands the environment in which Central operates. Understands Central’s
     Sector, Central and its Executive corporate strategy and the respective roles of the executive team in effecting this
     Team                              strategy.
                                       Understands own legal and fiduciary responsibilities, accountabilities and liabilities
                                       as a director. Is knowledgeable of best practice principles associated with board
     Knowledge of Board & Role
                                       structure and board processes. Is committed to participating in board processes. Is
                                       able to accept and support board decisions.
                                       Values and is committed to the promotion of and the success of credit unions.
     Knowledge of Credit Union
                                       Understands the role played by and the development of credit unions in British
     System and Cooperative
                                       Columbia and Canada. Understands the International Co-operative Alliance's
     Movement
                                       Principles of Cooperation.



     10.3         Analytical and Technical Skills

     RevDate: 12/06
     Analytical and Technical Skills
     Financial Acumen                  Can read and interpret financial reports.
     Group Decision-making             Can identify and diminish group think tendencies and recognize decision-making
     Orientation                       biases in board discussions.
     Process Orientation               Makes decisions and seeks outcomes by consistent application of logic.



     10.4         Thinking

     RevDate: 12/06
     Thinking
                                       Makes connections between apparently separate issues, seeing patterns, trends,
     Conceptual Thinking Skills        or relationships and developing mental frameworks to explain and interpret
                                       information. Ability to envision future state of the financial services industry.
     Independent Thinking Skills       Maintains own convictions despite undue influence or opposition.
     Open-Minded/Information           Values the diverse opinions and builds innovation on the foundation of other
     Seeking Skills                    peoples views. Thinks analytically and strategically.




     WATSON ADVISORS INC.                                 CONFIDENTIAL                                       SEPTEMBER 2010
CENTRAL 1 CREDIT UNION
GOVERNANCE REVIEW – BACKGROUND PAPER (SEPTEMBER 2010)
APPENDIX D – EXCERPT FROM CHAPTER 10, CENTRAL 1 BOARD MANUAL                                                      PAGE 77 OF 90




      10.5           Personal Style

      RevDate: 12/06
      Personal Style
                                        Based on limited information, retains a positive outlook when the group is unable
                                        to resolve an issue or reach a conclusion and is willing to make a risk-adjusted
      Ambiguity Tolerance
                                        decision, when the outcomes are uncertain. Seeks decisions that optimize the
                                        relationship between risk and reward. Comfortable with change management.
                                        Applies common sense, measured reasoning, knowledge and experience to come
      Effective Judgment
                                        to a conclusion.
                                        Trustworthy and conscientious and can be relied upon to act and speak with
      Integrity
                                        consistency and honesty.
                                        Accurately assesses strengths and weaknesses of self and of others and can
      Self-awareness
                                        manage them successfully.
                                        Invests time learning about Central, its issues and people, and the financial
      Bias to Learn
                                        services industry. Is committed to life-long learning.



      10.6           Social Style

      RevDate: 12/06
      Social Style
                                        Ensures conflict is resolved with justice and fairness in order to restore healthy
      Orientation to Resolve Conflict
                                        relationships.
      Effective Communication &         Gives and receives information with clarity, attentiveness, understanding and
      Listening Skills                  perception.
                                        Ability to influence Board members and stakeholders (management, shareholders
      Influence & Impact Skills
                                        and other stakeholders).




      WATSON ADVISORS INC.                                CONFIDENTIAL                                        SEPTEMBER 2010
CENTRAL 1 CREDIT UNION
GOVERNANCE REVIEW – BACKGROUND PAPER (SEPTEMBER 2010)
APPENDIX E – TYPICAL SERVICES OF A TRADE ASSOCIATION                                                 PAGE 78 OF 90



     APPENDIX E – TYPICAL SERVICES OF A TRADE ASSOCIATION

     The UK Trade Association Forum, an association of trade associations, recently published a best
     practice guide16 for trade associations which sets out the key characteristics that a modern best
     practice trade association should display and the nature of the services it should provide. Relevant
     excerpts from the best practice guide on the provision of services are set out below.

