Category: Co-ops in Capitalism

Freedom is based on democratic elections.  In these contests, there will be winners and losers.

In the current Presidential election a major portion, 45% or more of voters, will be disappointed that their candidate did not win.  One candidate has yet to even acknowledge the results of the 2020 contest!

Contestants and their supporters pour their hopes, resources and emotions into the campaign.  It is hard to accept a loss.   But recognizing that outcome is what is required  if democracy  is to prevail.  And if one is still committed, prepare a Plan B.

An Example of Principle from SECU’s Board Election

The October board contest for the four open director seats at SECU (NC) was hard fought over issues raised two years earlier.  It is a rare, but vital example, of the members’ governance role in a large financial cooperative.

SECU’s election process favored the incumbent directors who were renominted by their board peers.  The credit union promoted their support on social media and in PR posts.

For the member-nominated candidates and their supporters it would be easy to cry “foul” and argue the process was weighted against them.  For it was.

However that was not the stance posted by Jim Blaine, the voice  of the opposition candidates, who heard these complaints.

On the day after the election results were announced, he posted the following blog:

Wednesday, October 9, 2024

The largest member vote in a credit union board election resulted in the slate of four incumbents all winning by a wide margin.

The cumulative total vote for the four winners was 232,452 (67%).   The four member-nominated candidates total was 113,117 (33%).  The headline in Jim Blaine’s blog after the vote was announced:  Pretty Strong Thumping!

The outcome was the exact opposite of the 2023 vote where the three challengers to the board slate were all elected.   The vote was significant in other respects.   Adding the highest total votes for the leaders of each slate, suggests almost (62,392 and 31,203) 94,000 or more members voted.

This is an extraordinary level of participation.  It shows the interest and willingness of members to participated in the selection of their leaders.  Once awakened in their role, will they continue to follow credit union events as more than a customer?  Have  their ownership “genes” been activated?   Will next year’s election involve a choice?

The Substance of the Annual Meeting

The meeting was broadcast on YouTube.  SECU staff had posted the results later with the full recording.  Also posted are the financial summary for fiscal 2024 and links to the 54 page 2024 CPA audit.

While the vote was the main outcome, that announcement took just several minutes at the very end.  The meeting’s substance were reports read by the Board chair, the Foundation’s chair (with video summary) and nominating committee chair.

The most important parts of the agenda were CEO Leigh Brady’s report and then her response to dozens of member questions sent in advance.  Putting these two parts together a relevant title for the meeting’s substance might be the Leigh Brady Show.

The CEO’s Performance Report After Her First Year

After opening remarks on Helene’s devastation in Western Carolina and saying all employees were safe, Brady stated her personal vision as, “we work together to leave SECU better than we found it.” (1:03).   She provided a summary of major financial trends, both positive and not, showed a chart of an increase in SECU’s share of member loans (25.8%),  and compared its  loan charge-offs for the first six months of 2024 to the five largest credit unions.  SECU’s outcome (.74%) was between Navy FCU’s 2.54% and BECU’s .59%

She introduced a new SECU’s data point, its initial Net Promoter Score (63), as an indication of member loyalty.  Her closing was a listing of FY ’25 priorities including new member reward or cash back credit cards, a new mortgage servicing platform, voice authentication, selection of a new core data processing vendor, replacing branch ATM’s and a new digital platform.  She noted that several of these initiatives, especially the new core, will extend over multiple years.

Her presentation was well organized, detailed with graphs and comparisons, and with specific  priorities for the new year.  Her very full report could be a model for other CEO’s in disclosing their prior year’s results and future plans to the member-owners.

