Credit unions are strong proponents of democratic values. Until they have to practice them.
I was reminded of this reluctance in a press story of a recent merger approval. When asked about the vote tally, the credit union did not answer how many of its 9,870 members supported their charter cancellation:
Members of the $137 million Embark Federal Credit Union in Great Falls, Mont., voted to approve a merger with the $1.7 billion Horizon Credit Union, the Spokane Valley, Wash.-based financial cooperative said in a prepared statement Tuesday.
Horizon did not disclose the final vote tally. The credit union did not respond by deadline on Tuesday afternoon to CU Times‘ request for the member vote count.
Reporting the vote outcome, but not the actual numbers, suggests the credit union does not want the totals known. The credit union provides the veneer of democracy but not the facts of how many member-owners actually participated in this required step to give up their charter.
To paraphrase a term from writer Jared Brock, credit unions have become “cooperative oligarchies.” The word comes from the Greek oligarkhía, meaning “rule by the few.”
Merriam-Webster ‘s definition: “a government in which a small group exercises control especially for corrupt and selfish purposes.”
Democracy has rarely been tried by capitalists. Can credit unions really go against the incessant drive for corporate dominance and consolidation of power sought by firms in “free” market economies?
Many CEO’s and credit union boards don’t want democratic governance. They want silent customers who will passively accept the leaders who achieved their roles years, or sometimes decades, earlier.
What they ignore is that members are the political constituency to whom fidelity is owed. Boards and CEO’s are nothing without members. Members deposit the funds, borrow for loans, pay the fees and generate transactions that keep the credit union revenue flowing.
Member-owners are the reason credit unions exist.
Members keep the lights on.
Members create 100% of the wealth for their cooperative.
One would think it required practice to tell members the vote tally in this management initiated effort to give up their independent credit union charter. Especially as the CEO was awarded a $100,000 bonus and continued employment at an increased salary with the continuing credit union.
Horizon Credit Union assumes Embarks FCU’s member capital of $14 million, (approximately $1,500 per member). The members get rhetorical promises about the future.
Is this the democratic model that will sustain members’ belief in credit unions?
Since the NCUA updated its rule for mergers in 2017, almost 1,000 voluntary mergers have been completed. In the first quarter of 2022, 41 mergers involving 366,000 members and $5.5 billion in assets were announced.
These were overwhelming strong, long-serving successful credit unions whose boards and CEO’s decided to turn their loyal members’ futures over to another firm.
The 2017 rule was intended to correct self-dealing transactions that were prompted by payouts to senior managers and staff to incent sound credit unions to give up their charters.
The rule required disclosure of all compensation related benefits that would not have occurred if the merger had not taken place. The result has been some, but not all disclosures of promised payments.
The rule has not prevented enrichment, but ironically validated them. The amounts and creativity of merged CEO payouts are growing. Financial Center CU’s CEO and Chair transferred $10 million of the credit union’s capital to their private firm incorporated just prior to merger.-all with NCUA pre-approval. In the merger of Xceed CU the CEO negotiated a $1.0 million dollar merger bonus while promising members to look after their interest as President of Kinecta FCU for three years-only to leave within six months.
The CEO of Global negotiated a “change of control” clause in his contract that will pay him $875,000 upon merger with Alaska USA. Change of control is used in stock corporations for managers who might lose their positions in a sale of the firm. In this case the CEO negotiates the employment clause, seeks out a merger, retains employment post merger as President, Pacific and International Markets, and pockets the money for the deal whose terms he set up.
The Banking Industry Is Looking at Merger Practices
In a May 9, 2022 speech at Brookings, the Comptroller of the Currency announced a review of bank merger approvals:
From my perspective, the frameworks for analyzing bank mergers need updating. Without enhancements, there is an increased risk of approving mergers that diminish competition, hurt communities, or present systemic risks.
Bank mergers should serve communities, support financial stability and industry resilience, enhance competition, and enable diversity and dynamism of the banking industry. Revisions to the bank merger framework would help to realize this goal.
NCUA’s rule 2017 merger rule was off target. It did disclose self-enrichment, incentives which were common place. But it did not prohibit them.. The rule entirely missed the Agency’s primary job which to protect members’ interests.
The evidence before and since the rule indicates that managers and boards act without consulting members, negotiate terms privately, and then present the events as final only needing the members’ perfunctory ratification.
Formal member approval is a foregone conclusion. All of the resources, information and control was in the hands of those who set up the deal. Members are unable to challenge let alone question the actions.
As members are shut out of the process, the concept of member owned financial institutions becomes a fiction. Boards and management control the fate of a charter, its resources and relationships. Members’ interests, loyalty and accumulated wealth are just pawns in management’s efforts to enhance their well-being.