     Supplying information and advice

     An effective trade association:

                  seeks out information relevant to members (e.g., market trends, intelligence on overseas
                   competitors, parliamentary affairs, patents, standards) and disseminates it on a regular
                   basis;

                  arranges briefings/conferences for members on key issues that affect them;

                  initiates and co-ordinates relevant action;

                  ensures provision of sound advice on legal, employment, health and safety,
                   environmental issues relevant to its members, co-operating as appropriate with
                   employer or other organisations to ensure effective delivery of these services;

                  ensures adequate statistical information on the sector from official or other sources; if
                   necessary, collects and disseminates the information itself or commissions others to
                   provide it;

                  liaises with Government statistical office and other bodies to ensure high quality official
                   statistics are available on the sector;

     Representing members’ interests in the legislative and regulatory process

     An effective trade association:

                   has an effective mechanism for consulting members and understanding their views;

                  monitors and anticipates the legislative and regulatory process and ensures that its views
                   on matters which significantly affects its members are taken into account at the earliest
                   opportunity;

                  is proactive in shaping polices and initiatives which will benefit the sector;

     16
          Trade Association Forum Best Practice Guide for Trade Associations, 2006


     WATSON ADVISORS INC.                               CONFIDENTIAL                            SEPTEMBER 2010
CENTRAL 1 CREDIT UNION
GOVERNANCE REVIEW – BACKGROUND PAPER (SEPTEMBER 2010)
APPENDIX E – TYPICAL SERVICES OF A TRADE ASSOCIATION                                               PAGE 79 OF 90

                 puts forward to Government well-researched, cogently argued cases, and is respected as
                  a credible and authoritative advocate for its sector; and

                 is able to form and present a view on issues where there may be conflicting interests
                  among members.

      Public relations and communications on behalf of the sector

      An effective trade association:

                 promotes a positive public image of the sector, its products and services; and

                 acts as a focal point for public and media enquiries on the sector, and represents the
                  sector to the media.

      Education and training

      An effective trade association:

                 determines skills requirements for the sector, both short- and long-term;

                 works with relevant industry training organisations and other employer organisations,
                  professional institutions and training bodies to ensure identified training requirements
                  are met; and

                 promotes training standards and qualifications for the sector.

      Standards and product/service quality

      An effective trade association:

                 identifies what standards the sector needs;

                 co-operates effectively on standards development, quality and conformity assessment
                  procedures with appropriate bodies; and

                 promotes agreed standards to the sector, suppliers and customers.

      Innovation and technology transfer

      An effective trade association:

                 identifies technology needs of the sector;

                 co-ordinates and commissions pre-competitive research and technology work on behalf
                  of the sector;


      WATSON ADVISORS INC.                              CONFIDENTIAL                          SEPTEMBER 2010
CENTRAL 1 CREDIT UNION
GOVERNANCE REVIEW – BACKGROUND PAPER (SEPTEMBER 2010)
APPENDIX E – TYPICAL SERVICES OF A TRADE ASSOCIATION                                           PAGE 80 OF 90

                 promotes technology transfer; and

                 ensures appropriate technical advice is available to companies/members.

      Commercial benefits

      An effective trade association:

                 supplies goods and services that enable members to benefit from economies of scale;

                 offers commercial discounts with suppliers;

                 operates codes of practice that help companies demonstrate good practice with their
                  consumers;

                 provides adjudication, ombudsman and dispute resolution services for the public and
                  member to member; and

                 helps to negotiate industry wide terms and conditions.




      WATSON ADVISORS INC.                              CONFIDENTIAL                        SEPTEMBER 2010
CENTRAL 1 CREDIT UNION GOVERNANCE REVIEW – BACKGROUND PAPER (SEPTEMBER 2010)
APPENDIX F – EXCERPT FROM CANADIAN CHAMBER OF COMMERCE BYLAWS                                       PAGE 81 OF 90



