Month: August 2024

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Creating Community with Shared Joy:  The Pub Choir 

There is a unique singing/sharing experience traveling across America and Europe this summer. It is the opposite of a Taylor Swift concert.  In these events, the audience is the show.

These ad hoc communal sings are led by an Australian musician, director and composer Astrid Jorgensen.

Her one night gatherings are called The Pub Choir.   It demonstrates the capacity of one person to help people discover and express their collective joy.

Learning to Sing Together

Here is how one person described her experience:

A few weeks ago, I walked to a small neighborhood arts venue and sang along with 250 of my neighbors at the sold-out event called “Pub Choir.” It was not in a pub, and we were not in a choir, but all in attendance now feel famous because the performers recorded it and put it on the internet. Even months later, I am still bubbling from the collective effervescence of learning a three-part harmony version of “The Best,” famously covered by Tina Turner.

(It’s not about you, but about us)

“Australian choral director Astrid Jorgenson set the stage by telling us to put our phones away. They would be filming us. We were the show. She had us belt out the chorus from “What’s Up,” by 4 Non-Blondes to figure out which voice part to stand with. Before she told us what song we would be singing and recording that night, Astrid said, “You might not know this song. You might not even like this song. But tonight, it’s not about your preferences. This is about us, singing together.”

“Astrid taught everyone their lines with a glorious low-budget PowerPoint presentation. We were instructed to follow our color-coded lines that were accompanied by memes to remind us of the style we were going for.  . .Astrid would sing the line for us, then have us sing it back to her.

(a holy call. .. and response)

“It was a holy call and response with subtle correctives like, “I see you moving a lot and working hard. I like your version, but I am wondering if you might want to try my version?” When she heard that a few of us “got it,” she winked at us saying, “I see you elementary school music teachers out there! Fabulous! Now squeeze the hand of someone near you and whisper to them, ‘We’ve got this’ and make sure they follow you for the slippery part.”

“. . .she moved us into three voice sections telling us we could check in with our friends during the bathroom break. We were not to stand with the section where we might have been placed in other choirs in the past, but where we felt most confident belting it out.

“Singing passionately was the goal. When we sang the line, “Tear us apart? Nooo … ” we were to look like our heart was being poured out like a waterfall. To direct us she danced across the stage, flipping her hair, shimmying, and occasionally pausing the rehearsal to have us all erupt in cheers for one section that finally got the slippery part right.

My friend Julianna and I squeezed hands with our neighbors, poured out our hearts, cheered, and shimmied on command. When Pub Choir ended, we hugged strangers while complimenting them on their passionate singing and practically skipped home.”

Creating Community with a Sense of Unity

I love this example of creating a community of shared effort from complete strangers.  The result is  a moment  of pure joy.   Ok, it is only for 90 minutes and maybe just one or two songs.  But it shows the power of leadership in a common effort-even when some believe they have no singing voice at all.

This is an example of a Seattle video from a Pub Choir singing Tina Turner’s The Best.  Makes you want to skip out of work and go sing.    Singing makes you feel awesome.

(https://www.youtube.com/watch?v=xlc7sHBQ4Oo)

Music at This Year’s Political Conventions

Music is at the center of many communal events. At the Republican convention last month, the following musical motivators were part of the experience:

Among the offerings: Kid Rock performed his 2000 song “American Bad A–”; “Real American” by Rick Derringer; and Lee Greenwood performed “Holdin’ a Good Hand” in person.

Here is my suggestion for the Democratic convention taking place next week.  It is the 1971 release byThree Dog Night- Joy to the World:

(https://www.youtube.com/watch?v=M9uoq9gfeL0)

 

 

 

 

 

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Democracy Takes Work-Especially in a Cooperative

President Eisenhower:

“Dictatorial systems make one contribution to their people which leads them to tend to support such systems—freedom from the necessity of informing themselves and making up their own minds concerning…tremendous complex and difficult questions. But while this responsibility is a taxing one to a free people it is their great strength as well—from millions of individual free minds come new ideas, new adjustments to emerging problems, and tremendous vigor, vitality and progress…. While complete success will always elude us, still it is a quest which is vital to self-government and to our way of life as free men.”

This year’s election cycle is putting the issue of what American democracy means front and center.  Some believe it is about majority rule-the winner calls all the shots.  Others have a more nuanced view of participation, diverse representation and compromise.

One of the ways citizens in America learn about democratic practice is its use in the many civic and public organizations in which we all participate:  churches, local elections, volunteer and nonprofit groups.

Credit unions are designed to be democratically governed.  One person, one vote. The primary means for how this is process is exercised is at the members’ annual meeting and the election to fill board openings.

Practice Without Substance

In a conversation yesterday with a long-time credit union member ( joined at age 5 in 1966) he said he never saw an actual election.  Instead, as he learned,  the Chair would appoint a nominating committee led by the Vice Chair.  That committee selected just the number of persons as there were open seats. The candidates were all familiar faces from the existing board or “associate board” members.   The test was loyalty-would they “go along to get along” with the rest of the board.   The tenures of several of these board members extended over three and four decades.

This description would be familiar to many credit union boards.  The election process is managed so as to perpetuate the incumbents or their fellow travelers.   It is democratic in neither practice nor theory.  In the end the credit union is led by persons who believe in their special skills to remain in office for as long as they wish.

The justification for this self-perpetuating board selection is the idea of a “leadership class” like trustees, that should not have to answer to voting owners, let alone face a contested election.  This is especially so when external factors suggest satisfactory organizational performance.  Why tinker with success?  Aren’t we doing what is expected, and leading successfully?

However when a minority, no matter how talented, takes control of a credit union board and the selection process, the responsiveness and accountability of the institution to its member owners is at risk.  Which means the future of the credit union is not in the hands of the members, but of a small group who eventually may tire of the task and decide to merge—not find new leaders.

A Case Study of a Contested Board Election

Breaking this cycle of self-appointment without member choice is tough.  Democracy is not easy.  However there is an example unfolding at State Employees Credit Union (SECU) in North Carolina now it its second year of a contested board election.

In later posts I will cover the election procedures and efforts to provide alternatives to the traditional board self-nominations and election by acclamation.

The future of credit unions may depend on recovering their democratic roots and practices.  SECU is an example that even very large and powerful cooperatives can change when members engage.

Without the annual accountability of true elections, the “leadership class” will be tempted to just continue on its chosen course and priorities.  That isolation is one reason why the number of credit unions has fallen from 6,000 to 4,600 in just the past seven years.

These are not “safety and soundness” failures.   They are failures of leadership and morale.   And it all depends on having a passive, uninvolved member that will act as a customer and not an owner-especially at the annual meeting.