Members’ Q&A

The second part of Brady’s role was spending an hour answering 50-60 questions from members that were submitted prior to the meeting..   There were few “softballs” in these queries.  And while she may not have fully responded on some points, the questions were the most interesting part of this event for me,  and probably the members who submitted them.  Here is a small sample of some of the topics raised:

• Why aren’t members able to speak at the annual meeting?
• Will you post all these questions (and replies) on the web?
• Why were members (running for the board) not able to gather signatures at the branches?
• Why are all the board members from one region of the state?
• Tiered base loan pricing had multiple questions such as: Is one member’s financial well-being more important than another’s?
• Does tiered-base pricing exclude anyone? Can lending officers make exceptions to the process?
• Why are savings and money market rates not competitive with other credit unions?
• In the next five years what do you see as the greatest threats to the credit union?
• Does the Board and President feel they are making decisions in the best interests of the members?
• Please explain how the credit union lost $23 million in the CashApp member fraud.
• All board nominations were for persons already on the board. Would setting term limits help with the perception that this (process) is a conflict of interest?
• What is the status of the Local Government FCU’s separation and will it have an impact on the members?
• \What do I have to do to become a member of the board?
• Will the credit union offer digital currency?
• What are SECU’s plans for the secondary (home loan) market?   etc, etc, . . Go to the video to learn her responses.

Brady (and Board) in Control

There are dozens more questions, all of which CEO Brady answered. She replied even in areas concerning board conduct and policy or in the case of the CashApp fraud loss, an internal issue.

This hour long Q&A was the most  extended explanation, an in-depth discussion I have seen in no other credit union’s annual meeting.  Even as it appeared most of the answers were being read from a script, she addressed each topic.  Some might feel she failed to see some of the underlying concerns; but no one could argue that  all the pointed, potentially embarrassing or even opposing views were not included.  She stood her ground.

That stance is the final takeaway.   The meeting was a very controlled event.  The camera never wavered from only showing the individual speaker.  Even when Brady was answering questions, the person asking them was heard but never appeared on camera.

Several times Brady acknowledged attendee’s responses to her remarks, but there was never an audience view.  Board members spoke on camera, but were never shown sitting together. The Foundation video and presenter’s slides were seamlessly woven side by side on the screen with the speaker.

This YouTube broadcast was a very well-produced and visually managed event showing only the four speakers and nothing else. No chance for any spontaneity or audience reaction.

Brady closed her CEO presentation by referencing this year’s meeting to include “another contested election” that will not impede our going forward.  One cannot help but come away with the feeling that this year’s event was a reaction to the two prior meetings where the board must have felt things moved out of their control.  This time the outcome which had some excellent content, especially the member questions, was an exercise in the power of incumbency.

Will that exercise in authority work to promote the members’ and SECU’s long term viability?   Or, will SECU just transform into another example of a large credit union similar in operations to its peers?

The Core Issue: Effective Strategy

My understanding of the last two plus years of public controversy about SECU is that the core issue is effective strategy.  While there were specific tactical topics such as risk-based lending, critics’ deep concern was whether SECU’s members would be as valued if the credit union offerings just looked like every other financial institution’s.

Aligning SECU’s products and services to conform with the majority ot its peers may certainly garner some low hanging fruit.  SECU’s response to critiques of its tiered lending was its intent to “serve all its eligible members,” especially the A credit score borrowers going elsewhere.

The previous cooperative vision of “send us your moma” was centered on members who may not have had A options readily available, and needed a fair and trusted institution to turn to.

Over time this member-centric focus extended to innovations in salary advance loans, broker dealer options, life insurance, a state-wide 529 insured college savings account and even how repossessed real estate was managed.  The SECU Foundation’s innovative funding model has made it  a marketing presence for the credit union throughout North Carolina.

These financial service expansions were based on a belief that to beat the competition, one cannot simply emulate them.  Hence when asked about offering 30-year fixed rate real estate loans conforming to Fannie/Freddie requirements, the response was, Why compete with the government’s product?

Time will tell how this most recent strategic overlay will mesh with the legacy elements on which the credit union was built: its branch structure, decentralized decisions, advisory board roles and unique partnerships within the industry.

The datapoint from the meeting that may be most  relevant in this ongoing transformation is the 33% who voted against the incumbents.   That number suggests a more studied understanding to integrate past success and current changes might be useful.