     APPENDIX F – CANADIAN CHAMBERS OF COMMERCE BYLAWS

     OFFICERS AND DIRECTORS BY-LAW 3
     (A) Officers The Officers of the Chamber shall be the following:
     1.   The Chair of the Board; 2. The First, Second and Third Vice-Chairs of the Board; 3. The
     Treasurer; 4. The Corporate Secretary (the “Secretary”); and 5. The President and CEO.
     (B)   Directors The Board shall be composed of the following Directors:
     1.  The six (6) Officers referred to in paragraphs 1, 2, 3 and 5 of section (A) of this By-law 3 and the
     Immediate Past Chair of the Board;
     2. A maximum of thirty-two (32) Directors to be drawn from the representatives of Organization
     Members, Corporation Members and/or Associate Members of the Chamber;
     3.   At least one Board member must be resident in each province and territory of Canada and shall be
     designated as representing the province or territory in which he/she resides;
     4.   A Senior Elected Official of, and as designated by, each provincial Chamber. Each such
     provincial Director shall be entitled to designate a proxy to represent him/her at any Board meeting,
     provided that such proxy be elected an acting Officer of the provincial Chamber in question. For the
     purposes hereof, the Atlantic Provinces Chambers shall be considered a single provincial Chamber;
     5. No more than six (6) other Directors who shall be nominated by the Board (or the Executive
     Committee acting on its behalf);
     The term of office for each Director designated in paragraphs 1, 4 and 5 of this section (B) shall be one
     (1) Term with the exception of the President and CEO who shall be appointed by the Board and who
     shall remain in office until such time as the Board terminates the appointment. The term of office for
     each Director elected pursuant to paragraphs 2 and 3 of this section (B), shall be two (2) Terms, with
     one-half (1/2) of the total number of Directors being elected each Term. Directors other than the
     President and CEO shall not be eligible for re-election to the same office after serving therein for six (6)
     consecutive Terms until at least one (1) Term has elapsed.
      (C) Duties of Officers
     1.   The Chair of the Board shall preside at all General Meetings of the Chamber and all meetings of
     the Board, and the Executive Committee and shall be ex-officio member of all other committees.
     Subject to the direction of the Board, he/she shall exercise such authority and perform such duties as the
     Board shall from time to time prescribe.
     2.    The First, Second and Third Vice-Chairs of the Board generally shall assist the Chair of the Board
     and, in the absence of the Chair, one of the three shall preside at meetings and otherwise perform the
     duties of the Chair;
     3.    The Treasurer shall be the custodian of the funds of the Chamber. He/She shall cause to be
     deposited with a chartered bank selected by the Board all moneys received. No moneys shall be
     withdrawn therefrom without the signature of the Treasurer, or other person(s) designated to perform
     this duty by the Board. He/She shall report annually to the Chamber on its financial standing and
     perform such other duties as are usual for this office or as may be directed by the Board.


     WATSON ADVISORS INC.                             CONFIDENTIAL                           SEPTEMBER 2010
CENTRAL 1 CREDIT UNION
GOVERNANCE REVIEW – BACKGROUND PAPER (SEPTEMBER 2010)
APPENDIX F – EXCERPT FROM CANADIAN CHAMBER OF COMMERCE BYLAWS                                    PAGE 82 OF 90

      4.    The Secretary shall attend to the giving and service of all notices of the Chamber and shall keep
      the minutes of all meetings of the members and of the Board of Directors in a book or books to be kept
      for that purpose. He/She shall be responsible for the keeping and filing of all books, reports and other
      documents required by law to be kept and filed by the Chamber and not required to be kept by some
      other officer or agent of the Chamber.
      5.    The President and CEO shall be appointed by the Board and shall have the functions and
      responsibilities delegated to him/her by the Board, as described in the governance documents approved
      by the Board, as may be amended from time to time.
      6.    The signing officers of the Chamber shall be any two (2) of the following: the Chair of the Board;
      the Vice-Chairs of the Board; the Treasurer; and any other Directors designated by the Board; or
      anyone of the aforementioned with anyone of the staff who may be so designated by the Board. These
      officers shall sign and certify all documents and make all declarations required by law, and shall
      perform such other duties as are usual for such Officers or as may be directed by the Board.
      NATIONAL BOARD OF DIRECTORS BY-LAW 4
      (A) Governing Body
      The Board shall be the governing body of the Chamber and shall have the powers and duties
      determined by law, including those described in the governance documents approved by the Board, as
      may be amended from time to time. The Board shall be composed of the persons designated in By-law
      3(B), subject always to the following restrictions and conditions:
      1.   Designated representatives of each Provincial Chambers of Commerce may concurrently serve as
      members of the Board during their term of office, but may not be Officers of the Canadian Chamber
      during this period;
      2.     No Director shall be a paid employee of an Organization or Associate Member;
      3.    No Director shall be paid employee of Government, whether Municipal, Provincial or Federal, or
      of a service, agency or dependency thereof. For the purpose of this By-law, an employee of a Crown
      corporation which is a Corporate Member of the Chamber shall not be considered to be a paid
      Government employee.
      (B)    Nomination and Election Procedures
      The Nominating and Governance Committee of the Board shall prepare a slate for the following
      offices: Chair of the Board; First, Second and Third Vice-Chairs of the Board; Treasurer; and the
      appropriate number of other directors who shall sit on the Board. When preparing the slate, the
      committee shall ensure that the regional, cultural, gender and linguistic balance on the Board is
      representative of the membership. This slate, so prepared, shall be sent to the Organization Members
      and to each Provincial Chamber at least thirty (30) days before the Annual Meeting. Thereafter,
      Organization Members may submit additional nominations in writing to the President and CEO, up to
      ten (10) days prior to the Annual Meeting, at which time nominations will be deemed to be closed. The
      election of the Directors shall be by majority vote of the accredited delegates of the Organization
      Members present at the Annual Meeting.
      (C) Removal of Directors
      Any member of the Board of Directors may be removed from office by a majority vote of the accredited