As demonstrated yesterday, the majority of mergers are sound, long-serving and certainly capable of operating on their own.
How does one bring balance, objectivity and most importantly, member interests, to the fore in this increasingly wild west of uninhibited sellouts of cooperatives.
One writer, Denise Wymore, has urged a greater commitment to purpose by credit union leaders.
Decisions, not conditions, determine your credit union’s future.
Do we look for the why behind a tough situation or do we just complain about it? Increased regulation, cost of technology, economies of scale, expanded products and services, lack of succession planning. Struggling to achieve a goal is normal and natural. Is it possible to work together to address the challenges facing “at risk” credit unions?
You have to find meaning, a purpose, something bigger than yourself. Reflect and think about your credit union’s purpose, passion, meaning…
The Comptroller outlined enhanced regulatory reviews such as:
“Community feedback on the impact of a proposed merger also is important. . . .For example, for mergers involving larger banks, , the OCC is considering adopting a presumption in favor of holding public meetings.” and,
“The OCC takes into account an acquiring bank’s CRA rating and performance. Banks with unsatisfactory CRA ratings are highly unlikely to receive merger approval.” and,
Financial Stability in “too-big-to-manage is a risk with mergers, especially for banks engaged in serial acquisitions.”
Whether NCUA can reassess its role in mergers is questionable. Unless political pressure from the Congress is exerted, NCUA seems oblivious to the reputational and safety and soundness implications of the wheeling and dealing now occurring, and the harm done to the communities who are losing their local institutions.
Putting Market Forces Back In transactions
I believe two changes in merger policy are required. The first is make members’ interest the paramount criteria in any proposed charter cancellation via merger. Secondly members should have the benefit of market forces to inform their decision.
Market choice would entail that all credit unions who decide to explore mergers would announce that intent publicly, invite all parties to express interest (both credit unions and non-credit unions) and then select the option the board believes meets the test of members’ best interest. The full process would then be presented to the members for their approval or turn down.
The options for future employment, products and services, return of member capital would all be part of the public record and members would have the information needed to make an informed choice. If a firm that is not selected wants to make a better offer, it would be able to do so and ask the members to turn down the board’s recommendation.
Putting Members Back in Charge
This change would place members in charge of the future of their credit union; not management and its personal preferences for future employment.
Mergers when sought should be a means to the end of enhancing member options and value. Today mergers alone have become the goal. They are about self-dealing, power and control by a few. It is time that members are given the choice about who they want in charge of their shares and loans.
This score is not the opening of an NBA playoff game. It is the number of credit union charters given up versus new charters issued in the first three months of 2022.
What does the score mean? Why is it so lopsided? More importantly, are any members winning in these charter closures?
365,700 Members Lose their Credit Union
The 41 credit unions’ CEO’s and boards are transferring their 365,700 members to another credit union’s control. These members did not choose this fate. In fact they showed continued loyalty: total members increased by 2% and share grew by almost 11% for the year ended 2021.
These members have $3.3 billion in loans and have placed over $4.7 billion in savings to benefit their fellow members. Collectively they have created over $540 million in common wealth, none of which will be distributed to them. Their average ownership is $1,500 each.
There is no information that any of the members were consulted before the boards and CEO’s made these decisions.
Check the Box Explanations
The Credit Union Times article categorized the 41 by the explanation NCUA provided when approving the mergers as follows:
“34 credit unions that received the NCUA’s nod to consolidate for expanded services, two credit unions got the OK to merge because of poor financial condition, two for inability to obtain officials, two for lack of sponsor support, and one for loss or decline of field of membership.”
The continued growth in shares, membership and most importantly, the 47% increase in loan originations in 2021 suggest this group was more than competitive based on the latest performance data. They ended the year with 9.9% net worth, delinquency of .55% and a collective ROA of 1.25%.
These 41 credit unions are sound performers which the members are loyally supporting.
The Largest Three
The three largest charter cancellations are the $2.5 billion Capital Communications FCU, the $612 million Global CU and $524 million People’s Trust FCU. What they have in common is they are turning over the keys to their operations to credit unions already operating in their communities.
This means these six-decades old institutions are combining with other local credit union competitors. The effect will be to reduce member choice, end opportunities for local leadership, close career options for employees, and extinguish the generations of earned loyalty and goodwill with members and local constituencies.
These credit union’s hundreds of millions of collective capital will be under the control of directors the members did not elect and who will have broader corporate goals then just serving the newly acquired members and their transferred wealth.
These combinations eliminate local options and the diversity of models and service approaches that make credit unions successful. Consolidation and concentration which reduces local competition may make life easier for managers. It does not enhance member choice.
