So You Want to Change the World

This is the season for graduation addresses.  A congratulatory pep talk by a distinguished speaker to students ending their time of institutional learning for real world lessons.  The following are excerpts from a 2016 commencement message by Eva Braun a faculty member at St John’s college in Santa Fe, New Mexico.

To clarify the credit union relevance, I might title this portion:  Local in Worldly Coordinates, Grand in Human Scope

“All over the country, speakers who accepted the invitation to talk to you on this last and first day soon began to agonize about a fit subject for this great moment So we call for aid on whatever power will come. As for me, I remembered a recent conversation, with one of our graduate students. I’ll transcribe it from my memory, abbreviated.

Student: “How will my St. John’s education help me to do what I want?”

Me: “And what’s that?”

Student: “I want to change the world.”

Me: “For the better?”

Student looks totally abashed; I’m a bit abashed as well, for being a smart-aleck. But he took it well, and the ensuing conversation was illuminating to both of us.

At this point, I want to assure you that at a thousand schools this May speakers will be alluding to this conversation. They will bid the graduates “Go forth and change the world,” or, “Go forth and make a difference.”

A language Tutorial

I say, let us have a little last-moment language tutorial. Let us, Johnnie-fashion, analyze the sentence “I want to change the world.”  I, in all candor, will try to show that “I want to make a difference, I want to change the world” aren’t very sensible sentences. So here goes.

This announcement has three parts: first, I want; second, to change; third, the world.

So, first, “I want.” “I want” is about me, and if what I want is to be a “difference-maker,” it’s about my self-satisfaction. Recall yourselves as Juniors, when you struggled with Kant on morality. No one expected you to get it all. As regards Kant, this much may have stuck: He thinks that doing right is not doing what you want, but what you ought; and that, in fact, the only proof of your doing as you ought is that it hurts some, (so) that your mere wanting is thwarted. So when it’s the world I’m planning to change, maybe “I want” should yield a little to “I should.”

Second, “change.” Why exactly “change”? There are many other modes of action beside this current mantra. There’s protecting and maintaining, activating and fulfilling, restoring and reviewing. Talk of mere change is just terminally vague babble—vague promise and vague threat. Its antidote is specific thinking expressed in adequate language. That very requirement, thoughtfulness and its articulation, was an explicit aim of the Program, to which you devoted the last four years.

Third comes “the world.” It’s a big space in which to thrash about. In choosing it as the venue of my action, I’ve pretty much committed myself to the silliest of all maxims of action—another current mantra. It goes: Only if x happens, can y occur. Filling in the most common variables for this formula: “Only if the world changes radically, can little kids learn to love reading,” in other words, never guaranteed. The implied lesson is: Forget about “the world”—stay local and avoid stymieing preconditions.

What is Good?

And now the usually missing fourth part to the saying “I want to change the world,” namely, “for the better.” Your four years with us were, I think, above all intended to give you a head start in answering for yourself the most crucial of human questions: What is good? For making anything better without a view of good seems to me just groping in the murk of possibility.

. . .you’ll recognize two of the ways that the Program and the College were meant to help you with making the here better now. One was that we hope you would find in your reading the elements of your own firm view of what is good universally and therefore what is better in particular. This crystallization is surely still in process for many of you. Much more will go into it than what you learned here, but that learning will be the informing reference of your experience. That ability to specify the universal is the second of the two ways our Program readied you for great deeds.

Now, in the spirit of that specificity, I owe you an example of what I think of as actual action, local in worldly coordinates but grand in human scope.

Local Action-Grand in Human Scope

Most of you will, I’d guess, work in an office at some point. Proper offices have water coolers, Xerox-rooms, galleys with hot-plates. People spend as much time there as they dare. So post a note: “Would you be interested in reading some poetry together during lunch hour? I propose Wallace Stevens’ ‘Sunday Morning.’ Copies are on the counter. Let’s meet next Wednesday in Room 666. Bring your lunch, I’ll bring cookies. Expertise inessential. Signed…” If no one turns up, which is unlikely, keep trying. Something will come to pass.

Before I finish, I need to say that what I’ve done here isn’t quite right: I’ve told you what’s what and you’ve sat silent, except perhaps for an occasional guffaw. All my points were left unquestioned—deep metaphysical maxims such as cookies being essential to meetings and expertise inessential to poetry, and large practical claims, such as local happenings having more actuality than global commotions. Don’t let it happen to you very often, though these occasional one-way ritual performances are also necessary to human life.