      WATSON ADVISORS INC.                             CONFIDENTIAL                           SEPTEMBER 2010
CENTRAL 1 CREDIT UNION
GOVERNANCE REVIEW – BACKGROUND PAPER (SEPTEMBER 2010)
APPENDIX F – EXCERPT FROM CANADIAN CHAMBER OF COMMERCE BYLAWS                                     PAGE 83 OF 90

      delegates of the Organization Members in attendance at a Special Meeting duly called for the purpose.
      A Director shall cease to hold office effective with the passage of such a motion, or upon receipt by the
      Board of notice of his or her resignation; or upon death.
      A Director may be deemed to have resigned if he or she fails to attend the requisite number of Board
      meetings mandated by the governance policies of the Chamber in effect from time to time.
      A Director may also be deemed to have resigned if he or she fails to adhere to the governance policies
      prescribed by the Board, other than those set forth in the paragraph above, and does not adhere to such
      policies within ten (10) days after written notification from the Board of such non-adherence.
      Officers shall be subject to removal by resolution of the Board at any time.
      D)     Term of Office - Vacancies
      The terms of office of all members of the Board, excepting the Directors designated in paragraphs 1, 4
      and 5 of By-law 3(B), shall begin with their election and (subject to the last paragraph of By-law 3(B))
      continue for two (2) Terms or until their successors shall have been duly elected. Interim vacancies may
      be filled by the Board or by the Executive Committee subject to confirmation by the Board at its next
      meeting




      WATSON ADVISORS INC.                             CONFIDENTIAL                           SEPTEMBER 2010
CENTRAL 1 CREDIT UNION
GOVERNANCE REVIEW – BACKGROUND PAPER (SEPTEMBER 2010)
APPENDIX G – LIST OF SERVICES PROVIDED BY CENTRAL 1                                       PAGE 84 OF 90



     APPENDIX G – LIST OF SERVICES PROVIDED BY CENTRAL 1

     The following is a list of services provided by Central 1 Credit Union

     Wholesale Financial

     Financial Reporting (including Accounting, Annual Report)
     Internal Audit

     Lending
          Commercial lending (to credit unions)
          Commercial lending (to other than credit unions)
          Loan syndication
          Securitization
          Commercial second opinion service
          Sale/purchase of mortgage pools
          LOCs
          Lending Advisory Services

     Treasury
          Statutory liquidity management
          Excess liquidity management
          F/X
          Derivatives
          Index-Linked Deposits
          Brokerage Services
          Investment Advisory Services (to credit union personnel)

     Discretionary

     Advisory Services (web-based projects, banking system conversions)
     Bill payment
     Benefit and retirement services
     Business library
     Conference (Fall, HR, Treasury, Lending, wealth management, risk management, etc.)
     Financial Services (trusteeing/administering registered plans)
     Human Resources consulting
     Integrator services
     Marketing consulting
     memberDirect (Internet banking)
     Operating policies and procedures


     WATSON ADVISORS INC.                               CONFIDENTIAL                 SEPTEMBER 2010
CENTRAL 1 CREDIT UNION
GOVERNANCE REVIEW – BACKGROUND PAPER (SEPTEMBER 2010)
APPENDIX H – LIST OF CENTRAL 1 CLASS A MEMBERS AS OF JUNE 30, 2010                                PAGE 85 OF 90