The Ultimate Goal of Democracy

Democracy is about something more than  elections.  Elections ultimately undergird freedom.  As Richard Rohr has stated in another context: But it’s a freedom we must choose for ourselves. It is almost impossible to turn away from what seems like the only game in town (political, economic, or religious), unless we have glimpsed a more attractive alternative. It’s hard to imagine it, much less imitate it, unless we see someone else do it first.

Future posts will report on how this effort is proceeding at SECU.

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Transparency: An Advantage When Properly Understood

Spent time earlier this week talking with people who work with a DC non-profit 501 C 3.  It is called Everyone Home DC.

It was incorporated in 1967 by an interdenominational group of religious leaders called the Capital Hill Group Ministry.  For almost six decades the organization has focused on the housing needs of those at the bottom of the socio-economic ladder.

Its Vision:  We support the holistic needs of individuals and families at risk of, or experiencing homelessness.  Housing is our starting point

The group’s website has five components, similar to many credit unions’ content, in an About Us section:  Our Story, Board, Staff, Careers and Funding and Reports.

I clicked on the Funding and Reports tab and found links to the latest five years of Annual Reports, complete external CPA audits, and the IRS 990 filings for nonprofits.  These reports provided an open and full picture of the group’s financial status, trends, how they are funded, and objective measures of their  community impact.

Overcoming shortages of shelter for low income individuals is one of the most intractable problems for every major city in America. The group’s reporting and disclosures give the reader confidence that the leaders know what they are doing and are accountable for their outcomes and responsibilities.

That confidence is vital.  For this nonprofit’s modest budget relies on government grants and private donations.  It is vetted by its funders. In 2023, the organization announced that the Bezos Day 1 Families Fund had granted them their first-ever multi-year, multi-million dollar funding.

Trust from Transparency

Transparency is critical to Everyone Home’s credibility.  it is a non-profit, totally dependent on external funding and engaged in an area of social need where work is never finished and endgame always distant.

It is an example credit unions who are dependent on member and community support might learn from.  Especially the posting of the latest five years of IRS filings, CPA audits and Annual Reports.

A  long-term practice of open and full communication with a group’s supporters is vital when hard times or unexpected challenges arise.  A foundation of trust is built through transparency.  It becomes the intangible capital (goodwill) that can be the difference between a successful recovery or a demise.

Sweeping a Problem Under a Cobalt Rug

Contrast this expectation with the events in an August 7th  Credit Union Times story of the recent merger, without a member vote, of the $67 million Creighton FCU (Omaha) with the $1.2 billion Cobalt Federal Credit Union in Papillion, Neb.

The Times’ story reports the credit union’s net worth ratio went from 9.09% at March 2024 to a negative 10.95% three months later at June’s quarter end.

In announcing the merger Cobalt’s explanation for the consolidation, per the Times, was the July 31 retirement of Creighton’s President/CEO Thomas C. Kjar.

One does not have to be a financial analyst or even a credit union member to know there is something dreadfully wrong for a deterioration of almost 20% of a credit unions assets in just 90 days.

Creighton was a federal charter, filing four quarterly reports per year and presumably subject to NCUA’s annual exam oversight.  It was organized in 1951 and operated five branches with 20 employees.

At June 30, 2024 its balance sheet of $43 million in loans and $23 million of investments appears normal, and not much different from a year earlier.  The allowance for loan losses is just $277K.

The one unusual item is a $12.5 million under miscellaneous expense (compared to $15K a year earlier).  This one time significant amount suggests a newly discovered financial hole due to misappropriation or other sudden loss event. That one entry accounts for most of the $13.5 million YTD loss, which eliminated all of Creighton’s net worth.

How can such a catastrophic loss occur under the agency’s supervisory nose?   I can find no NCUA announcement of this forced merger.  Silence undermines confidence in the NCUA’s examination and supervision competency.  It suggests there is something to hide.

When problems of any kind are swept under the rug, there is no learning by either credit unions or the agency from whatever went wrong.  This forced merger transaction deserves more explanation  than the FAQ’s of Cobalt FCU, the rescuing party.  An accounting is due for Creighton FCU’s members and to the credit union community about what happened and NCUA’s role.

Now Creighton’s 10,000 member-owners are left in the dark about their institution’s oversight and why NCUA  ended its existence.  Such an abrupt, unilateral and forced action can only increase  skepticism of a government agency about  its openness and responsibility to the public.

In the example of Everyone Home, transparency is critical to carrying out its mission.   At NCUA the opposite seems to be the norm.

NCUA has an obligation in  its supervisory role to provide its funding constituents the circumstances about any major failure.  This is the kind of event the agency is supposed to prevent.

The published call reports are the only “facts” available on this $67 million credit union’s closing. They scream for an explanation of this sudden 90-day catastrophic loss.

The agency’s failure to address its actions at this most critical junction in a credit union’s life, poses basic questions about its competence, not just its transparency.

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How to Start Riots Throughout a Country

You may have read about the multiple riots in Great Britain following the stabbing deaths of three children in Southport.  How did this horrible crime lead to instant countrywide rioting and attacks on mosques, immigrant shelters, minority shops and stores, and ultimately the police?

The Five Minute News is a free daily pod and YouTube broadcast by Anthony Davis, a British journalist who lives in the US.

This episode is a case study of how disinformation is created and then spread by both foreign media (Russian  Today-RT) and domestic extremists.

Disinformation is intentionally designed to spread anger, fear and chaos.  It is false.  The initial creator in this instance is quickly identified and the post taken down in an hour.  But it had already spread throughout the world by social media provocateurs in Britain and elsewhere with this completely made up, totally false, account of the person in custody.

The Role of Musk and X

This broadcast also documents Elon Musk’s role in spreading the false information and augmenting it with other fake documents.  He ultimately adds his prediction of civil war in Britain.  The country’s far right extremists all amply these apocalyptic predictions.

This is the full broadcast, ten minutes rather than five!

(https://www.youtube.com/watch?v=uEuJ3V1yzzQ&list=PLGNXhNKeaOmWgTQ3T7oA5ioACZvSB5cRC&index=2)

It should be a mandatory watch for anyone concerned about the state of public discourse and the role of social media in the US and around the world.  And the malicious intentions of Elon Musk.

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NCUA’s Spreadsheet Merger FORM: What the Agency Gets and Member-Owners Don’t

NCUA has published a dynamic excel spreadsheet to be used with merger applications. It is titled Merger Related Financial Comparison.

Its purpose as stated in the first sentence: This comparison form can assist you in determining if you are required to disclose any increases in compensation due to the merger in the member notice. You are not required to submit this form in your merger application; however, you are encouraged to do so. The information you provide may help NCUA process your request more efficiently.  (underlining added)

Here is a copy of the form.  If it is too small to read, this is a link to a PDF.  There is no NCUA number on the form or other information, such as when issued.