So then: I wish you a life of genuine action and of actual happening, a life of as much happiness as you know what to do with—and a bit more. Go forth, find a place you can love, and help to make it “what it was always meant to be.” Go forth and change the world—for the better.”


A Terrific First Quarter & MiraculousTwelve Months for Credit Unions

One year ago March 2020, a national emergency and economic lockdown was declared to deal with the Covid 19 pandemic.

What followed was the sharpest one quarter GDP contraction and highest jump in unemployment in history.  No one knew how long or how serious the total disruption of all areas of human activity would be.

Today the recovery trends in the economy and society at large are well underway.  Credit unions are both examples of this incredible turnaround as well as enablers who assisted members through this period of  uncertainty.

Last week’s Trend Watch analysis of March 31, 2021 data by Callahan and Associates, was positive on every front for the cooperative system. Buoyed by a first quarter GDP gain of 6.4%, major balance sheet growth results were in the high teens.

The 19.1% annual asset growth was the fastest in memory, propelled by a 23.1% share increase.  This share deluge led to a 57%, 12-month leap in the investment portfolio. All 64 slides in Trend Watch can be viewed here.

What About Capital Ratios?

The following slide shows the most recent five years relation between capital growth, ROE, and assets.

The divergence between these two growth trends from their long-term historical relationship resulted in a small year over year decline in the net worth and capital ratios. Overall the industry remains very well reserved with a 10% net worth ratio and over $200 billion in total capital.

The Cooperative Capital Formula: Revenue Flows and Retained Earnings Grow

This small change should not concern for two reasons listed below. For the first 90 years the cooperative measure of reserve adequacy was based on a “flow” concept for capital creation. That is credit unions were required to set aside 10% of revenue until the capital/risk assets ratio reached 4%. Then this formula was reduced to 5% of revenue until a 6% ratio was reached.

When PCA was implemented by the 1998 Credit Union Access Membership Act, this measure of capital adequacy was changed from a “flow” measure to a “stock” concept imposed by Prompt Corrective Action ratio benchmarks. A 7% net worth ratio is now rated well capitalized.  Revenue was taken out of the capital assessment.

The first reason:  as shown below the “flow” into retained earnings measured by ROA exceeded 1.03% for the quarter. This is the first time since December 2012 this rate of net income has been reached. Credit unions have no access to outside capital. Retained earnings, their source of capital, is once again trending upward.

The second reason: credit unions managing 98% of the systems assets meet or exceed the 7% well capitalized PCA benchmark.

Many slides in the Trend Watch deck demonstrate sound trends with delinquency lower, tons of liquidity, and refinancing volumes and lower fees helping members save money. An outstanding first quarter for what appears to be a breakout year for the economy.

Credit union performance with their focus on members’ well being are an untold story of this recovery.   Hopefully this extraordinary collective outcome will be recognized by all as affirmation of cooperative design and purpose.

A Case Study of an Industry Collaborative Initiative

 Earlier this year I described a trifecta opportunity for credit unions.   The three challenges were:

  • Tapping the entrepreneurial interest of the current college generation;
  • Supporting new credit union charters to plant  seeds for future relevance and growth;
  • Providing leadership to prioritize opportunities for those left behind (DEI) due to historical inequalities.

An example combining all three elements was Gary Perez’s efforts as CEO of USC Credit Union to create a project to charter student led credit unions at the 107 historically black colleges and universities across the country.

Recently I found the following program that would seem to be an ideal way to meet all three opportunities.   And maybe jump start Gary’s efforts.  It reads as follows:

 Student Internship Program 

The OCDCU 2000 College Student Summer Internship Program was the most successful to date. The program creates partnerships between low-income designated and other credit unions (large or small) and college juniors and seniors to train and develop a pool of potential future credit union managers. The students selected are business, finance, or marketing majors. 

 With technical assistance grant stipends, the 2000 summer intern program matched 29 college student interns with 58 different credit unions. Stipends provided the interns totaled $72,500 in 2000 compared with $67,500 in 1999 for 27 students. 

Source:  pg. 16 NCUA 2000 Annual Report

 Wouldn’t a relaunch of this joint initiative now be a powerful signal of the credit union system’s responsiveness to today’s special challenges? Especially in an increasingly tight labor market?





A Cooperative DEEP In Formation

A CEO recently shared his response to the question: What are you optimistic about for the future of credit unions?