       Payments Settlement – paper and electronic, DPA
       Research (competitive intelligence, economics)
       Risk Management and Insurance (master bond, property, D&O/E&O)
       Strategic planning and consulting
       Website and application hosting

       Trade

       Advocacy – Govern Relations/legal
       Affiliate relations (CUCC, CCA, Ontario Co-op Council, B.C. Co-op Association, WOCCU)
       Communications and public relations (including Enterprise)
       Compliance with Emerging Accounting Issues
       CUSOURCE
       Economics
       Marketing – Province-wide Advertising
       Member Relations (annual general meeting, peer group and contact meetings)
       National initiatives (CBOS, IFRS)
       Ombudsperson

       Administration

       Administration (CEO, Corporate Secretary, Board of Directors, board and system committees)
       Accounting
       Business resumption/disaster recovery
       Facilities Management
       Human Resources-internal
       IT
       Internal Communications
       Marketing
       Strategic planning and integration


                                                                                                  June 25, 2009




       WATSON ADVISORS INC.                                CONFIDENTIAL                        SEPTEMBER 2010
CENTRAL 1 CREDIT UNION
GOVERNANCE REVIEW – BACKGROUND PAPER (SEPTEMBER 2010)
APPENDIX H – LIST OF CENTRAL 1 CLASS A MEMBERS AS OF JUNE 30, 2010                                      PAGE 86 OF 90



     APPENDIX H – LIST OF CENTRAL 1 CLASS A MEMBERS AS OF JUNE 30, 2010
                  CENTRAL 1 CREDIT UNION - CLASS A MEMBERS
                            Capital as at June 30, 2010
                                                                            Class A        %
                                                                              Total
                                                                            Par Value:
                                     Name
                                                                              $1.00

      Vancouver City Savings Credit Union                                    32,269,602   19.85%
      Coast Capital Savings Credit Union                                     26,024,440   16.01%
      First West Credit Union                                                11,224,256    6.91%
      Meridian Credit Union Limited                                          11,126,338    6.85%
      Alterna Savings and Credit Union Limited                                4,663,350    2.87%
      Interior Savings Credit Union                                           4,447,204    2.74%
      Prospera Credit Union                                                   4,437,253    2.73%
      Westminster Savings Credit Union                                        4,324,200    2.66%
      Coastal Community Credit Union                                          3,952,553    2.43%
      North Shore Credit Union                                                3,487,563    2.15%
      Libro Credit Union Limited                                              3,031,461    1.87%
      Island Savings Credit Union                                             3,007,864    1.85%
      Gulf and Fraser Fishermen's Credit Union                                2,479,426    1.53%
      FirstOntario Credit Union Limited                                       2,466,630    1.52%
      Kootenay Savings Credit Union                                           1,974,520    1.21%
      Northern Credit Union Limited                                           1,530,591    0.94%
      Windsor Family Credit Union Limited                                     1,522,723    0.94%
      Mennonite Savings and Credit Union (Ontario) Limited                    1,514,234    0.93%
      United Communities Credit Union Limited                                 1,450,080    0.89%
      Kawartha Credit Union Limited                                           1,307,088    0.80%
      Northern Savings Credit Union                                           1,303,504    0.80%
      Your Neighbourhood Credit Union Limited                                 1,155,311    0.71%
      Salmon Arm Savings and Credit Union                                     1,140,030    0.70%
      Buduchnist Credit Union Limited                                         1,138,721    0.70%
      Aldergrove Credit Union                                                 1,078,865    0.66%
      Integris Credit Union                                                   1,041,177    0.64%
      Ukrainian Credit Union Limited                                            953,688    0.59%
      PACE Savings & Credit Union Limited                                       923,453    0.57%
      Community Savings Credit Union                                            889,068    0.55%
      Hamilton Teachers Credit Union Limited                                    778,534    0.48%
      Sunshine Coast Credit Union                                               776,023    0.48%
      Community First Credit Union Limited                                      730,654    0.45%
      Auto Workers Community Credit Union Limited                               690,188    0.42%
      Bulkley Valley Credit Union                                               592,372    0.36%
      North Peace Savings and Credit Union                                      549,737    0.34%
      VantageOne Credit Union                                                   547,885    0.34%
      Lake View Credit Union                                                    525,505    0.32%
      Sharons Credit Union                                                      503,565    0.31%
      Grand Forks District Savings Credit Union                                 493,718    0.30%
      East Kootenay Community Credit Union                                      493,528    0.30%