The most important math in credit union mergers is the 1 + 1 = 1. There is no expansion of credit union coverage; the system did not grow market share; the members gained no immediate benefits. But they will pay all the costs of merger including the cancelations of vendor contracts, employee benefits, and of course the help of professions who facilitate the deal making.
A Game without Rules or Umpires
Mergers of sound, well run credit unions are not benefitting members. Rather they have become a sop for managers to game the system for self-benefit and boards who have lost any sense of fiduciary responsibility.
Competition depends on rules, and rules depend on umpires. We should fight to protect competition — not winners. Because winners subvert the process. In the name of competition, they demand that their anticompetitive acts go unpunished. In the name of freedom, they insist on their right to shout down the dissenter’s voice.
His thesis is simple in capitalist economies: No field sees winners try to retract the ladder behind them more aggressively than businessor I might add, the CEO’s of sound merging credit unions.
The primary advantage of the credit union model is the member relationship grounded in democratic ownership. Their unique advantage is their local knowledge and relationships that provide members a sense of agency over their lives and communities.
That goodwill, built up year by year over generations of members. is sacrificed in mergers.
NCUA requires new charters to survey potential members to demonstrate support, years of financial projections, vetting of proposed board members and employees with a process that takes hundreds of pages of documents and generally years to approve.
To give up a successful coop charter which took generations to succeed, is literally approved in weeks. The form is perfunctory, there is no effort to validate the reasons given nor the rhetorical promises made.
The credit union system is failing the members who created it by routinely approving consolidations that mimic the activities of institutions for which credit unions were supposed to be an alternative.
At a time when individuals and communities are confronted by forces, events, private and governmental institutions over which they have no say, the credit union is supposed to be an option they can count on. Mergers destroy this sense of influence over events in one’s life.
The score this quarter is 41 to 0. At the moment, the members are losing this game.
Tomorrow I will provide some thoughts of others on what might be done.
60 years ago seven employees of the Philip Morris Company formed a credit union to serve their employees. It cost 25 cents to join.
What is noteworthy is that the founder’s commitment, the human motivation required by any coop startup, still drives Call Federal today.
The mission statement is “passionately local banking.” The focus is building lasting relationships and giving back to the community. That commitment is stated as follows:
Call Federal has called the banks of the James River home for more than 60 years. Our employees live here, all decisions are made here. The money we make here stays here. We’re invested in this community, because it’s our community too.
The Members’ Voice
I learned about this “passion” for member service in a video celebrating their 60-year charter milestone. The three minutes is almost entirely member interviews. The culture of member service is described through real experiences. These are situations where the credit union has made a difference in members’ lives spanning generations.
The CEO John West recalls his predecessor, Roger Ball–CEO for 36 years–saying that service is not just the words used, but how you make members feel.
West’s current senior management team brings varied career backgrounds to the organization, not limited to financial services. “We want employees to span different schools of thought to continuously enhance our member relationships.”
West’s background illustrates this prior life and work experience. In November of 2021 he was appointed to the Board of Families Forward Virginia. The press release tells how this appointment aligns with the credit union’s mission:
Families Forward Virginia is the commonwealth’s leading nonprofit organization dedicated to disrupting cycles of child abuse, neglect, and poverty. . . Working with parents and their children, the statewide nonprofit provides Home Visiting Programs, Family Support, and Education, Professional Development, Child Sexual Abuse Prevention Programs, Advocacy, Public Awareness/Public Education.
Prior to joining Call Federal in 2012, West was a senior accountant with Mary Washington Healthcare. Before that he worked for the United Way of Fredericksburg. West is a graduate of Leadership Metro Richmond and served for one year with Lead Virginia.
West commented on his appointment: “Growing up in cooperative housing for steel mill workers, I know the value and importance of a strong community. Part of our mission at Call Federal is recognizing the stress that financial burdens can create.”
A Creative Financial Wellness Program
One example of how the credit union addresses this “stress” in members lives is its creative Financial Wellness Program. The program rests on three unusual principles to help members “be more confident in their financial decisions.” The three are:
Create Self-awareness. Discover your “money personality”: the habits and attitudes that influence your financial health, for better or worse.
Understand the fundamentals of money management.
Go Beyond by taking care of your physical and mental health and by giving back to your community and the world around you.
One example of this holistic approach to member financial well-being is a free resume review. Other services include coaching, financial workshops, even for kids, and articles to help members with both financial events and career planning.
Sustaining the Movement
Speaking with West about how the credit union sustained the founder’s original passion for serving members, he replied that the effort was not merely a credit union story. Rather it is the “human story,” that is, serving each other while living in community.
The credit union’s 2021 “State of the Union” video below describes the credit union’s response during COVID. It includes two members recounting their personal circumstances, an employee’s special efforts to help staff and a community agency discussing the credit union’s steadfastness. Each person speaks with passion about their credit union connection.