My optimism lies with the “human spirit” in us all.  We believe that our communities need new solutions.  We believe that local is the best place to start new initiatives that count on people as the capital.  We believe that volunteers are our most critical resource.  We believe that we must forge relationships as the bond for problem solving.  We believe we are the catalyst to securing our families and communities futures.  

This answer was inspirational, but was it realistic?  Then I learned of the efforts to launch a new coop called The Deep

It is a worker-owned grocery cooperative dedicated to bringing to the East Oakland community fresh organic produce and general food items, education on a healthy food choice, and local control.

The Year-long Effort to Launch

I talked with one of the four lead organizers Erin Higginbotham.  All are college graduates with backgrounds in education, technology, food and restaurants and one with a food coop.  They live in the community they serve.   The effort evolved from conversations with their neighbors including a survey and an Instagram post seeking participants.

A model for their vision was Mandela Grocery Cooperative serving West Oakland.  In 2020 the organizers began training with this established firm.   From that experience the group tested their products at farmer’s markets.   In December, they began crowd funding to raise capital.   Almost $100,000 was collected from grants, community donations and local support to begin the first steps of their independent launch, an online grocery service operating from a commercial kitchen. Additional plans include converting a shipping container into a functional store prior to finding a brick-and-mortar location.

The produce listed on their web site is from local farmers.  Through trial and error, they have learned how to meet the community’s needs while also trying to educate the buyers on healthy food choices.  They have begun filling online orders and are seeking a site for a store/ community center that will be welcoming and inviting.

Why a Coop?

I asked why the group choose a coop structure.  Erin replied “it was all about our neighborhood, to spark entrepreneurs and to give everyone a voice.  We want to empower and impact the whole community.” Only one organizer had experience with this option.

They work with a local branch of Provident Credit Union which has always been “super responsive and helpful.”  By the end of the year, they want to expand the number of East Oakland families served, attract more people to better food options, and promote local participation in this alternative economic system. DEEP is an acronym for “Deep East Oakland Empowering People.”

Acta Non Verba, a local 501 C3, has been a sponsor.   “Actions not words” is a fitting description as these organizers learn by doing and visiting other coops.

The Key to this Effort

This startup demonstrates the critical nature of the “human spirit” at the heart of heart of every coop and a key factor in credit union expansion.  Will they succeed in their efforts to create a Mandela grocery clone in East Oakland?

I go again to the words of the CEO above:

Everyday new leaders want to step up, seeking new ways to address old problems.  They do so in the face of pressure, in the face of economic times, in the face of community challenges, and not based on the personal financial motivations.

It is far different, far harder for both the volunteer and the needy consumer-owner searching for their community’s best options than it is for paid professionals to run an existing solution.

Coop professionals must support these people’s efforts with the balance, creativity, and respect for their drivers as artfully as we can.  

His response to the question of whether this startup, or any coop, will endure is: People are why I am optimistic about the future.





Should NCUA Be Helping with the Country’s Immigration Surge?

The unprecedented flow of persons seeking to enter the US in the Southwest is at very high levels. This is a situation  that concerns many people of goodwill.

Should NCUA leadership be seeking full time staff to go on temporary assignment to help out?

If confirmed that this volunteer recruitment effort is underway, the situation raises important questions. These include:

Who at NCUA approved this request and under what authority?

How does the effort assist the credit union system which funds all the agency’s activities?

If NCUA can spare these “volunteers” for months at a time, how critical is their role in the agency to begin with?

If this is a proper action, why is it being done with no transparency?

The Cooperative Way

Finally, if the situation is so urgent and just, why not ask credit unions to participate?

When Hurricane Katrina devastated New Orleans, the agency opened its office to volunteers and former employees to man telephone lines answering member calls and coordinate industry recovery efforts.

Few would turn away when asked to help one’s fellow human beings. But NCUA should follow the appropriate authority when asked to deploy its “independent” agency resources. More importantly, as a government agency such actions should be done with full public disclosure.

The Collaborative Advantage

On many occasions credit unions have  provided collaborative solutions to strengthen their system.  The resource sharing and mentoring programs as well as the credit union funded NCUSIF and CLF configurations are some examples of agency-industry joint efforts. Volunteer capital is a cooperative advantage and value.

Increasingly however, NCUA leaders have pursued unilateral actions without industry participation or, when asking for comments, do what was proposed despite substantial objections.