     WATSON ADVISORS INC.                                    CONFIDENTIAL                          SEPTEMBER 2010
CENTRAL 1 CREDIT UNION
GOVERNANCE REVIEW – BACKGROUND PAPER (SEPTEMBER 2010)
APPENDIX H – LIST OF CENTRAL 1 CLASS A MEMBERS AS OF JUNE 30, 2010                                PAGE 87 OF 90

      PenFinancial Credit Union Limited                                     478,235   0.29%
      Your Credit Union Limited                                             475,119   0.29%
      Italian Canadian Savings & Credit Union Limited                       473,468   0.29%
      The Police Credit Union Limited                                       466,387   0.29%
      Khalsa Credit Union                                                   462,456   0.28%
      Motor City Community Credit Union Limited                             462,403   0.28%
      Greater Vancouver Community Credit Union                              453,274   0.28%
      Parama Lithuanian Credit Union Limited                                449,105   0.28%
      Sudbury Credit Union Limited                                          424,775   0.26%
      Williams Lake and District Credit Union                               420,631   0.26%
      Summerland and District Credit Union                                  412,380   0.25%
      Copperfin Credit Union Limited                                        411,159   0.25%
      Prosperity One Credit Union Limited                                   401,827   0.25%
      Columbia Valley Credit Union                                          397,531   0.24%
      Nelson & District Credit Union                                        392,763   0.24%
      First Credit Union                                                    386,777   0.24%
      Revelstoke Credit Union                                               382,769   0.24%
      Hamilton Municipal Employees' Credit Union Limited                    359,421   0.22%
      Sydenham Community Credit Union Limited                               356,775   0.22%
      Northern Lights Credit Union Limited                                  347,111   0.21%
      Unity Savings and Credit Union Limited                                342,439   0.21%
      Peoples Credit Union Limited                                          334,255   0.21%
      Education Credit Union Limited                                        322,153   0.20%
      Unigasco Community Credit Union Limited                               290,194   0.18%
      Southwest Regional Credit Union Ltd.                                  278,023   0.17%
      Osoyoos Credit Union                                                  276,274   0.17%
      Ladysmith & District Credit Union                                     276,043   0.17%
      Heritage Credit Union                                                 274,665   0.17%
      Spruce Credit Union                                                   259,470   0.16%
      Ontario Provincial Police Association Credit Union Limited            256,885   0.16%
      Hald-Nor Community Credit Union Limited                               250,209   0.15%
      V.P. Credit Union                                                     246,175   0.15%
      Creston and District Credit Union                                     242,282   0.15%
      Resurrection Credit Union Limited                                     222,595   0.14%
      Kingston Community Credit Union Limited                               222,372   0.14%
      Slovenia Parishes (Toronto) Credit Union Limited                      213,563   0.13%
      Saugeen Community Credit Union Limited                                212,946   0.13%
      Prime Financial Savings & Credit Union Limited                        210,155   0.13%
      Estonian (Toronto) Credit Union Limited                               208,488   0.13%
      Hamilton Community Credit Union Limited                               201,461   0.12%
      Krek Slovenian Credit Union Limited                                   201,450   0.12%
      Superior Credit Union Limited                                         196,195   0.12%
      QuintEssential Credit Union Limited                                   193,256   0.12%
      Oshawa Community Credit Union Limited                                 190,969   0.12%
      Member Savings Credit Union Limited                                   188,747   0.12%
      So-Use Credit Union Limited                                           188,557   0.12%
      Cataract Savings & Credit Union Limited                               188,342   0.12%
      Rochdale Credit Union Limited                                         178,452   0.11%
      Twin Oak Credit Union Ltd.                                            173,406   0.11%
      Provincial Alliance Credit Union Limited                              171,492   0.11%



     WATSON ADVISORS INC.                                    CONFIDENTIAL                     SEPTEMBER 2010
CENTRAL 1 CREDIT UNION
GOVERNANCE REVIEW – BACKGROUND PAPER (SEPTEMBER 2010)
APPENDIX H – LIST OF CENTRAL 1 CLASS A MEMBERS AS OF JUNE 30, 2010                             PAGE 88 OF 90