That passion is the difference that never grows old, no matter a credit union’s charter date.
(https://youtu.be/K4REjbxV68A)
60 years ago seven employees of the Philip Morris company formed a credit union to serve their employees. It cost 25 cents to join.
What is noteworthy is that the drive and commitment, the human capital required by any coop startup, still motivates Call Federal today.
The mission statement is “passionately local banking.” The focus is building lasting relationships and giving back to the community. That commitment reads as follows:
Call Federal has called the banks of the James River home for more than 60 years. Our employees live here, all decisions are made here. The money we make here stays here. We’re invested in this community, because it’s our community too.
The Members’ Voice
I learned about this “passion” for member service in a video celebrating this 60-year charter milestone. The three minutes is almost entirely member interviews. The culture of member service is described through real experiences. These are examples where the credit union has made a difference in relationships that span multiple generations.
The CEO John West recalls his predecessor, Roger Ball who was CEO for 36 years, saying that service is not the words used, but how you make members feel.
West’s current senior management team brings varied career backgrounds to the organization, not just financial services. “We want employees to span different schools of thought to continuously create value in our relationships.”
West’s background illustrates this prior life and work experience. In November of 2021 he was appointed to the Board of Families Forward Virginia. The press release tells how this appointment coincides with the credit union’s mission:
Families Forward Virginia is the commonwealth’s leading nonprofit organization dedicated to disrupting cycles of child abuse, neglect, and poverty. . . Working with parents and their children, the statewide nonprofit provides Home Visiting Programs, Family Support, and Education, Professional Development, Child Sexual Abuse Prevention Programs, Advocacy, Public Awareness/Public Education.
Prior to joining Call Federal in 2012, West was a senior accountant with Mary Washington Healthcare. Before that he worked for the United Way of Fredericksburg. West is a graduate of Leadership Metro Richmond and served for one year with Lead Virginia.
West commented on his appointment: “Growing up in cooperative housing for steel mill workers, I know the value and importance of a strong community. Part of our mission at Call Federal is recognizing the stress that financial burdens can create.”
A Creative Financial Wellness Program
One example of how the credit union addresses this “stress” in members lives is its creative Financial Wellness Program. The program rests on three unusual principles in their efforts to help members “be more confident in their financial decisions.” The three are:
Create Self-awareness. Discover your “money personality”: the habits and attitudes that influence your financial health, for better or worse.
Understand the fundamentals of money management.
Go Beyond by taking care of your physical and mental health and by giving back to your community and the world around you.
An example of this holistic approach to member financial well-being is a free resume review. Coaching, financial workshops, even for kids, and articles help members with both financial events and career planning.
Sustaining the Movement
Speaking with John about how the credit union sustained the founder’s original passion for serving members, he replied that the effort was not merely a credit union story. Rather it is the “human story” of providing service to each other living in community.
The credit union’s 2021 “state of the union” video shows how the credit union responded during COVID in this five minute video. It includes two members recounting their personal circumstances, an employee’s special help for staff and a community agency discussing the credit union’s steadfastness. Each speaker communicates passion about their credit union connection.
That is the difference that never grows old no matter a credit union’s charter date.
Reverse Robin Hood: Bank Purchases by credit unions
A response to my comments in a recent conference call: Your points that really resonated were lack of transparency and accountability inherent in the cooperative governance structure. Also the fact that the bank acquisitions are taking money from CU members to line the pockets of bank shareholders, truly a reverse Robin Hood situation.
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“If My Words Can Convince One Credit Union”
I think CEOs just get tired. I think boards can get tired, too. And they think if our current CEO can’t make this place grow, who can? They see the simple solution is to merge out.
I am telling small credit unions that is a mistake; at least look for someone. I have had conversations with a number of CEOs who are retiring from small credit unions and they’re not even considering looking for somebody. They aren’t doing anything. They are not telling their boards to look for somebody. In fact, they’re telling the board the opposite—nobody can do this job at my pay.”
That type of thinking, and an unwillingness to “fight,” is hurting the movement.
“If my words can convince one credit union…if one credit union decides not to give up and says at least I will look for a replacement for the retiring CEO, I will feel good. I hope more small credit unions will follow what we are doing here.” (source: David Sawin, CEO, MN Catholic Credit Union, interview in CU Today)
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What’s Missing?
“I am starting to think that credit unions are a waste of my time.
. . . as best I am able to ascertain, CUs are essentially just nonprofit banks – institutions that exist first and foremost to keep their employees employed and to keep the regulators happy. The trappings of cooperation – invocations of principles, mechanisms for elections of board members, etc. – are either ignored or treated as empty formalities.