Individual volunteering is the American spirit at its finest, whether the Peace Corps, AmeriCorps, or thousands of non-profit and charitable endeavors.  It is an unfortunate precedent for leaders in an independent agency to privately promote an activity, apart from its mission.  And for senior leaders  to then solicit their employees to take part.

The agency must be transparent; this is not simply an internal matter.  For it deploys personnel hired and trained with credit union’s fund for activities unrelated to the agency’s purpose. NCUA is not a private business or organization, but a congressionally defined institution.

Moreover, should something go awry, NCUA employees should have the confidence their good intentions are known and supported by the industry they chose to serve.

There is a right way and a wrong way to request staff to volunteer no matter how worthy the cause. Doing so secretly impedes necessary, open discussion and could bring unintended consequences tarnishing positive intentions.





For Mother’s Day

The Lanyard by Billy Collins

The other day I was ricocheting slowly
off the blue walls of this room,
moving as if underwater from typewriter to piano,
from bookshelf to an envelope lying on the floor,
when I found myself in the L section of the dictionary
where my eyes fell upon the word lanyard.

No cookie nibbled by a French novelist
could send one into the past more suddenly—
a past where I sat at a workbench at a camp
by a deep Adirondack lake
learning how to braid long thin plastic strips
into a lanyard, a gift for my mother.

I had never seen anyone use a lanyard
or wear one, if that’s what you did with them,
but that did not keep me from crossing
strand over strand again and again
until I had made a boxy
red and white lanyard for my mother.

She gave me life and milk from her breasts,
and I gave her a lanyard.
She nursed me in many a sick room,
lifted spoons of medicine to my lips,
laid cold face-cloths on my forehead,
and then led me out into the airy light

and taught me to walk and swim,
and I, in turn, presented her with a lanyard.
Here are thousands of meals, she said,
and here is clothing and a good education.
And here is your lanyard, I replied,
which I made with a little help from a counselor.

Here is a breathing body and a beating heart,
strong legs, bones and teeth,
and two clear eyes to read the world, she whispered,
and here, I said, is the lanyard I made at camp.
And here, I wish to say to her now,
is a smaller gift—not the worn truth

that you can never repay your mother,
but the rueful admission that when she took
the two-tone lanyard from my hand,
I was as sure as a boy could be
that this useless, worthless thing I wove
out of boredom would be enough to make us even.

From:   The Trouble with Poetry by Billy Collins

Recommended by Joseph P Mclaughlin, Jr.


Mistake-aholics Anonymous

The end was quick.  Like all hidden executions. The 60-year-old Indianapolis Newspaper FCU was conserved on January 14 and liquidated on March 31.  The $6.3 million credit union served 1,143 members.  In December 2019 it reported 10% net worth and a breakeven operation with 1% delinquency.  One year later the credit union reported a $990K loss primarily due to a $741K loan loss provision expense.

NCUA gave no explanation except the “unsafe and unsound practices” mantra in the January 2021 press release.  Why is this minor event worthy of any further attention?  A local credit union, Elements Financial, took over “most” of the members’ savings.  NCUA retained “a portion of members’ shares” and all the credit union’s loans.   The loans are being collected by a small private company, Statebridge in Colorado.  An unusual arrangement: why did Elements not also collect the loans? And only a portion of savings?

What’s to be gained spending more effort to understand this credit union’s demise?

Why Transparency Matters

The most powerful action NCUA can take is to close a credit union.  The agency has refused to say how or why it acts in all such cases.   By not providing any detail the press then speculates about circumstances using the last call report. Or more common, the true story comes out years later as a result of legal actions against bad actors. The agency vacuum creates an impression of covering up its own supervisory shortcomings.

How can a small, easily examined credit union that has been in business for over 60 years suddenly fail and lose every cent of its capital?  The lack of specific facts and any NCUA person willing to take public responsibility suggests there is something to hide.  No “body cameras”– Vice Chairman Hauptman’s suggestion at the April NCUA board meeting–for these closings.

NCUA’s silence reminds me of a college student’s essay addressing the difficulty people and organizations face when something goes wrong.  The brief paper was titled Mistake-aholics Anonymous and reads in part:

“Ah, mistakes. Such an ugly word that carries quite the negative connotation. However, if you ask people if they regret their mistakes or would go back in time to change them, more often than not the answer is no. So why do we not like mistakes?

And why is retrospect so important to be able to see the true beauty in these unfortunate circumstances?