      The Fire Department Employees Credit Union                         169,891   0.10%
      Frontline Financial Credit Union Limited                           169,353   0.10%
      Talka Lithuanian Credit Union Limited                              161,772   0.10%
      Ganaraska Credit Union Limited                                     158,243   0.10%
      Croatian (Toronto) Credit Union Limited                            150,152   0.09%
      Community Savings & Credit Union Limited                           139,384   0.09%
      Bayshore Credit Union Limited                                      130,450   0.08%
      Union Bay Credit Union                                             129,171   0.08%
      Ontario Educational Credit Union Limited                           128,288   0.08%
      The Toronto Municipal Employees' Credit Union Limited              127,438   0.08%
      Northridge Savings & Credit Union Limited                          126,798   0.08%
      ETCU Financial Credit Union Limited                                119,288   0.07%
      Enderby and District Credit Union                                  118,958   0.07%
      Fort Erie Community Credit Union Limited                           116,683   0.07%
      Starnews Credit Union Limited                                      109,281   0.07%
      Mt. Lehman Credit Union                                             99,798   0.06%
      Equity Credit Union Inc.                                            94,597   0.06%
      Espanola & District Credit Union Limited                            93,835   0.06%
      City Savings & Credit Union Limited                                 93,310   0.06%
      McMaster Savings and Credit Union Limited                           90,702   0.06%
      United Ukrainian Credit Union Limited                               89,369   0.05%
      MemberOne Credit Union Limited                                      87,200   0.05%
      London Civic Employees' Credit Union Limited                        86,931   0.05%
      Finnish Credit Union Limited                                        84,705   0.05%
      Peterborough Community Credit Union Limited                         79,502   0.05%
      Bay Credit Union Limited                                            72,453   0.04%
      United Employees Credit Union                                       69,802   0.04%
      CCEC Credit Union                                                   68,367   0.04%
      The Toronto Electrical Utilities Credit Union Limited               60,756   0.04%
      Thamesville Community Credit Union Limited                          60,624   0.04%
      Toronto Catholic School Board Employees' Credit Union Limited       59,989   0.04%
      Heritage Savings & Credit Union Inc.                                58,470   0.04%
      L.I.U.N.A. Local 183 Credit Union Limited                           57,175   0.04%
      Cumberland & District Credit Union                                  56,518   0.03%
      State Farm (Toronto) Credit Union Limited                           55,943   0.03%
      Dunnville & District Credit Union Limited                           53,379   0.03%
      Compensation Employees Credit Union                                 49,067   0.03%
      Ottawa Police Credit Union Limited                                  48,561   0.03%
      Canal City Savings and Credit Union Limited                         46,770   0.03%
      Federal Employees (Kingston) Credit Union Limited                   46,493   0.03%
      Thorold Community Credit Union Limited                              44,371   0.03%
      Food Family Credit Union Limited                                    43,415   0.03%
      Adjala Credit Union Limited                                         42,036   0.03%
      Hir-Walk Employees' (Windsor) Credit Union Limited                  41,828   0.03%
      Health Care Credit Union Limited                                    38,192   0.02%
      Kellogg Employees Credit Union Limited                              37,987   0.02%
      Vancouver Firefighters Credit Union                                 31,185   0.02%
      Korean (Toronto) Credit Union Limited                               29,977   0.02%
      Fort York Community Credit Union Limited                            29,341   0.02%
      CN (London) Credit Union Limited                                    25,971   0.02%



     WATSON ADVISORS INC.                                 CONFIDENTIAL                     SEPTEMBER 2010
CENTRAL 1 CREDIT UNION
GOVERNANCE REVIEW – BACKGROUND PAPER (SEPTEMBER 2010)
APPENDIX H – LIST OF CENTRAL 1 CLASS A MEMBERS AS OF JUNE 30, 2010                              PAGE 89 OF 90