The new CEO of the CU on whose supervisory committee I serve told me that members simply don’t give a damn about that stuff; they just want convenience.
From my perspective, if CUs are just going to do exactly what the local banks are do, then I might as well just move my accounts over to banks. What am I missing? (name withheld by request)
An uncomfortable change in the conversation (with regulators) will require incredible bravery. I’ve been kicking around CU’s all my life. My parents were members of a Teachers and a Manufacturing credit union. I have been on Boards and now a CEO.
I have studied the history of the movement and the credo’s doled out as battle cries. We were “choice”, we were “people helping people” – those goals were always color and socioeconomically blind as we emerged fighting against banking practices that were not–think redlining.
But we forgot one credo recently – “not for profit, not for charity, but for service.” Since this credo does not make a singular virtue of EQUITY, can we no longer espouse it?
The conversation change needs to be about DOI – Diversity, OPPORTUNITY, and Inclusion. We were born out of opportunity and we are still built on it. Will we be brave enough to say it? We don’t need to be admonished with a new recitation.
We just need to remember our founding principles – which are both relevant and powerful. (David. A. Jezewski, President/CEO, CommStar Credit Union)
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Dear readers do not despair. Tomorrow, Friday the 13th, is good news. I will tell the story of a credit union that believes in the power of cooperative design.
In America the press is often called the “Fourth Estate.” The term places the press’s role as critical as the three branches of government: legislative, executive and judicial. It signals the watchdog role of the press, so vital to a functioning democracy.
What is the state of press coverage of credit unions? Especially now that coops are the second largest depository system in the economy, serving over 100 million members and managing $2.2 trillion assets.
A Brief Credit Union Press History
Today’s independent coverage of the credit union system evolved from newsletters that emerged in the 1970’s and 1980’s as the credit union system become more coherent with national ambitions and organizations.
These startups included CUIS, Report on Credit Unions, NCUA Watch. These newsletters relied on subscriptions versus the free in-house updates from league and trade associations.
In 1986 ASI established the first printed newspaper format called Credit Union Week. Shortly thereafter Mike Welsh, former CUES President, launched Credit Union Times offering original reporting and commentary. In following years Credit Union News and Credit Union Journal were launched as competitors. All used a combination of advertising and subscriptions to support their free-spirited reporting.
Today the independent credit union news media is largely virtual, publishing daily online summaries relying extensively on press releases from the industry.
More than Aggregators
With small staffs, limited budgets and daily posts, opportunities for original reporting or even investigative efforts are limited.
But there are periodic examples of the traditional press role of speaking “truth to power.” Power refers both to the actions of NCUA and other government agencies, as well as events within credit unions and trade organizations.
Peter Strozniak of the Credit Union Times has a talent for tracking legal proceedings involving credit unions. His articles have provided valuable insight into NCUA’s regulatory shortcomings, as revealed in court records. A recent example is his story of a credit union’s suing NCUA for failure to prudently manage its interest in taxi loan participations. The opening paragraph:
The $390 million Nassau Financial Federal Credit Union is suing the NCUA for nearly $1 million for allegedly breaching an agreement to settle defaulted taxi medallion loans for a mere fraction of what they were worth.
Many observers questioned NCUA’s disposition of the taxi medallion loans sold to a hedge fund in February 2020. The agency refused multiple FOIA requests for details. This example further adds to the impression of an NCUA coverup in its actions in the $750 million sale of loan participations to a Wall Street hedge fund.
The Members’ Interests: Sunlight as a Disinfectant
CU Today has published a series of original articles about member’s efforts to participate more openly in their credit union’s governance.
One series discussed the efforts of four members of Virginia State Employees Credit Union to seek nomination for open board seats. Their efforts were totally ignored. The credit union elected the board’s self-selected candidates including the current chair with no outside nominees permitted.
More recently CU Today has followed the efforts of former directors and CEO to challenge the announcement of Vermont State Employees to merge their very successful credit union into the larger New England FCU.
CU today publisher Frank Diekmann editorialized about his goal of “pulling back the curtains.” He explained why reporting the merger information provided members when charters are ended and the payouts to management that sometimes accompany such efforts matters. It read in part:
We also got to see how many CUs opted to return net worth to the people who own it (in some cases, obviously, there was little to reserve from the reserves). We further got a peek into which were not offering any payout, with a few citing odd reasons such as the acquiring CU has more branches or, bafflingly, offers Apple Pay and Google Pay. Eh?
One CU did announce it would be paying out some of the excess capital, but in this case only to savers, with more than $2 million being distributed in all. I’m not suggesting the members of the board all had savings/CDs at the credit union and that few if any were borrowers. I’m just saying.