As a human I am inevitably a member of mistake-aholics anonymous; mistakes simply aren’t a choice; however, what you do about them is.

One learns that mistakes are essential to one’s evolution. But – like in AA- the first step is to recognize the problem and admit we are powerless to prevent them, so start there.

A second challenge is failure to ask others for help. However, a person must be ready to listen. Part of the journey with mistakes, is coming to these realizations personally and then seeking assistance.  Step 2 in AA: come to believe and accept that we need strengths beyond our awareness and resources.

Another obstacle, I can’t seem to stop taking things personally. Whenever someone criticizes or critiques something I have done, I feel as though they are criticizing or critiquing me.

Fast forward to last week when I received non-ideal feedback from my manager. I noticed feeling demotivated and internalizing that I was not good at my job. However, the keyword here: I noticed. I relate this recognition in AA step 5: admitting to ourselves the nature of our wrongs.

             Mistakes are important. They force us to re-think previously held beliefs and assumptions as well as encourage us to explore alternatives and pivot.

How easy would it be to just live life and never mess up? Never be wrong? I think we can all agree life would be boring. We learn by experience that mistakes are natural.

They are what it means to be human, yet we often shun those who own their mistakes. When that occurs, everyone loses. Mistakes owned, offer insight for making all things better.”

Action Required

No one expects perfection from NCUA supervision.  But as described by this student, it is reasonable, even necessary, for a responsible person or firm to learn from its failures.

Today NCUA just buries its mistakes.  Indianapolis Newspaper is just another incident hidden in a pattern of silence.  How can a credit suddenly suffer huge losses on a portfolio years in the making?  There are no postmortems.  Institutional failures become accepted, a way of life, a cost of doing business.

Is anyone at NCUA willing to enroll in Mistake-aholics Anonymous?  The entire credit union system could benefit if NCUA followed AA’s step one: recognizing it has a problem.

Police body cameras  were necessary when  transparency was avoided and after-the-fact explanations  proved self serving.   Is this the accountability process NCUA wants imposed on its most critical supervisory activities?


Reader’s React to Posts

On NCUA’s 7-Year Investment at .90%

Where are the NCUA Capital Market Specialists when you need them? Did the NCUA shock test this $600 million investment in a +/- 100, 200, 300 bps environment?
For credit unions this is a required a first step. When I was a CEO, examiners forced my peers to sell long term investments at a loss after NEV shock tests. Appears such assessments are not applicable to the NCUA. This is not a smart investment in this phase of the economic recovery cycle. Who made this decision at Duke Street.? What is their ALM experience? Why is there no public discussion of this at the April Board meeting? Where is NCUA getting their investment advice?

Would the persons responsible lock up their personal savings at a rate of .90% fixed for seven years? Commonsense says absolutely not. So why lock up credit union’s collective savings this way?

Investing in treasuries is not rocket science. When this $600 million dollar launch crashes in value soon, it is credit unions that will pay the cost. What is the end game? This $600M will have a huge decline in value as rates move up in the coming months or years.

The NCUSIF has a backup plan in the NCUA. When the NCUA needs to raise more revenue, they play the A word…Assessments. This is why my CEO peers and I read NCUA as Not Credit Union Accountable.   Never  Shocked. Just Disappointed.   Stuart+Perlitsh

On Watermelon Oreos

Can I interest you in some Marshmallow Peeps Pepsi?  Esteban Camargo

 On Berkshire’s Annual Meeting

I grew up in Nebraska and have attended the annual conference in person.

The comment about two 90+ year-olds holding court, taking unscripted questions live, for over four hours is an example I have used several times during presentations to CU CEOs and board members. I have a great photo of 12,000 attendees in the downtown arena with Warren and Charlie sitting at a modest table on a makeshift stage.

After the first annual meeting I attended, I walked away with great appreciation for how Warren could take complex concepts and distill them down to a few key points and tell it with a story people can relate to. . .

The takeaway I see for credit union CEOs and board members  is as follows:

1) Financial services is a system of numbers and tradeoffs. It is imperative the board elevate and self-educate to a level of acumen that can appreciate not just the numbers, but the nuance of the numbers. It’s difficult to effectively govern otherwise and can lead to risk avoidance (rather than risk management), inefficient deployment of resources, and at its worst, an incorrect assessment of reality.

2) Financial services is a system of numbers and tradeoffs (Part II). It helps when the CEO has enough mastery of the numbers not to just explain them, but to teach their subtlety to an audience that has not worked in financial services or does not have a significant amount of their net worth tied up in a financial institution. If a CEO wants a role model, watching Warren work his craft is a great place to start.