What the Form Says

The instructions about  what compensation must be disclosed in the Notice of merger is answered with a question: Would the payment have occurred if the credit union were not merged?

The Form’s directions and simple examples plus the Agency’s encouragement to submit illustrate its intended use.  The spreadsheet is a tool to help credit unions game the system to conform with NCUA’s requirement that only increases of 15% and greater from all compensation need be disclosed to members in the official meeting Notice.

This limitation is completely contrary to the intent of Chairman McWatters’ when proposing the rule in 2017:

“the agency should require all merger solicitation documents to provide, without limitation, a discussion of any change-in-control payments and other management compensation awards and agreements, and that such disclosures are written in plain language and delivered to voting members in a reasonable time prior to the scheduled merger vote”  (Source:  Time to Talk about an Ugly Truth in Mergers.)

In virtually all mergers when  the institutional’s legal charter ends, all existing employment contracts, benefits, retirement plans will cease to exist.  Change of control clauses or immediate vesting options may occur in benefit plans.  The continuing credit union will rewrite employment contracts and conditions, including bonuses, responsibilities, incentives and benefit packages.

To fulfill McWatters’ intent, all of these renegotiated terms should be provided to owners whose approval is required for the changes to be effective.  The logic is simple.  NCUA requires this information for its due diligence and approval, shouldn’t the persons who own the assets and must vote on their future  management, also have this same data?

The Data NCUA Receives

The form requires that all current compensation  indirect compensation, leave, deferred compensation and early payment of retirement benefits and other financial rewards be entered on the form for the CEO and four highest paid managers.

Member owners receive none of this data.

NCUA requires that all these same areas be reported post merger.  The Member-owners receive none of this detail.  The only required disclosure per this Form is a single dollar amount if all these post-merger payments exceed 15% of the executive’s total prior to the merger.

Take the example of CEO compensation already entered on the form.  The CEO’s salary increases from $760K to $850K after the merger.  (A typical CEO merger salary?!) Adding more leave, this total increase of $92,500 (12.17%) does not have to be disclosed to members.  It is below the 15% threshold.  The member-owners receive none of this calculation or data.

Another completed example is directors’ and supervisory members’ compensation .  In this case the directors received $1 before the merger and $10,000 post.  But this change does not have to be reported. It falls below the minimum change of $10,000.  Another executive example shows a 400% change that is not given members,  but a 21% increase that must be.

In all these examples, the member-owners receive none of these calculations.

The form states clearly what is required and highly recommended  to be sent NCUA:   

“Required per Part 708b of the NCUA Rules and Regulations: Board minutes for the merging and continuing credit union that reference the merger for the 24 months before the date the boards of directors of both credit unions approve the merger plan.“

“Highly Recommended: This comparison form and any employment contracts, retirement contracts or documents, executive session minutes, presentations, or any other documentation supporting the compensation amounts entered in the form.

The member-owners receive none of these required and highly recommended submissions of compensation and board minute details.

Why There Was a Merger Rule

When proposing the rule in 2017, NCUA staff analyzed many recent mergers and concluded that a significant portion were influenced by incentives paid to executives.

It is a human reality that those in charge of managing money can be tempted by self-dealing.  In the early years of state charters, prior to passage of the FCU act, some state laws prohibited managers and boards from borrowing from their own credit union.  Instead “central credit unions” were organized to meet those needs.

The NCUA call report today collects the aggregate number and amount of  Loans outstanding to credit union officials and senior executive staff (Account 956).  Section 4 Investments paragraph 11 shows the total of the credit union’s securities to fund employment benefit and deferred compensation plans including SERPS and other insurance.

Finally all state chartered credit unions are required to file IRs form 990 annually which details all executive and board compensation.  Federal charters have no such requirement-yet.

These disclosures are all  efforts for transparency about the compensation executives receive as stewards of others’ financial assets.

Smoothing the Paths to Temptation

Transparency in total compensation is critical to preventing the ever-present danger of acting in one’s self interest versus that of the member-owners

NCUA now withholds from member-owners, who must approve the life or death their chater, the most critical information NCUA requires for its approval in the first place.

Denying Members The Rights of Ownership

NCUA has taken over the role of the member owners.  Members are left totally in the dark about the scale of compensation commitments being entered into.  Instead of providing members with this same vital information, NCUA offers a spreadsheet to enable  credit unions to manipulate the very minimal disclosures now required.

NCUA is explicit about the facts it requires to allow the transaction to proceed.  But the members receive none of this vital information.

NCUA has preempted members’ right to make an informed choice.  The merging credit union does not have to “sell” its compensation plan outcomes to the members.  It just has to “sell” the terms to NCUA in private.

The credit union self-dealing that brought about the 2017/2018 merger rule update has not ended.  It has just been totally obscured and more critically, facilitated by NCUA.  The Agency seems powerless to understand and correct its supervision deficit over what is taking place.

But the credit union industry sees clearly.   When nothing meaningful is required to be disclosed, nothing is forbidden.  The members are kept in the dark. The ever-present temptations to cash out will only grow.

In case after case the member-owners lose control over their enormous financial legacies; they also have lost all their future choices.

These combinations will inevitably short change the credit union system’s options going forward.  They are wounds on the soul for why credit unions were created in the first place.

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Friday Outtakes

Ukrainian refugee professional artists, living in Wales, received a small grant to present this puppet and shadow theater show in England.

(photos by Nadiia Khomaziuk)

A 2026 National American Celebration-How Will Credit Unions Participate?

This historical milestone may be a perfect opportunity for credit unions to celebrate their contribution to the creation of economic democracy in the United States.

The America 250 Celebration’s mission is “To commemorate and celebrate our 250th anniversary with inclusive programs that inspire Americans to renew and strengthen our daring experiment in democracy. The shared experiences of America 250 will have ignited our imaginations, elevated our diverse stories, inspired service in our communities, and demonstrated the lasting durability of the American project.”

The five themes suggested for this commemoration by cities, towns and organizations are: The Unfinished Revolutions, Power Of Place, We The People, American Experiment, and Doing History.

All five are certainly illustrated by the cooperative system’s role in America.

The Skill to Listen in Public Debate

Silence involves listening, for one cannot argue without first listening to one’s opponent. As the writer of Ecclesiastes reminds us, “The words of the wise are heard in silence, more than the cry of a prince among fools.”

Thankfully, Solomon has not yet called and asked for his wisdom back.  (Frank Bruni)

An Upside Down View of the Economy

. . .maybe the economy isn’t booming despite higher rates but rather because of them. It’s an idea so radical that in mainstream academic and financial circles, it borders on heresy. But the new converts (along with a handful who confess to being at least curious about the idea) say the economic evidence is becoming impossible to ignore. By some key gauges—GDP, unemployment, corporate profits—the expansion now is as strong or even stronger than it was when the Federal Reserve first began lifting rates. So, with that in mind, here’s how the theory works.  (From Bloomberg)

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Ugly Truths: Mergers, Kickbacks and Apostates

“The Ongoing Corruption of the Cooperative Credit Union System’s Ideals in America”  (with edit updates on August 9)

I have previously observed that  it doesn’t take an illegal activity to destroy a firm, an industry, or even bring harm to the broader economy.