Sunlight may indeed be the best disinfectant, but not if no one never opens the curtains. CUToday.info has made a commitment to reporting on all the merger disclosure forms sent to NCUA, meaning we will continue to give the curtains a pull.
Needed: A Pulitzer for Credit Union Reporting
At last week the White House Correspondent’s dinner the comedian Trevor Noah’s public roast of many public figures ended with this close about the never-ending importance of a free press.
While the international press coverage of the war in Ukraine was top of mind that night, a domestic event happened the following day proving Noah’s thesis.
The national press released a draft of a Supreme Court decision that would reverse the Roe vs Wade fifty-year precedent giving women the right to an abortion. The coverage took the debate from behind the hermetically sealed Supreme Court process, to the public sphere.
If credit unions are to fulfill their purpose of bringing more economic democracy to their members and greater choice for all consumers, one of the most important ways to monitor this role is an independent press. One that reports its successes and exposes its failures.
In addition to Herb Wegner awards honoring credit unions leaders who exemplify the best in cooperative commitment, I believe an equally important moment would be to award “Coop Pulitzers” to press coverage of credit unions.
These would recognize the writers and stories from within and without the industry who take the risks and invest the time to hold those in positions of leadership to public scrutiny. Especially for those with public authority. For unlike the White House Press, in credit union land there is only one estate, the NCUA.
While traveling yesterday I was copied on an email between two credit union members. The sender asked in part:
“ I belong to five different credit unions. I’ve clawed my way onto the supervisory committee of one of them. . . Alas, the Board of one has recently approved a deal by which it will be swallowed up by the biggest credit union in the state. . . When the deal was announced I wrote asking for whatever merger documents they could disclose.
I heard back directly from the CEO, who cheerfully explained they would be disgorging absolutely no documents. It appears to me that the board and management actually expect the membership to ratify this deal entirely on a “trust me” basis. . . literally every justification that has been publicly offered comes down to some version of “bigger is better.”
His request: “I am wondering if you would refresh my memory about what specific questions a concerned member ought to be asking about a deal like this.”
Topical and Troubling
If the situation is familiar, it is because it happens weekly. Not mergers, but member-owners cut out of the process entirely. Private deals supported by rhetorical promises and void of any objective facts.
Takeovers are an everyday event in capitalism and its anything-goes world of buyouts and mergers enabled by the financiers.
Here is how one long serving capitalist CEO described the process in his Annual Report:
Acquisition proposals remains a particularly vexing problem for board members. The legal orchestration making deals has been refined and expanded (a word aptly describing attendant costs as well). But I have yet to see a CEO who craves an acquisition bring in an informed and articulate critic to argue against it. And yes, include me in that category.
Overall, the deck is stacked in favor of the deal that’s coveted by the CEO and his/her obliging staff. It would be an interesting exercise for a company to hire two “expert” acquisition advisors one pro and one con, to deliver his or her proposed views on the a proposed deal to the board—with the winning advisor to receive, say, ten times a token sum paid to the loser.
Don’t hold your breath awaiting this reform: the current system whatever its shortcomings for shareholders, works magnificently for CEO’s and the many advisors and other professionals who feast on deals. A venerable caution will forever be true when advice from Wall Street is contemplated: Don’t ask the barber whether you need a haircut. (Source 2019 Annual Report, Berkshire Hathaway Inc. pgs 12-13)
A Game without Rules: Credit Unions Become Commodities
Mergers are being undertaken by sound, well established and stable credit unions not to better serve members. But rather to make life easier for their leaders.
Instead of cooperative communities expanding long-time member relationships, these transactions treat credit unions like a commodity. Leaders who give up their fiduciary positions to an outside third party without engaging the owners prior to the decision and who must approve this charter cancellation.
This is the situation the member’s email describes. And hundreds of thousands more members who end up becoming just consumer accounts to be bought and sold.
This is worse than the acquisition games Buffett describes in his Annual Report. Credit unions and cooperative design is supposed to protect member-owners from self-dealing leaders and board toadyism.
Mergers lack transparency, public disclosures of strategy or benefits, and certainly no post acquisition accountability. These are private deals negotiated by CEO’s putting their interests first and then announcing their intent to members.
The member vote is merely an administrative process without substance where very few members even bother to participate. All the messaging, resources and formal requirements are under the complete control of the persons benefitting from the transaction-not the members who must approve the decision.
What can members do? How can the supposed democratic one member one vote governance model be revitalized to ensure member interests are front and center in these self-dealing transactions?
That is what the member is asking. I will share your thoughts, and offer a few of my own. Where is the Kristen Christian when members now need her to save their own credit unions?