3) When 1 and 2 listed above are not present, it leads to distrust among the parties. The CEO will over-simplify things to gain trust, but when a simple explanation won’t satisfy a complex problem, trust may be eroded.

4) When 1 and 2 listed above are present, greatness follows because attention is shifted to higher order items, built upon a foundation of trust and understanding.  Mike Higgins

 On Jim Blaine’s Inaugural Address

“Because I could never accept that in America those who had the least and knew the least should pay the most for financial services.”   Well said!

I’m planning to create a Wikiquotes page about cooperatives. Wikiquotes is a sister project of Wikipedia, that collects quotes from people and about topics. This is going into the page! Leo Sammallahti

On Rex Johnson, Player Coach

I read the Player-Coach article early this morning, which caused a bit of reminiscing about Rex. In 1978, fresh out of college and having moved from downstate Illinois to Elgin to find work in a period of high unemployment and high interest rates, I entered the HFC management training program. That is where my path intersected with A. Rex Johnson for the first time. As chronicled in your article, he worked his way up to District Manager at Household, a position responsible for approximately 10 branch offices in Illinois and Indiana. The Elgin branch was a stop in my training period in 1979 and in 1980, Rex promoted me to my first branch manager assignment. He would leave a short time later for the position with the state. Rex would always look at the glass as half full and despite the high interest rates charged, the exceptional delivery of customer service enabled this company to thrive for many years.

Fast forward to 1985 and a job opportunity for a lending supervisor position was posted at what today is Healthcare Associates Credit Union. I applied and received an interview and thoroughly prepared for that. As we began the interview, Dan Vaughan, the general manager of the credit union was very casual and asking more questions about my personal interests than professional qualifications. Possibly half-way through the interview it became apparent that the job was mine if I wanted it. This puzzled me as beyond a resume, he didn’t know me from Adam.

He went on to tell me that he too had been a branch manager at HFC and worked for Rex. Positive feedback from a person who would become one of the greatest influencers in the credit union industry provide the break that brought me to our industry 36 years ago.

The first time I heard Rex speak to a large credit union audience was at the Illinois Credit Union League convention, possibly in 1985. He gave the same message about lending that we constantly heard at HFC, except now we had the advantage of extremely competitive rates and were the good guys, not a lender of last resort. Over the years it was always enjoyable to listen to his presentations and his message would serve as reminders of the block and tackling steps we need to consistently perform to build strong and lasting relationships with our members. I’ve done my best to teach people throughout my career, but nobody did it like Rex Johnson, with his charisma and passion that was always genuine.

Thanks for reminding people of the journey and impact one driven and good man has had on our entire industry.       Jim Dean, CEO, Affinity Credit Union

America’s Most Responsible Credit Unions

A headline like that would certainly get lots of attention. That is exactly what got mine: only it actually read, America’s Most Responsible Companies.

The January 14, 2021 article was based on an analysis by Newsweek and Statista. Companies were ranked on the three criteria of the ESG corporate model, environmental, social, and governance. The process included a pre-screening of a large universe of firms, as well as in-depth corporate social responsibility (CSR) reviews, and a consumer survey.

Companies were given a score out of 100 and ranked accordingly. With a score of 93.2, HP placed first as America’s most responsible company. The top 20 included nine tech firms. General Motors received the top score for social as the only firm with women as CEO and CFO.

The full methodology used by Newsweek is described here. The initial pool of over 2,000 companies was narrowed down to 400 which were then evaluated in a four-phase process. One phase was a survey of 7,500 U.S. consumers plus a review of the companies’ published key ESG performance indicators.

Is a Credit Union Responsibility Analysis Needed? Possible?

The purpose of the ESG ranking is to provide another, vital perspective on corporate performance beyond the traditional financial and stock price benchmarks. This recent model has been a lens used increasingly by large investors such as pension and mutual fund managers. Many companies are now publishing these additional indicators to enhance investor and public confidence in their business plans.

The primary rankings published on credit unions today are by size (assets, members, branches, etc.) or financial ratio performance—ROA, growth, or net worth.

Recently, like the corporate world, there are efforts to publish DEI statistics-diversity, equity and inclusion–for the credit union’s staff and board. This data has become more important as all organizations respond to systemic inequalities increasingly called out by events. Yet this focus is not unique for coops.