I believe the credit union system is at a turning point.   Since the passing of NCUA’s merger rule in 2017/18, the amount of asset takeovers (AKA voluntary mergers) has only accelerated.  Some think this is a good thing.  I believe numerous examples prove otherwise.

According to Credit Union Times the numbers are increasing. The majority of second quarter 2024 merged assets in this latest update have nothing to do with safety and soundness issues:  The NCUA approved 46 mergers during the second quarter of 2024, up from the 26 consolidations that received the green light to consolidate during the first quarter and the 36 approved mergers during last year’s second quarter.

As discussed below some credit union CEO’s are “gaming” regulatory disclosure requirements to hide their significant personal benefits. Credit unions acquire sound, longstanding healthy credit unions through private deals which benefit and enrich the selling executive team.  The members are given nothing but future promises and empty rhetoric, most frequently, “bigger is better.”

The transactions increasingly contradict  any common sense understanding of financial equity or fairness for members.  The information provided members and approved by NCUA is meaningless for any considered owner decision.

The cooperative system’s unique purpose and public reputation are at risk.  These deals will be  seen as just more of the same wheeling and dealing as for-profit banks.   At some point these ongoing patterns of self-dealing will become the object of a business media story, a congressional inquiry or even consumer group action.

The good will and good works of the truly credit union spirited will be overwhelmed by the depredations of an ambitious few. The system may never recover from the consequences of these blatant examples of betrayal of the trust members placed in their “elected” board leaders and regulatory oversight.

In previous posts I have detailed cases from Exceed, Infinity, 121 Financial, Finance Center, and Vermont State Employees in which my analysis of the transactions made little or no economic or business sense-except for insiders. Members, who must vote any merger, have little or no power to object or even inquire. The process gives all the resources and media power to the incumbents initiating the deals.  Member participation is presented as a purely administrative step because the regulators have “already approved the merger subject to the member vote.”

A current Example: Member One FCU transferred to Virginia Credit Union

In last week’s post, I describe the members’ “rebellion” against management’s proposal to transfer all the assets of the $1.7 billion Member One FCU to VCU.  The opposition’s blog site was filled with multiple member voices against the change.

On July 30 after the vote closed,  Member One announced the result: 3,479 voted to approve and 1,404 against.  In the same release, the credit union stated it had become a division of VCU on August 1, or 24 hours after the vote.

Case closed or not?  Certainly, the two credit unions want to give that impression. However It is important to seek the truth apart from these two “facts.”  What other context is available about this event?  Were the members’ best interests truly served?

My first observation: the voting participation seems extremely low for this controversial action.  The  number in favor of the merger, 3,479 is just 2.3% of the credit union’s 155,000 members.   The total voters, 4,883, are only  3.2% of all eligible to participate.

This result means each Yes vote supported the transferred $474,000 of total assets and $44,560 of net worth to VCU.  That outcome would itself suggest the need for greater scrutiny.

Why was the turnout so low?   Were ballots sent to every member?  How was the process managed? By whom? How does this member participation compare with other similar sized or contested mergers?

The Opponents’ Efforts

There was spirited public opposition including a news radio interview.   The website Member One Vote No recorded over 80 member comments before being taken down.   These concerns  universally questioned the merger proposal.  A  Reddit link Member One Merger Cookies, is still active and provides a sample of the  many comments in opposition.

Members posed multiple questions about the $570,000 bonuses being paid to the the credit union’s five senior executives.  The members received nothing from their collective $155 million net worth and eight decades of loyalty.

The opponent’s Vote No site also included links to nine different VCU social media with postings by VCU members sharing multiple complaints about the acquiring credit union’s service, mobile banking, culture etc.  Did Member One’s Board do any due diligence prior to announcing the merger in January 2024?   If so, why was there no information about VCU’s business model or priorities, for example the reason for its recent decision to convert to a federal charter.

Twenty-Four Hours to End Member One’s Independence

My second question: why the rush to complete the merger in 24 hours after the vote ended, that is, by August 1?  The Notice and FAQs clearly state “There are no anticipated changes to core services and member benefits.  And, it will be 2026 before there will be operational integration.  In the meantime, there will be two operational centers.  No branches will be closed .

There are least two forms that must be sent to NCUA (6308A and 6309) both of which would take more than 24 hours, especially the combined financial statements, before a merger is finalized.

Why the speed to make this a done deal? The only effect is to remove Member One’s board and to give VCU immediate access to and full control of the credit union’s financial resources.  Is VCU that much in need?

The very low vote participation and the rush to close the deal points to the need for more information about what is really going on.

The Responsibility of Credit Union Directors

There are two sets of board members who oversee each merger event.  Member One’s board is very accomplished per their public resumes.   From the June 2022 announcement of new board officers, the leadership team presents extensive professional and Roanoke community experience.

The Chair, Joseph Hopkins, signed the Member Notice of the merger’s required meeting. He retired from a long career at Norfolk and Southern, has been on the Member One board for over 30 years and is a 50-year credit union member.

Penny Hodge, Vice Chair, retired in December 2018 as Assistant Superintendent of Roanoke Country schools after 31 years.  She is a CPA and became a Member One director in 2019.

A  new board member in 2022 was Tyler Caveness who graduated from Harvard in 2014  with an economics degree.   He is “founder and principal advisor at Caveness Investment Advisory, LLC, a boutique wealth management practice providing investment, income-tax minimization, and alternative financing strategies for the self-employed.”

Member One also appoints associate Board members. On May 23, 2023 the board announced three new associate members, all with excellent professional  and local credentials. These are brief biographical excerpts in the announcement:

Armistead Lemon has an 18 year career in leading independent  school education.

Mary Beth Nash is a local government attorney with 28 years experience representing private and public sector entities.

Rebecca Owens is Roanoke County Deputy Administrator, responsible for county’s financial administration and has 30 years in local government.

Why did these three experienced, Roanoke-based professionals support the ending of their local charter in a few short months after taking office?  The merger announcement was on January  11, 2024.  One presumes there was some preliminary discussion and due diligence by the board before this public decision.

It seems highly unusual these three experienced professionals would join an organization and then quickly turn around and support an end to their leadership role within just a few short months.  What role did they play?  What information were they given?

NCUA is very clear in its statements on the fiduciary role of directors.  From two 2011 letters by NCUA’s General Counsel:

“we (NCUA)also believe that fiduciary duties are properly owed to people, and not to entities. FCU directors must understand the people who are affected by the directors’ decisions and identify which people the directors are serving.

