Month: April 2019

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Treasury Secretary Mnuchin Says Financial Regulatory Consolidation Not an Administration Goal

As the opening speaker at the FDIC’s Fintech conference on April 23, Treasury Secretary Mnuchin was asked by an attendee if consolidation of the financial regulatory agencies was an administration objective. He replied that it had been evaluated early on in the administration but was no longer an issue.

If the topic of regulatory consolidation arises, NCUA might be the most vulnerable of the independent agencies. A precedent has been set by the Savings and Loan industry in which FSLIC was merged into the FDIC and the OCC became the chartering, supervising authority for federal charters. The FHLB system was “spun off” the S&L system in the late 1980s when its charter was opened to serve all mortgage related financial providers.

When asked to comment on the recent OMB suggestion that all independent agency rules be submitted for review prior to issuance, Mnuchin suggested this was not an area for him to comment.

So the question remains: to whom is the NCUA answerable to, if anyone? Or does independence imply free of all accountability?

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The Entrepreneurs: Attracting the Next Cohort of Credit Union Leaders

Every business from Coca-Cola to Ford Motors faces the same marketplace reality. How does successfully serving one generation of customers transition to the next? Will consumers have the same tastes? Have the same transportation needs? Respond to similar messages?

At the George Washington University’s New Venture Competition, the guest speaker portrayed a different challenge in attracting today’s students.

Tim Hwang graduated from Princeton in 2013 and is today the CEO of Fiscal Notes a technology application for select areas of legal case research.

He described his age as the entrepreneurial generation. Students across the country are demonstrating widespread interest in building startups to change the status quo.

Today major universities see this student interest. From Ivy league schools to smaller liberal arts, university administrations are sponsoring new ventures and rewarding winning startups with cash prizes and offers of future help.

A sample of winners from GW’s recent contest are illuminating, even inspiring. From the winners list students are creating technology, engineering, social, and network business startups serving almost every area of society.

I was aware of this growing university commitment because one year earlier a group of freshmen who wanted to start a credit union for GW students, became one of the nine finalists out of hundreds of startup proposals in the new competition final.

These students have significant faculty and formal university endorsement. They have researched and met with numerous credit union vendors willing to help, often at little or no initial expense.

The most difficult part is the regulatory approval. They plan to spend the next three years of their college careers to this startup, and then leave it as a legacy for future students.

In addition to specific capital requirements, NCUA’s drawn out, detailed approval schedule would discourage even the most gung-ho organizers.

In the last decade there have been fewer than ten new charters. If this is the pace of new entries, will the cooperative model miss recruiting this generation of members?

As a member does your credit union actively serve startups? How does it encourage entrepreneurs of all ages seeking to create new solutions for their communities?

The questions are important. For the mindset to seek out and encourage member innovators, may be an important indicator of management’s ability to renew the credit union’s organizational design.

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Fate and Destiny: Do Credit Unions Share a Sense of Destiny?

Critical outlooks for the future of the credit union system are pervasive. From forecasts of dramatically smaller numbers, an “outdated” charter, or numerous existential threats such as cybersecurity risks or disruptive fintech innovations, negative outlooks are easy to find.

In contrast, a speaker at a recent conference asserted: “America today needs credit unions more than ever.” This comment referred to the person’s belief in credit unions’ destiny, that is what cooperatives can do for members and communities at this point in history.

The observation was based on the growing data about significant unmet member financial needs. More importantly, the judgment was grounded in a belief in the destiny of cooperative financial ownership.

I saw this same belief in a changed future in George Washington University’s eleventh New Venture Competition finals last week.

Nine startups were chosen from over 216 student teams competing for cash prizes of over $200,000 plus in kind legal, office space and mentoring resources of another $600,000. More than 500 students from all eleven faculty had competed for this final.

One winner was chosen from each of three business categories: technology, social and new venture tracks. The winners were:

  1. Last Call–an online marketplace to enable businesses to discount surplus food and provide more affordable meals—thus reducing food waste.
  2. Dulceology–an online bakery that uses social media to create its markets as well as pop-up shops to serve special events such as conventions.
  3. Plast-ways–an engineering consortium of plastic eating microbes designed to extend the life of landfill waste disposal technology.

These three startups each received $35,000-$45000, plus the opportunity to receive experienced start up support or even venture capital. Their common hope was a passion to solve a problem or to change the way a traditional market was being served.

These entrepreneurs were driven by destiny-the desire to change the status quo to something better.

As a member, I ask do credit unions still share this idea of destiny?

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Fate and Destiny: The Member-Credit Union Relationship

Fate is the circumstances in which we often find ourselves. Sometimes externally imposed and other times self-imposed. Fate thinking is often packaged in negative forecasts when commenting on present trends.

Destiny is the capacity to go beyond legacy circumstances or present constraints. It is a form of faith, a way of seeing and seeking a different future.

Is there a difference between fate and destiny for characterizing an individual’s or an institution’s role in society?