Buffett’s Merger Conclusion
“I’ve concluded that acquisitions are similar to marriage: The start, of course, with a joyful wedding–but then reality tends to diverge from the pre-nuptial expectations. Sometimes, wonderfully, the new union delivers bliss beyond either party’s hopes. In other cases, disillusionment is swift. Applying those images to corporate acquisitions, I’d have to say it is unusually the buyer who encounters unpleasant surprises. It’s easy to get dreamy-eyed during corporate courtships.”
As long as there are credit unions, persons of incredible talent, generosity and conviction will be drawn to leadership roles. An example of this cooperative character is Marvel Eberhahn of Community Credit Union, New Rockford, North Dakota.
At her retirement celebration in December 2016 CU Today wrote a profile of her six-decade career as CEO.
Accompanying the story was an 8-minute video that shows the North Dakota setting and an extended interview with Eberhahn. The video captures her personality formed by the prairie farmland which the credit union served. The words demonstrate her spirit, practicality and love of community.
Her performance expectation for the credit union was straightforward: “If we can’t be different, why are we here.”
Watch the video. It provides examples for how she implemented this belief, from saving a WW II veteran from a bank’s equipment foreclosure to keeping farmland in the family.
When she left her CEO role, the credit union was $!66 million in assets, a 9,000% growth from the $18,000 when she assumed her role. Today Community is $192 million with three branches serving almost 5,000 members.
Here is the CU Today story, used with permission:
NEW ROCKFORD, N.D.–For the first time in 65 years, Community Credit Union here is preparing for a new CEO.
But before that happens, a new video shares Marvel Ebenhahn’s extraordinary history in credit unions, of days when the “credit union” was a filing cabinet, of difficult times trying to hold the family farm together, of tough times in a tough place, and through it all, of becoming an indispensable part of a community and overseeing 9,000% growth.
Ebenhahn will be retiring effective Jan. 1, 2017, after more than six decades on the job. Barb Messner, who is currently the CU’s operations manager, will take over as the second president in the credit union’s history.
Ebenhahn, however, is not fully retiring, and will be staying on at the credit union in an advisory capacity while also working as a loan officer with a less demanding schedule, which will allow her to spend more time at her retirement home in Arizona, according to the Credit Union Association of the Dakotas.
Few people in credit unions have ever overseen the kind of asset growth that Ebenhahn has seen during her career. When Ebenhahn joined the credit union, which serves rural Eddy County, N.D., it had $18,000 in assets and 250 members. Today it has $165 million in assets and nearly 6,000 members.
Founded in 1942, what was once operated out of a filing cabinet in the corner of a farm cooperative store now has three branches. Ebenhahn joined the CU in 1952 when it was known as Eddy County FCU.
“Marvel has been a mentor and inspiration for many credit union leaders throughout the decades here in North Dakota,” stated Jeff Olson, president/CEO of the Credit Union Association of the Dakotas (CUAD), in a statement. “Not only does she embody the cooperative spirit of putting members first, she really epitomizes our wonderful, traditional ‘small town’ rural values of faith, family, community, and hard work,” he continued.
Unique & Inspiring
To illustrate what it is calling a “unique and inspiring story,” the Credit Union Association of the Dakotas has created a short documentary video that records in Ebenhahn’s own voice, the evolution of the credit union and the community.
“I think’s a safe bet that there aren’t very many credit union CEOs anywhere today that can boast a 9,000% increase in assets or a 2,000% increase in membership in their career,” remarked Olson, who’s voice provided the narration on the video. “Nor can many match a span of 65 years of helping so many people in a small rural community.”
Marvel’s father was one of the original founders of the credit union, and she grew up with first-hand knowledge of the cooperative principals, the CUAD noted. Established in 1942, from its humble beginnings serving members of the Farmers Union Co-Op, the credit union evolved to a community charter so it could serve anyone who lived within a 50-mile radius of the town of New Rockford. In 1962, 10 years after Ebenhahn joined the CU, it had grown to the point of needing its own building.
“The credit union soon gained a reputation for helping people that the banks had refused,” said the CUAD. “‘Go see Marvel’ became a common phrase in the community.”
Serving a rural farming community can mean tough times, and as the video makes clear the credit union has also had to make tough decisions, especially during the 1980s when agricultural markets hit hard economic times.
In the video Ebenhahn shares that it’s “not fun” to take away a farmer’s land. She said the CU’s policy has always been in cases where it had to foreclose to attempt to find someone else in the farmer’s family who might be able to take it over in order to “keep the family farm together.”
But in all cases the credit union’s interests had to be protected she said. “You can’t just charge off a loan because you like a guy,” Ebenhahn says in the video.
Olson, a 10-year veteran employee and president of CUAD, said he has had the opportunity to visit with Ebenhahn on many occasions.