“The danger is that, if the directors are allowed to focus only on the credit union when making a decision – without regard to how the members are affected – the directors can justify making self- serving decisions, or decisions that serve primarily the FCU’s insiders, under the guise that the directors are simply doing what is best for the credit union.”  (emphasis added)

Failing the Members

There are no factual details or future commitments in the Member Notice that would meet this fiduciary standard for this merger.  Let alone Directors’ duties of care and of loyalty.  The only specific financial details are the bonus payments totaling $570,000 to five senior executives.  Of this amount, $250,000 is due the CEO, Frank Carter,  as of the effective merger date—which we now know was 24 hours after the vote closed.

Why did members receive nothing from their $155 million collective savings?  In any other institutional sale in the open market, owners would have received 125% to 200% of their book value net worth.  We know this because these are the routine multiples credit unions pay when buying banks.  Should not credit union owners be treated as well as bank owners?

From the very general information in the four-page Member Notice, the widespread member opposition published in social media, and the explicit, immediate benefits going to the CEO and senior team, this merger seems contrary to any reasonable understanding of fiduciary responsibility by the board and executives of Member One.

They not only failed the 155,000 member owners but also the greater Roanoke community and the eighty-four year legacy of prior generations that contributed to creating this $1.7 billion local institution.

The Other Board of Directors: NCUA

NCUA’s rule 708b provides the process for the Agency’s monitoring and approval of  every step of the merger process.  The agency’s merger checklist has 21 areas for potential submission and seven required forms.

The update of the rule was announced during the GAC conference in February of 2017 in response to published examples of merger self dealing and outright solicitations.  Chairman McWatters’ intent is quoted in this report of the merger landscape by Frank Diekmann in his CUToday analysis, Time to Talk About an Ugly Truth in Mergers:

McWatters: “The agency should diligently work to preserve small credit unions, as well as minority- and women-operated credit unions.  

“In addition, the agency should require all merger solicitation documents to provide, without limitation, a discussion of any change-in-control payments and other management compensation awards and agreements, and that such disclosures are written in plain language and delivered to voting members in a reasonable time prior to the scheduled merger vote.”

Since that speech, and the passage of the rule  Diekmann’s Ugly Truths have only gotten worse and disclosures minimized.

Member One’s merger is just the most recent example. No member owner, let alone an NCUA examiner,  RD or board member could make an informed judgment about this merger proposal with the information in the four-page Member Notice.

If any credit union had provided this level of detail to purchase a bank or by organizers to start a credit union, the request would have been summarily rejected.  Yet that is all the information credit union owners were given.

NCUA’s In Loco Parentis Merger Oversight

The impact of NCUA’s rule has been to put the agency’s judgement and fact review in the place of the members’ ability to make an informed decision.  Most of the information required by NCUA in its 21 point checklist is not shared with members.  For example, its review of the prior 24 months of board minutes are not disclosed along with multiple other filings.

NCUA then sends its approval of the Member Notice with its limited information which includes the date of the special meeting and ballots to vote.  Absent are any of the details NCUA used to approve the application and Notice.

Moreover, the Agency has provided an easy work-around spreadsheet to help determine what must be disclosed, if anything, about compensation commitments.  This is completely contrary to former Chairman McWatters’ statement of “without limitation” disclosures.  In essence, NCUA shows credit unions how to “game” its own disclosure rule.

Self-dealing by those who lead the organization, oversee the entire process and control all resources to communicate with members was the number one priority addressed in the 2018 rule.  Unlike state charters which must file IRS form 990 detailing board and executive compensation annually, FCU’s are not required to file or disclose any compensation data to anyone at any time.

The agency’s excel spreadsheet with sample entries helps to determine what portion, if any, of future compensation must be disclosed. Here is the form that credit unions can submit to show compliance or not, along with a required certification of No Non-Disclosed Merger-Related Financial Arrangements.

Future compensation is what the whole rule was intended to address, including conversions of previously funded SERPS and other benefit plans.

Why should NCUA be able to review this form, but not members?   In the Member One Notice only merger related bonuses of $570,000 were revealed.  However the credit union reported over $32 million in SERP and Employee Insurance Benefits in its June 2024 call report balance sheet that will either vest or be distributed under change of control clauses—but there was no disclosure of where those funds now go.

Reporting only merger related bonuses does not begin to reveal the compensation related commitments to senior employees in the merging credit union.  Most will enter into new employment contracts with the continuing credit union that are guaranteed years into the future versus being at-will positions.

To illustrate this under reporting, NCUA recently approved a merger that disclosed to members only $900,000 of bonus or salary increases for the five senior employees.  However, because the credit union was a state charter and the lengths of the new contracts were disclosed, the actual guaranteed payments were closer to $9.4 million for the  highest compensated employees.

This is how the disclosures of self-dealing are “gamed.”  NCUA has inserted its review in place of providing  essential information to the members for their decision making.  Members receive no facts, only rhetorical promises or future assurances.  In Member One’s case, this motto was “Bigger is Better” an assertion easily  contradicted by the diverse loan growth and ROA performances as of June 2024 reported by the top ten credit unions.

The Shortcomings Of the Merger Rule and an Easy Solution

There are two other serious information shortcomings in the merger disclosures.  Nothing is required to be shown about the continuing credit union’s business model, priorities, plans or culture.  In this case VCU’s social media posts suggest some potential cultural and operational issues.

If members are transferring the future management of all their assets to another organization, shouldn’t that organization’s plans and leadership intentions be part of the disclosures, even including the compensation of the continuing executives.

Voting by members in a merger is not about protecting their individual savings and loans.  If members don’t like the outcome, they can withdraw and go to another institutions.

Rather the voting is about the transfer and full control of all the assets, tangible and intangible created in a credit union’s long history, to a third party.   Now there is nothing required to be disclosed about the new organization’s taking over these accumulated resources except a summary balance sheet and income statement that is already available from call reports.

A second problem is that the voting process is deeply flawed.  It has the appearance of democracy and one person one vote.  In this case 97% of members did not vote on the future of their own credit union?  Why?

Moreover, the entire voting process and institutional resources are in the hands of one party which has a vested interest in the outcome.  Members who oppose have no way to easily contact other members, there are no resources for marketing or outreach. The credit union executives control all the messaging with its FAQ’s and in this case, free Oreo cookies.

This is not a democratic election process.  It is a monopoly managed by those in power who control all the variables in the very short time frame in which the messaging and balloting is done.  To end a charter should require a minimum number of members to vote, at least 20%, and provide a process for opponents to have access to members.

And the easy solution:  Require every voluntary merger where the dissolving credit union has 7% net worth, to issue a public RFP for bidders and that there be a minimum of two proposals received.

