A vital aspect of cooperative design is democratic member ownership. Each member has one vote, regardless of share or borrowing relationships; proxies are not allowed for federal charters. This governance and accountability dynamic is both a moral and an organizational imperative.
Democracy is not merely a set of bylaws, or regulations or another organizing concept. Rather it is the interactions developed between leaders and their constituents. Member involvement is more than a democratic cooperative value; it is the essential good will on which all credit unions rely replacing startup capital from the beginning.
Voting is the practice that enshrines and enables democratic organizations to legitimize leaders’ decisions.
Voting is Front Page Today
Voting is a front-page story across the country today. State legislatures have initiated changes to restrict voting access in response to the Big Lie of a stolen 2020 Presidential election. Last week the spotlight turned to Georgia where the governor signed a law that would prevent water being given to voters standing in line.
Public outrage has grown as evidence suggests that a purpose is to limit voting access in specific segments of the community.
The CEO’s of Delta Airlines and Coca Cola, whose world headquarters are in Georgia, published strong statements opposing efforts to roll back voting opportunity.
Darren Walker the CEO of the Ford Foundation on NPR explained this change in the traditional low profile corporate leaders prefer on matters of public controversy.
“Voting is the most hallowed, important and sacred act in a democracy that its citizens exercise.” He continued: “They (the two CEO’s) stood up when it mattered. We hope we can mobilize courageous CEO’s and companies across America willing to stand for American values.”
The State of Member Voting in Credit Unions
There are two occasions when members exercise their democratic role by voting:
- The election of directors at the required annual meeting of members;
- The voluntary merger of their credit union with another.
I think in both instances the vast majority of credit union practice is not “democratic” in any meaningful sense of the term. Some failures are the result of poor organizational habits, others by deliberate design.
The Members’ Annual Meeting
Recently I received the required Notice of the annual meeting from my credit union. It read in part:
Here’s the good news about our Annual meeting: There’s nothing you need to do. . .sharing this (Notice) is a legal requirement. . .Questions will not be taken during the meeting. . .there is no new business to discuss. . . only matter requiring a vote of members is approval of the 2020 Annual Meeting minutes. . .directors nominated (3)will be approved by acclamation of the Board. . .And this closing comment: We’re in this together. . .Our commitment to improving our members’ experience remains at the heart of what we do. Signed: President/CEO
This is not an invitation to participate, vote or become better informed about the cooperative the members allegedly own. Instead, members should stand aside. Even the required meeting notice is portrayed as just a legal disclosure, like the rate on a loan or savings account.
The problem is deeper than this caricature of democratic governance. The fundamental strength of credit unions is their member relationship. Member loyalty, initially via a common bond, and subsequently, lifelong patronage, created the credit union that exists today.
Sustaining these core relationships is essential for credit union success.
Members instinctively understand that the cooperative model is supposed to be different even if they cannot provide a precise legal distinction. Treating members just like customers of a bank forfeits the most important advantage of credit unions in a market economy: the user and owner are one and the same.
Some credit unions use the annual meeting as a daylong opportunity to go beyond the legal formalities by providing workshops on member financial issues. Sometimes the event is capped by a meal or with an outside speaker to celebrate the success of past year.
If credit union leaders fail to respect their member-owners’ role in this annual event, will members respond when leaders ask them to stand up for an issue needing their support?
Voting in Mergers: A Case Study
All voluntary mergers of sound credit unions require a majority of members voting to be approved. This critical requirement is often treated as an administrative exercise with boards routinely encouraging members to sign off on the enclosed ballot. Rarely do vote totals exceed single digits in this required member approval to give up a charter.
The merger Special Meeting Notice frequently lacks any specific data for members to compare their current situation with future promises. The reasons cited are general: “an expanded network of branches,” “improved operational efficiency,” “ the possibility of better rates on loans and shares,” and “we believe we should provide even better service due to additional investments in talent, technology and new products.”
The above are the verbatim explanations in a 2020 member merger Notice. The vote in this merger, as certified by the Board Chair and Secretary, was 32,494 in favor and 0 opposed. NCUA’s Director of Supervision for the Western Region acknowledged receipt of this certification and formally approved the combination effective June 1, 2020.
This merger of the $867 million Andigo Credit Union into Consumers Cooperative gave the members’ collective reserve of $107 million (12% net worth) to the continuing credit union. No member dividend; only vague promises.
However, Andigo’s senior managers were all given continued employment contracts from two to five years. Their compensation over and above what they were earning includes:
CEO: $226K in early payouts of deferred compensation plus $357K in higher bonus;CFO: $150K higher; CLO: $165K higher; COO: $167K higher: VP Business Services: $74K higher.
This façade of members’ having voted approval is a perversion of democracy. The members were provided no reasons supported by data. No plan. The process is ripe with conflict-of-interest. It is an abdication by those with fiduciary responsibility covering up blatant self-dealing. A scheme of enrichment and a moral swamp blessed by NCUA.
A Challenge to the Integrity of the Cooperative System
Every institution, every system, every country that follows a democratic model faces the challenge of constant renewal. Democracy at any level of society is not self-perpetuating. Leaders and circumstances change. Commitment to self-rule requires constant practice and vigilance.
The ever-present temptation for those in authority to exploit their current position for self-advantage is a facet of human character. A credit union’s legacy bequeathed through generations of member loyalty is wiped out in an instant by self-serving leadership.
Two decades ago, the charlatans of Wall Street were proclaiming the need for credit unions to convert to mutual, and possibly, bank charters. They asserted the credit union model was an anchor slowing growth and opportunity. Almost three dozen credit unions took the bait. Today, only one survives as a mutual.
Two outspoken credit union CEO’s led the fight against these false prophets of doom. Bucky Sebastian and Jim Blaine did not win every fight; they were even sued for their cooperative gallantry. But they had the courage to speak out and act when others were reluctant to challenge peer CEO’s.
Their efforts emboldened others who wanted to do the right thing. However, the reality then is the same now. “The incentive today for corporate leaders in America discourages courage,” explained Darren Walker in his NPR interview on the reluctance of business CEO’s to speak out.
To address these patterns of democratic failure will require CEO’s, directors and leaders to assess their own practices of member governance. Is the annual meeting just a perfunctory chore or is it a chance to renew and honor the member-owners’ role?
Mergers should be based on facts and logic with a documented plan, not rhetoric and vacuous future promises. Every other area of credit union oversight needing regulatory approval (alternative capital, derivative authority, FOM changes, et al) requires more documentation than the decision to give up a sound charter via merger.
The century-long evolution of the cooperative credit union system in the midst of an economy driven by competition and private ownership is a remarkable accomplishment. To paraphrase Albert Einstein when asked about religious belief, “it is not that one thing is a miracle but that the whole thing is a miracle.”
To see this miracle of human and community enterprise crumble piece by piece through self-destruction is a tragedy. One that only today’s leaders can reverse.