As cooperatives, credit unions have positioned themselves as more socially aware and responsible than traditional financial providers. Rate comparisons and how much members save annually are examples of financial value. But should there be more than simple financial markers if this unique design is doing something significant versus competitors?

A Cooperative Scorecard

Almost a decade ago CU*Answers, a CUSO 100% owned by credit unions, developed a cooperative scorecard providing a self- assessment created using the seven cooperative principles. The complete template is available here. The CUSO offered $50 for credit unions to send in their scores to encourage participation.

The scorecard’s purpose was to “operationalize” and measure the seven principles and to assist credit unions who wanted to enhance their cooperative advantage.

The form even included a scoring summary ranking:

Your Score How You Did
More than 104 points Congratulations, you are a shining example of a true cooperative.
80-103 points Not bad, not bad at all. You are doing well.
58-79 points Need to work a little more on your core cooperative values.
Step 1: find someone who scored higher than you and ask how they did it.
Less than 58 points You are a cooperative, right?

Today some of the key performance questions under the seven cooperative criteria might need updating, for example in responding to Covid. Note that none of the measures are based on financial performance. Rather the scores are indicators of cooperative conduct.

The Need for Cooperative Measures

With credit union performance today graded almost solely by financial outcomes, the result is an erosion of differences with other financial options. The cooperative “brand” is blurred. Member purpose becomes just “a little better financial deal.”

Most importantly, the advantages of the cooperative charter are minimized, becoming just a 7-part marketing slogan on lobby posters. When in fact the customer-owner relationship has been pivotal in creating the competitive advantage credit unions enjoy today.

A scorecard, thoughtfully designed, is more than a form to create another set of rankings. It should revitalize leaders’ attention on what makes credit unions unique. These coop measures can then translate into key performance indicators in business plans.

NCUA’s CAMEL ratings focus almost exclusively on financial performance, even when rating M, or management. This lens does not include critical measures of cooperative success, which in turn underwrite most financial outcomes.

This measurement gap is an opportunity for the system’s leaders to really “open eyes” to the credit union difference. And as the corporate headline above suggests, demonstrate each credit union’s “responsible” cooperative role within the American economic system.

Takeaways from Berkshire’s Annual Meeting on May 1st

While Warren Buffett’s success and reputation is built on the capitalist market system, some of his observations overseeing his 60 plus companies are also spot on for the credit union system.  Especially so for NCUA and the half dozen or so organizations that play lead roles by size or function.  Some remarks I noted:

  1. The biggest risk to a firm: Picking the wrong CEO.  Any organizations come to mind?
  2. The most common problem for firms: The myths people have about their own organization.  They are passed on from one leader to the next.  The CEO does not want to critique is predecessor. Subordinates are afraid to speak up.  These myths lead to enormous errors.  What myths are repeated defending otherwise dubious proposals in cooperative organizations?
  3. The key to success in running a business: You must be in love with your business to be good at it.   Know any leaders out of “love” with credit unions?
  4. The economy is red hot: Not a price sensitive economy right now (supply chain disruptions and scarcity shortages).  A lot more inflation is going on than realized.  How will this affect interest rates?
  5. Lessons from last year under covid: You have to be a learning machine.  Right now is very confusing.  We’re in uncharted territory in government policy.
  6. Their thoughts on firms providing free online trading apps for new retail stock market investors (the gamification of investing): They are preying on people’s propensity to become addicted to gambling.   Just like state lottery systems which took over the numbers games and pushed the Mafia aside.  These activities are immoral.  An interesting word, immoral.   Any credit union activities that fall under this umbrella?

What Credit Unions Can Learn

Buffet (90 years old) and his partner Charlie Munger (97) were on TV live for over 4 hours, no breaks, taking questions on all subjects before the 20-minute scripted formal annual meeting.

I believe if a CEO and senior leadership were to similarly interact with their members in a virtual annual meeting, the example could increase credibility, confidence and trust in the credit union.

Buffet believes his primary responsibility is to his shareholders, to manage their investments well.  He admits mistakes.  His logic is transparent.  His confidence in his organization is second only to his fundamental optimism about America.

This link is a summary of the meeting Q&A on Yahoo Finance.   Watching even 30 minutes of this multi- hour questioning will show that the Oracle of Omaha is about more than his businesses.   What if credit union leaders publicly affirmed a similar belief in their performance and the cooperative system at this year’s  virtual annual meetings?