RFP’s are a routine process in virtually every consequential credit union decision including technology choices and even the hiring of consultants who submit proposals in response.

NCUA should lay out the minimum RFP contents and then review the numerous responses.  The credit union board has the data for why one option was chosen over another to recommend to members.  Here is how the process works in a good merger.

The Apostates

The word apostates refers to someone whose actions or inactions, suggest they have totally abandoned or rejected their core beliefs or principles.  Or maybe have no settled ones at all.

In this example of Member One’s executive suite and board’s professional credentials, the public record of merger disclosures versus  the aspirations presented on the credit union’s website, all combine to give the impression these leaders abandoned whatever belief they had in their 84-year old credit union. Rather it was the members whose voices spoke up for the credit union while those in leadership sold out. (See one example at end.)

The role of NCUA’s three person board is also critical.  What is their understanding of the  cooperative charter?  How is it different from banks, other than the tax exemption?  What are the role and rights of member-owners?   What does democratic governance, one person one vote entail, when board elections are rarely held?  When only 3% to 4% of owners vote on the continuance of their independent charter, how meaningful is this process for mergers?

If the board believes the proper policy is letting the free market work its will versus setting regulatory boundaries, why is there no support for actual transparent market solutions?   Why do bank owners reap rewards when bought by credit unions, but credit union owners receive nothing when control is transferred to a credit union third party?

Chair Harper, Vice Chair Hauptman and newcomer Otsuka have either turned a blind eye or have no problem with senior executives capitalizing on their positions for self-enrichment-and the members left holding an empty bag.

NCUA’s current board has taken no action on the growing number of examples where the fiduciary duties of all decision makers to protect members’ best interests have clearly fallen short of the clear standard presented by its General Counsel.

In the end this benign neglect will erode the financial and reputational foundations of the cooperative model.

Creating An Unsound Cooperative System

Ultimately this intentional or unintentional fiduciary  abandonment by all parties will only spawn greater and greater incidents of insider sell outs in the pursuit of growth and greed.  The result is  more and more risk put into fewer and fewer baskets.

This increasing concentration decreases the traditional advantages of local relationships and stability and reduces overall financial and business diversity within the credit union system.  The soundness of the system is narrowed; the variety of business models is reduced; and the traditional credit union advantages of local knowledge, control and earned loyalty are lost.

The unique design of democratic member-owned financial alternatives serving their communities faithfully over generations is sacrificed on the altar of bigness.

The cooperative model has been turned upside down.  It no longer serves members interests first, but rather the personal ambitions of the institution’s leaders.

One Member’s Voice

When those in governmental or private positions of authority forget where their accountability is owed, the prospect of member rebellion grows.  Who can forget the taxi drivers attending NCUA board meetings to lobby for member-focused solutions?

In the case of Member One, a person who served the credit union in leadership posted his logic for why this merger was not in the members’ interest on NCUA’s website.  When posting comments NCUA “will review, redact and post submitted comments” and “also reserve(s) the right not to post a comment that we believe is false, egregious, or unrelated to the proposed merger.”

Sometimes we call these critics prophetic.  When current leaders forget to whom their duties of care and loyalty are due, this comment presents a well reasoned, informed appeal for a return to core credit union principles.

The following is what this member “sees” versus what those in positions of authority  choose to ignore:

I, Dwight Holland, MD, PhD STRONGLY OPPOSE THIS MERGER AT THIS TIME as a former 7 year Supervisory Committee Member of M1FCU, and 2 years as a successful Chair of that Committee. My background:

I was on the Supervisory Committee of M1FCU from 1996 to 2003, with the last 2 years as the Chair. So, I know what I am talking about regarding Credit Union matters.

I was also the guy that pushed hard in 1996 to get on-line banking into the Credit Union when some of our Board Members weren’t sure what a domain name was, or why we should do this. So, I AM NOT opposed to change and adapting when necessary or it makes sense for our members.

The reasons I am opposed:

1. We lose LOCAL CONTROL and influence in the governance of the Credit Union because we are being swallowed by a bigger fish. The smaller fish in the pond of merger always loses its identity, culture and influence with time, despite promises by the Board and CEO of both Credit Unions.

2. We are a HEALTHY, overall well-managed credit union that has grown to around 1.6 Billion dollars. Why surrender this LOCAL achievement and control to a financial entity in Richmond?

3. MemberOne started out as the N&W Credit Union, and grew with our own economy, mergers and healthy acquisitions of struggling credit unions in a non-predatory way. That rich history and legacy will disappear with this merger into the mists. As member number 4404 that started as a 6 year old, I personally don’t like that notion. I can see people in leadership, and talk to them directly, and they will listen. Having control going to Richmond will dilute that “personal touch” dramatically.

4. I am the Treasurer of a state-wide Military Organization that uses a national credit union (over 10 Billion in size) for its banking purposes. Trying to get help with such a large organization is just like dealing with a large bank. It is tedious to get anything done, when something doesn’t go well, it took me and national level leaders in our organization over 1.5 years to get a very simple, but critical thing settled. The larger an organization is, the harder it is to get through the layers of bureaucracy. Staff sometimes in large orgs just doesn’t “need” to care about you for their performance reviews. That’s not true for more locally controlled orgs.

5. As M1FCU member, we often give forbearance to our friends and neighbors regarding loans and the like if they as for it, and work with them to help. Larger, more distant Credit Unions, cannot, and generally will not do this to the extent that a well-run locally controlled one will.

6. There are more reasons not to merge that relate to insurances, benefits, control of wages locally, etc, but I’ll let others deal with those.

The “incentives (for executives) to stay” at the end of the meeting notice seem extraordinary – why is such an incentive needed? There would certainly be others available to hire who are well qualified should these people choose not to stay.

Well more than a half million dollars is being promised to these five individuals! That amount would best serve members in so many other ways: beefing up certificate and savings rates or assisting those who need loans, for example, would certainly serve the members better than this huge amount flowing into individual pockets.

I do not see numbers that benefit members of the credit union except those receiving incentives to stay. Respectfully, there is no way those employees are worth that much to stay. How much would the rest of the members receive to stay rather than to take our business elsewhere? I see no way this merger benefits the members except the 3 or 4 mentioned in the letter we received.

 

 

 

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A Merger Made For Members

(This is a story by Marc Rapport published on creditunions.com on April 24, 2017.  Reprinted with permission)

Gas & Electric Credit Union in Rock Island, IL, has set the standard for transparent transactions that ensure any movement on a merger is for the members’ sake.
RID Federal Credit Union had 600 members, $4 million in assets, and a dim future when it sought a suitable merger partner in the Quad Cities.