On Tuesday Oct 1, remote virtual voting for SECU’s (NC) 2.8 million members’ annual director’s election will end.  Mail ballots must be postmarked by then, but in-person votes can still be cast at the Annual Meeting on October 8^th in Greensboro.

I summarized several issues between the two slates of four candidates a week ago.  For I believe the significance of this unique event extends far beyond SECU’s members, North Carolina and into the entire credit union system.

Member-owner voting on anything, except a credit union’s demise via merger, is extraordinarily rare. This example of the member franchise being conducted  demonstrates that elections in large credit unions are feasible.

Members now have a say via voting about the credit union’s future.  It challenges the current routine practice of self-perpetuating board oversight with no member-owner input.  This latter approach is, unfortunately,  the process followed by most credit union at the moment.

Campaign Updates

Facebook posts with social media ads are being run by both sides.   The four member nominated  SECUforALL site includes dozens upon dozens of member comments and videos.  It is updated daily.  For example, it now includes “links to local news outlets providing lists of trusted charities and relief organization accepting donations”  for North Carolina victims of hurricane Helene.

These members and many former employees have criticized the announced annual meeting rules which limit member participation and comments compared with prior practice.   Their posts also pointed out that the credit union is paying for the incumbents slate’s ads on social media.

I believe both sides would agree with Chairman Moon’s video election comment that  “The power of your vote cannot be overstated. Let your voice be heard.”  That’s why this election is about more than choosing between two slates of candidates.  It illustrates what the member-owners’ role in a credit union is supposed to be.

Two Contrasting Views of Credit Union Leadership

Cooperative design inverts the traditional structure of financial services leadership.   In long-established and certainly modern day financial firms, power is concentrated, either in the hands of those at the top or those who contribute the most capital (ownership stake).

In credit unions power flows up from the bottom, from the member-owners.  This was the intent of the democratic one-person-one vote election for directors at the required annual meeting.

This grass roots, member-driven founding became so successful, credit unions began hiring full time managers.  Growth and expansion accelerated after deregulation.  Successive leaders grew increasingly distant from their credit union’s founding generations and motivations.

This ever widening scope of operations separated management and  boards from routine interaction with members. Today’s leadership teams who benefit from the legacy of hundreds of millions in assets, believe it is now their sole prerogative  to  configure the organization apart from any prior commitments—even to the point of merger and charter dissolution.

The boards of large credit unions have become insulated, like a private group who amplify and reinforce the instincts of this self-selected few.  It is their authority to alone  shape the future. The unique coop design is now turned upside down mirroring the current structure of for-profit financial organizations.  Here is a comment from another credit union’s member on the SECUforAll  site:

Recasting the Coop Model

Credit unions were created to  break from the traditional way financial services were practiced: for example, paying interest on share draft accounts; offering skip-a-pay and loan rebates; permitting cosigners as “collateral” for loan limits.   Or to use the biblical phrase, “overturning the tables of the money changers” providing consumer financial options.

As credit union’s market ambitions grew, the prevailing ethos became “to beat the competition, a credit had to become the competition.”  And their leadership and advice was increasingly drawn from that perspective, not from the legacy culture that built the system’s present financial standing.

SECU’s Election and the Stakeholders Watching

SECU’s election choice is between two visions of what a credit union is.  Most large credit union leaders believe the power of the organization rests at the top.  Success entails unfettered growth, seeking mergers and/or buying assets such as banks, and using all the tools of financial leverage such as subordinated debt, third party originations and borrowing, should shares fall short.

However, credit unions were founded on the principle that power was created by empowering others.   Credit union pioneers believed the wealth of an organization was measured by how much it was shared, not how much the firm accumulated. That the strength of a  coop was in trusted relationships, not superior financial ratios.  Member service and values is how to attract committed employees. not bonuses.

The outcome of this year’s vote will likely resonate far beyond Greensboro and North Carolina.  If ten thousand, a hundred thousand or even more members see their democratic ownership role more clearly, every SECU meeting going forward will have a more engaged participation.   And the credit union system will have an example of what modern day cooperative governance can be.

I will publish the link to the October 8 SECU Annual Meeting when it is available.