“I would love to drop in on her credit union just so I could listen to some of her many stories of how the credit union was able to help so many people over the years,” he said in a statement. “What is even more amazing is that she is making loans and doing business with grandchildren and great grandchildren of the people that first started the credit union. That’s why I thought it was important that we (CUAD) record Marvel so we could share her amazing story with today’s credit union leaders.”
The Ultimate Compliment
The CUAD reported several of its member credit unions have recently incorporated the video into their employee training programs – the ultimate compliment to Ebenhahn and her legacy.
“It’s amazing what people can do when they work together,” Ebenhahn says in the video. “I think I’ve been pretty lucky to have this job. To tell you the truth, I don’t think I’d want to do anything else. I’ve been blessed.”
“This is preeminently the time to speak the truth, the whole truth, frankly and boldly. . .our distress comes from no failure of substance. . . Plenty is at our doorstep, but a generous use of it languishes in the very sight of the supply. . .
“Practices of the unscrupulous money changers stand indicted in the court of public opinion, rejected by the hearts and minds of men. . .
“Faced by failure of credit, they have proposed only the lending of more money. Stripped of the lure of profit by which to induce our people to follow their false leadership, they have resorted to exhortations, pleading tearfully for restored confidence. They only know the rules of a generation of self-seekers. They have no vision, and when there is no vision the people perish.
“Yes, the money changers have fled from their high seats in the temple of our civilization. We may now restore that temple to the ancient truths. The measure of that restoration lies in the extent to which we apply social values more noble than mere monetary profit.
“Happiness lies not in the mere possession of money; it lies in the joy of achievement, in the thrill of creative effort. The joy, the moral stimulation of work no longer must be forgotten in the mad chase of evanescent profits. These dark days, my friends, will be worth all they cost us if they teach us that our true destiny is not to be ministered unto but to minister to ourselves, to our fellow men.
“Recognition of that falsity of material wealth as the standard of success goes hand in hand with the abandonment of the false belief that public office and high political position are to be valued only by the standards of pride of place and personal profit; and there must be an end to a conduct in banking and in business which too often has given to a sacred trust the likeness of callous and selfish wrongdoing.”
One initiative to bring more options was passage of the Federal Credit Union Act in 1934.
Democracy is difficult to practice, especially when incumbents mange the process.
No one likes to give up positions or power, even if one is a volunteer. This is true for local and national elections and in credit unions.
The press has reported on the attempt by four members of Virginia Credit Union to be considered for nomination to stand for election to the board. Their efforts were ignored, and they were denied the chance to raise the issue at the March Annual meeting.
“The four people seeking to run for a board seat—Frank Moseley, Richard Walker, Tori Jones and Kati Hornung—have called the election a “sham” and alleged the process protected incumbent board members or their hand-picked candidates. The group said in earlier remarks that the CU’s chairman selects members of the Governance Committee that selected members to run for board seats, including the same CU chairman.”
An early account of their efforts can be found in this post, The Fix is In.
A Shining Example of Democracy in a Coop
Shared Capital Cooperative is a lending and investment fund for co-ops of all types and sizes. They are cooperatively owned and managed by the co-ops that borrow from and invest in the firm. Borrowers and investors experience genuine cooperative finance—generating grassroots community wealth while building social, environmental, economic and racial justice.
The Coop’s vision is “building economic democracy.”
Founded in 1978, it is a Certified Development Financial Institution (CDFI) located in St. Paul, MN. Its staff of 10 manages approximately $14 million in loans. The board has eleven members elected from coops across the country.
The coop has both individual and 265 organizational members. One board seat is voted by individuals and is not up this election. There are six candidates for the three open board seats, each with a three-year term.
Board Election Ends Today
Voting is electronically from March 28 and ends today. The link sent to me via email goes to an eleven-page listing of the candidates’ biographies. The second link provides current board members’ backgrounds. Here is an excerpt from the email:
Meet our candidates! For biographies and candidate statements of this year’s candidates please click here. For more information on our existing board, click here.
Cooperative members eligible to vote (not individual members like me) receive an email with their voting credentials. Annual meeting details are also given.
Shared Capital Cooperative’s Annual General Member Meeting and Cooperative Forum. It will be held virtually on Thursday, May 12th, from 12:00 pm to 1:30 pm CT.
The event will be free and open to the public. All are welcome! More details will be posted at www.sharedcapital.coop.
This relatively small, $16 million total assets organization, practices the democratic principles it committed to when formed.
Following Shared Cooperative’s Footsteps
This is an example of a board election/annual meeting that any credit union could emulate. The process might prove enlivening and a confidence builder with members. Especially as some credit unions struggle to involve members in this required annual democratic voting ritual.
This approach might result in more than a pro forma election; it could enhance member engagement and belief in the credit union!