CU QUICK FACTS

Gas Electric Credit Union
Data as of 12.31.16

HQ: Rock Island, IL
ASSETS: $71.3M
MEMBERS: 5,169
BRANCHES: 2
12-MO SHARE GROWTH: 0.02%
12-MO LOAN GROWTH: 3.1%
ROA: 0.60%

That was in 2013. In 2015, the credit union, which served the local Army Corps of Engineers, merged into Gas Electric Credit Union($71.3M, Rock Island, IL), culminating a process that could serve as a template for how to merge a credit union in a way that benefits both organizations and their members.

The Challenge

After years of considering a merger, loan defaults and investment returns that couldn’t keep up with operational costs forced the board’s hand at RIDFCU.

Karen Hagerty, a biologist and project manager with the Corps who was an RIDFCU board member at the time, says the board delayed merging mainly because it didn’t want members to lose an institution that had been around for a long time, and it didn’t want the credit union to lose its identity.

But independence was not in the future.

After serious strategizing and belt-tightening, it became obvious our credit union was not sustainable, Hagerty says. We began looking at merger options.

RIDFCU had experienced staff but could not offer internet banking, debit cards, or other basics members expected. The credit union had just stopped growing.

(photo: Karen Hagerty is a project manager with the Rock Island District of the U.S. Army Corps of Engineers and a board member of the former RID Federal Credit Union)

It had been losing money for several years and its net worth had declined as a result, says Daryl Empen, president and CEO of Gas Electric. It also had an engaged board of directors and experienced staff. I think they truly tried to turn things around, but they were simply unable.

The Process

The RIDFCU embarked on the merger process with some specific goals.

We wanted to keep our local office open and were looking for a well-developed network of locations as well as online banking, credit and debit cards, and ATMs, Hagerty says. We originally thought a credit union with many locations would be a better fit for our dispersed workforce. Technology allows remote access but nothing takes the place of someone who cares enough to know your name.

The board sent eight requests for proposals (RFPs) and interviewed five credit unions. That original group did not include Gas Electric. It was an RIDFCU board member, who was also a member of Gas Electric, who suggested the credit union talk with Empen about his credit union and its two mergers more than a decade ago.

The board was so impressed with Daryl’s leadership and philosophy that we also extended an RFP to Gas Electric Credit Union, Hagerty says.

Insights From Vetting

The RFP and interview process was eye-opening.

We learned everyone wanted to merge with us and most of them were interested in using our locations to expand their operations, Hagerty says.

RIDFCU’s assets were in decent shape because it had started the merger process relatively early, Hagerty says. And all but one of the credit unions were responsive and eager to share information.


(photo: Gas Electric Credit Union President and CEO Daryl Empen poses for a holiday party photo with his staff behind him.)

We were shocked by the lackadaisical attitude of one credit union that had been pursuing us for many years, she says. I guess it took for granted we would want to merge with it.

Darron Niles, an RIDFCU board member who now fills the board seat Gas Electric reserved for the merged credit union, attended meetings with prospective merger partners and says he learned some were just looking to gobble up RIDFCU. That wasn’t the case with Gas Electric.

Gas Electric, with its closed charter, looked at us like an additional member group, he says. The numbers worked financially, but our members became part of something bigger and better without losing RIDFCU’s identity completely.

The Decision

RIDFCU members agreed to merge with Gas Electric by a vote of 145-6 on Dec. 16, 2014.

The completed merger in 2015 was the culmination of a process that began with that initial meeting with RIDFCU’s board where Empen says he answered questions such as: What questions should RIDFCU be asking? Could it make it on its own? If so, how?

The board members engaged in a deliberative, thoughtful process to make the best decision for their members, Empen says. That’s what impressed me the most. It was clear this was what was best for the members, not just the board of directors.

“There is nothing wrong with growth. We all need to grow, but it should be based on member benefit.” Daryl Empen, President/CEO, Gas Electric Credit Union

For its part, Gas Electric tried to be transparent.

We were required to have a membership meeting to approve the merger, Empen says. We could have done the bare minimum for notifications, but we advertised it heavily. We wrote a detailed article in our newsletter about the proposed merger and the reasons behind it. We invited members to the meeting to vote.

That transparency also helped ease the fears of RIDFCU’s membership, Hagerty says.

We struggled to keep the rumor mill under control, she says. Members appreciated the clear communication of why we were pursuing the merger and what would happen if we didn’t.

The Aftermath

Gas Electric kept the RIDFCU office open and its longtime manager, Bev Rice, stayed on, providing a sense of familiarity and a cheerleader.

When you have the support of the staff, it makes the process smoother, Empen says. She’s (Bev Rice) has been a fantastic promoter of the credit union and the new services.

The main office of Gas Electric Credit Union, one of two branches, is also located in Rock Island, IL.

Those new services include debit cards, a checking option that returns 2.25% in rewards, internet and mobile banking, bill pay, and mobile deposits. Gas Electric also offers better rates on saving and loan rates than RIDFCU did, and a $250,000 bonus dividend paid out in 2015 didn’t hurt relationships.

That was a nice feeling to be able to reward all our members, including the new members from RIDFCU, Empen says.

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Credit Unions For Sale?

(This May 14, 2017 post by Chip Filson is from  creditunions.com.  Tomorrow I will present the latest example of this industry-wide practice of selling a credit union in a transaction in which all the benefits go to the acquiring credit union and the selling credit unions senior executives.  The member-owners received nothing.)
Forty years ago there were more than 20,000 active credit union charters in the United States.  Now fewer than 6,000. (update note: the number is less than 4,500 today)

Much of that attrition has been from unavoidable forces of market economics, such as liquidations and involuntary mergers that are the result of inability to expand products and services, withering SEGs, or the inability for to attract new senior managers.

But a disturbing trend has emerged. We now are seeing some so-called voluntary mergers that are nothing more than sales orchestrated by boards and senior managers at the expense of members whose interest they’re obliged to represent.

That’s not true of all consolidations, of course, but a look at the pre-merger books and aftermath for some of these takeover targets reveals financially sound institutions sold to larger credit unions for pennies on the dollar, in merger processes opaque at best, followed by senior managers bailing out with golden parachutes.

Left behind, local staff that spent years building those personal relationships now working under a new regime, distant in philosophy, priorities, and practice from the people who had co-existed for years on either side of the teller line and desk. Many move on, and the cooperative financial charter and all it represents sustains another blow.

It doesn’t have to be that way. Here’s a look at what’s happening.

How The Sales Process Work?

A credit union seeking mergers will send offers to smaller credit unions that include:

  • Significant bonuses and/or severance packages for senior managers that are multiples of their current annual salaries (the golden parachute so associated with Wall Street excesses).
  • Ongoing benefits for board members who now become advisors.
  • Offers to employees to continue their employment or receive significant severance offers.
  • A one-time nominal special dividend to members.
  • A recitation of expanded services, branches, and products available for members.
  • A very brief period for public disclosure to members of the intended merger, via the Notice of the Special Membership Meeting.
  • The special meeting in short order after the NCUA’s approval, with voting in person or via ballot to approve the merger closing at the end of the meeting.