      Anishinabek Nation Credit Union Inc.                                 24,425   0.02%
      Polish Alliance (Brant) Credit Union Limited                         23,959   0.01%
      Railway Employees' (Sarnia) Credit Union Limited                     21,673   0.01%
      Sheridan Park Credit Union Limited                                   20,509   0.01%
      Korean Catholic Church Credit Union Limited                          19,762   0.01%
      Taiwanese-Canadian (Toronto) Credit Union Limited                    19,050   0.01%
      APPLE Community Credit Union Limited                                 18,111   0.01%
      Miracle Credit Union Limited                                         17,294   0.01%
      Smiths Falls Community Credit Union Limited                          15,050   0.01%
      Victory Community Credit Union Limited                               14,554   0.01%
      Holy Angel's & St. Anne's Parish (St. Thomas) Credit Union Limited   14,284   0.01%
      Sunnybrook Credit Union Limited                                      12,975   0.01%
      Ottawa Women's Credit Union Limited                                  11,651   0.01%
      Grey Bruce Health Services Credit Union Limited                      10,854   0.01%
      Durham Educational Employees' Credit Union Limited                   10,213   0.01%
      CCB Employees' Credit Union Limited                                   8,759   0.01%
      Scarborough Hospitals Employees' Credit Union Limited                 8,670   0.01%
      Media Group Financial Credit Union Limited                            8,455   0.01%
      3M Employees' (London) Credit Union Limited                           8,144   0.01%
      London Fire Fighters' Credit Union Limited                            7,577   0.00%
      London Diesel Employees' Credit Union Limited                         6,283   0.00%
      Fiberglas Employees (Guelph) Credit Union Limited                     5,838   0.00%
      Campbell's Employees' (Toronto) Credit Union Limited                  5,686   0.00%
      Utilities Employees' (Windsor) Credit Union Limited                   5,568   0.00%
      Municipal Employees (Chatham) Credit Union Limited                    4,680   0.00%
      Southlake Regional Health Centre Employees' Credit Union Limited      4,313   0.00%
      Margosa Credit Union Limited                                          4,103   0.00%
      Crown Cork & Seal Employees Credit Union Limited                      3,915   0.00%
      Lasco Employees' (Whitby) Credit Union Limited                        3,328   0.00%
      GSW (Fergus) Credit Union Limited                                     3,127   0.00%
      Goodyear Employees (Bowmanville) Credit Union Limited                 3,109   0.00%
      King-York Newsmen (Toronto) Credit Union Limited                      3,032   0.00%
      Etobicoke Aluminium Employees' Credit Union Limited                   2,899   0.00%
      Peek Frean Employees (Toronto) Credit Union Limited                   2,875   0.00%
      CNR Employees (Lakehead Terminal) Credit Union Limited                2,846   0.00%
      Domtar Newsprint Employees (Trenton) Credit Union Limited             2,638   0.00%
      Pedeco (Brockville) Credit Union Limited                              2,470   0.00%
      Air - Toronto Credit Union Limited                                    2,258   0.00%
      Thunder Bay Elevators Employees' Credit Union Limited                 1,918   0.00%
      R.B.W. Employees' (Owen Sound) Credit Union Limited                   1,819   0.00%
      Wallace Barnes Employees' Credit Union Limited                        1,618   0.00%
      Canada Sand Papers Employees' (Plattsville) Credit Union Ltd.         1,529   0.00%
      Brewers Warehousing Employees (Kitchener) Credit Union Limited        1,010   0.00%
      Hobart Employees' (Owen Sound) Credit Union Limited                   1,004   0.00%
      Brewers Warehousing Employees (Hamilton) Credit Union Limited           942   0.00%
      Creative Arts Savings & Credit Union Limited                            100   0.00%
      Credit Union Central of Ontario                                         100   0.00%
      Budd Automotive Employees (Kitchener) Credit Union Limited                0
      Envision Credit Union                                                     0
      Nasco Employees' Credit Union Limited                                    0



     WATSON ADVISORS INC.                                   CONFIDENTIAL                    SEPTEMBER 2010
CENTRAL 1 CREDIT UNION
GOVERNANCE REVIEW – BACKGROUND PAPER (SEPTEMBER 2010)
APPENDIX H – LIST OF CENTRAL 1 CLASS A MEMBERS AS OF JUNE 30, 2010                         PAGE 90 OF 90

      Valley First Credit Union                                                    0
                                                                         162,531,527




     WATSON ADVISORS INC.                                 CONFIDENTIAL                 SEPTEMBER 2010

				
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