Religion offers a singular example of the difference. Jesus’s fate was to die on Good Friday. His destiny was Easter morning. Something happened that first morning that transformed fate into one of the most powerful forces driving society since that event.

If we confuse these two ways of thinking about situations, we run the risk of missing life’s most satisfying opportunities.

It’s easy to look at present or past circumstances and see the coming recession, disruptive competition, or lack of adequate resources as fated. It’s another to see what comes as a matter of destiny.

For members the question is whether their credit union offers a relationship based on a person’s fate. Or will it support the member’s desires for a different, better financial future?

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Lessons from the For-Profit Sector: Corporate Governance

Following the financial crisis and the periodic failure of public companies (e.g. Enron), the expectations of corporate governance have steadily increased. This increase of mandated activities has occurred through both legislation (Dodd-Frank) and rule making by oversight bodies such as stock exchanges.

The enhanced expectations of corporate oversight provided by elected directors has focused on independence of directors and the structure of board governance.

The following is a partial list of the governance practices one company (Southwest Airlines) has adopted:

  • Qualifications of directors
  • Independence of directors
  • Size of Board and selection process
  • Board leadership
  • Board meetings, agendas and other materials
  • Director responsibilities
  • Executive sessions; communications with non-management directors
  • Board self-evaluation
  • Etc. for ten more policies

Today most credit unions adopt a standard set of bylaws which ordains some of the policies listed above. But beyond the formal requirements, how much policy substance is added? Should boards have a Code of Ethics ? Should there be requirements for directors’ share ownership? How is compensation and expense reimbursement defined?

A critical first step in the oversight of the board’s primary employee, the CEO, is its own self-governance ability. Without this awareness, the tendency is for the board to default to management by the CEO, thus reversing the intended governance relationship. When was the last time your board policy book was evaluated for relevance? What standard was used to determine sufficiency? Are the policies available for members who might wish to know how governance is practiced?

These are questions public companies must routinely disclose. Should members expect less?

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A Strategic Paradox?

Frank Diekman, founder of CUToday.info, recently posed this question: As credit unions continue to get larger, are members getting smaller?

How would you respond if a member asked this of your credit union? Let me know in the comments below.

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Learning from the For-Profit Sector: the CEO Pay Ratio

Cooperatives’ unique design uniting the member-owner as the single focus for corporate performance can provide some protections versus the potential conflicts of interests that every public corporation must balance between shareholders and customers. Regulation and rules for public companies are intended to promote this balance. One way this is done is through mandatory public disclosures in annual reports.

These disclosures may also provide insight about how cooperatives can better account for their stewardship of members’ interests.

I will be sharing a series of examples that credit union leaders may consider as we enter the annual member meeting season.

One example is the “CEO Pay Ratio”, a disclosure required of public companies by the Dodd-Frank Wall Street Reform and Consumer Protection Act. This SEC rule requires that the relationship of the median of the total of all annual compensation of all employees be compared to the total annual compensation of the CEO.

The following is the disclosure for the CEO of Southwest Airlines (page 42, 2018 annual report):

  • The total annual compensation of the company’s median employee was $78,494;
  • The total annual compensation of the company’s CEO was $7,726,455; and,
  • The ratio of the total annual compensation of the CEO to the median employee’s total compensation was 98.4 to 1.

Would such a comparison be useful for monitoring credit union CEO compensation trends? For members to have prior to the annual meeting whose primary purpose is to approve the election of the Board which oversees the CEO’s role? Let me know what you think in the comments below.

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What is Life’s Work?

At the recent St. Patrick’s Day concert at the Kennedy Center, the Irish Ambassador was invited to share a ritual he follows. Every day the ambassador tweets out a poem written by an Irish author. He chose to read one by William Butler Yeats (1865-1939). By coincidence I saw this Yeats poem in a display case celebrating National Poetry Month:

The Choice

The intellect of man is forced to choose
perfection of the life, or of the work,­
And if it take the second must refuse
A heavenly mansion, raging in the dark.
When all that story’s finished, what’s the news?
In luck or out the toil has left its mark:
That old perplexity an empty purse,
Or the day’s vanity, the night’s remorse.

As I transition to “just a member” status this philosophic statement raised two questions. Are life and work (The Choice) truly separate? And, how hard is it to make something worthwhile that will last?

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Lamentations and Aspirations

Contemplation during Tenebrae

How does one retain hope in the face of seemingly contrary system ambitions, apathy for engagement beyond immediate responsibilities, and the all-consuming worship of credit union institutional success? Where is purpose in a time of national agendas dominated by topics such as cannabis legislation, CECL accounting, cybersecurity and secondary capital? How do member circumstances become a priority that supersedes traditional product messaging?

It seems the unceasing focus on credit unions’ performance constantly overwhelms the uplifting of member hopes.

How can cooperative leaders better balance competitive requirements and corporate vision? The resolution may line in a brief phrase from Leonard Cohen, the poet and composer, who wrote:

Ring the bells that still can ring
Forget your perfect offering
There is a crack, a crack in everything
That’s how the light gets in.