A Managed Sale

Everything looks proper on paper, except the whole process is designed to keep members in the dark, often long after the boards initially approved the plan and applied to the NCUA for regulatory approval.

The meeting notice contains the minimum information necessary and omits the oral promises and other personal benefits guaranteed. The board’s pretense of having considered alternatives is asserted in communications without any details.

Other potential merger options are not explored. Even if there are objections raised at the special meeting, as has occurred, the merging credit union closes the ballot at the end of the meeting so there’s no real opportunity for dialogue or objections.

The vote period is kept short and often the majority of those voting ends up being a small fraction of the total membership. The process is merely a veneer of compliance with NCUA Rule 708.b.

The intent, and all too often the effect, is to remove any role for owners in the most important decision a member is asked to make.

All the direct merger costs such as the so-called bonuses, severance payments, and/or special dividends are paid from the merged credit union’s resources.

At the merger date the surviving credit union books an immediate gain from the newly added reserves, undivided earnings, and mark-to-market adjustments that is, the collective wealth of the merged credit union through its income statement. All of which, of course, flows directly to its capital account.

Ultimately, these are cases of the surviving credit union buying growth. The top executives get handsome payouts while the members get a special dividend that is a cent or two on the dollar for the wealth that has been created and transferred to the mergedcredit union.

Quite a bargain.

The Members’ Loss

So, what’s wrong with this increasingly commercial way of seeking mergers? It’s simple: The members’ financial interest, accumulated over decades of loyalty, and the ability to exercise an informed vote are compromised by the very leadership that puts its self-interest ahead of the members.

These voluntary mergers often involve credit unions that have stable if not excellent financial results accumulated over generations of member loyalty and participation.

These reserves and the intangible goodwill are in fact sold to the merging credit union and the current leadership is rewarded with one-time bonuses and/or severance packages on top of their existing employment terms. The terms of continuing-employment contracts are often designed to incent management to leave instead of staying to oversee the outcome.

These merged credit unions have built extensive, valuable franchises sometimes with locational advantages that another credit union could not acquire. This franchise value and positioning are rarely reflected in the balance sheet.

Moreover, it’s frequently the case that if members believed the surviving credit union was a better deal, they could have joined. However, the acquiring credit union is unable to compete with the credit union’s local, historical advantages, so it resorts to a private purchase to acquire what it could not win in the market.

These managed deals rarely present information about the strategic or business model of the surviving credit union other than listings of market-leading products and services or additional branch locations.  Often the suggestion is that bigger is better and scale will ensure greater benefits. That’s not so true anymore.

Today, many credit unions contrast their value of individual service to the mega-financial alternatives which are both stateless and reliant on uniform processes. This is because most members’ needs are local, whether it be auto, credit card, or housing finance.

Credit unions can adapt quickly to local environments and economic circumstances–that’s one of their advantages. However, there is no comparison of the merged and surviving credit unions’ business models. The decades of local service and presence are not even referred in management’s zeal to get members’ approval.

Every credit union operating today has come through the worst financial crisis (2008/9) since the Great Depression. They have cultivated organizational partnerships, supported local schools and communities, and been an integral part of their area’s economy.

Bigger Is Better? Not Necessarily.

Members elect boards to oversee this local focus. The CEO/managers they select are to execute these principles for the greater good. Selling out to a larger credit union that doesn’t have this local experience and is simply buying unearned growth, is at best irrelevant, and at worst contradictory, to the  credit union charter advantage that is being surrendered.

Most of the problems the country faces are decentralized in nature. Creating jobs takes place in local communities, not in Washington. Credit unions are a means to empower and equip people as leaders in their communities.

However, these business contrasts are never presented. Everything is promise and hype; the new reality becomes known only after the merger is complete. Members are not given information about the earlier experiences of employees and members from the continuing credit union’s current performance or even from any previous mergers.

Once Done, It’s Done

A merger is a one-way event; it cannot be undone directly. That’s why members are required to vote to give up their charter. In conversations with employees of credit unions caught up in these situations, the circumstances after the merger are often different from the promises beforehand.

In one situation, almost half of the employees left after six months, the promised technical capabilities were less than before the merger, and, sadly, some members who qualified for loans at the merged credit union are not eligible under the new loan policies.

Not only have the service capabilities deteriorated, but the employees so carefully cultivated in the merger courtship experience a different business culture. Another example is a credit union where member service was so much the focus it was rated he employer of choice in its market area for three years in a row. The credit union had very low employee turnover. Now, after a merger, most of its experienced staff have left.

The Cooperative Model At Risk

The truth is that many of these so called voluntary mergers are managed sales. One response in defense is that everybody does it, so it must be OK.

But not everybody does it. Many boards and managers approached formally with written offers and informally with these self-serving transactions have turned them down.

A defining principle of leaders is taking responsibility for regulating their own behavior. The fact that some boards and senior managers would compromise their fiduciary responsibilities to their members and sell their members’ generations of loyalty  to another credit union and then leave the scene, does not make it right.

Examples of temptation that turn dedicated leaders into self-interested beneficiaries of their institution’s sale undermines the foundation of the cooperative model.

Cooperative ownership produces common wealth. Boards and management have the responsibility as agents of the members to always act in their best interests.

If these same boards had decided to sell the credit union under the same terms to a non-credit union entity, there would be an uproar of opposition to this dissipation of members’ financial interests. But selling the members’ cumulative legacy to a much larger credit union, where their pro rata interest and influence is minuscule, is somehow OK?

Defending these manipulated sales compromises the very core of the cooperative alternative to the for-profit banking sector. Instead of focusing on member value and impact, these sales reward an institutional greed for unearned growth.

At a time when many Americans are worried about the ability of government and large financial institutions to focus on their economic well-being, this distortion of the merger process can only reinforce members’ anxiety about their lack of power in the market.

A Perversion Of The Cooperative Model

The cooperative model is perverted when institutional size becomes the end game and not the means to improve members’ financial control of their lives. The visions of lifetime member financial partnerships become nothing more than an asset to be sold to the credit union willing to pay off senior managers and boards who have lost their moral compass.

There is little dispute that the nation’s policies and practices are heavily weighted to favor the rich. In an era in which the inequality between the top 1% of individuals and the rest of the population is increasing, these credit union sellouts compromise the individual and collective benefit cooperatives were designed to create for member-owners.

Cooperatives countervailing role in the marketplace is compromised. The promise that the collective resources of the 115-year-old credit union model can be paid forward to benefit future generations is cast in doubt.

(A current example tomorrow)