Category: Co-ops in Capitalism

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Reflections Entering 2025

Some individuals believe leadership is about the spirit of the poem Invictus:  that I am the master of my fate and the captain of my soul. 

The majority, I believe, understand our future will more likely be shaped by communities and groups with which we participate, professionally and voluntarily.

The following is a selection of issues that we will  encounter in the year at hand. In contrast to the certainty of Invictus, management guru Peter Drucker cautions:  “Trying to predict the future is like trying to drive down a country road at night with no lights while looking out the back window. ”

Success May Look Boring

I start with an observation by banking consultant John Maxfield:  Banking is a sport of unforced error. The harder one tries the worse one performs.

Tennis.

Ping pong.

Don’t be too ambitious.

Credit Union Leaders Out of Touch?

Outlining vital missions is the job of leadership.   But this skill does not necessarily come with those in positions of authority.  Consultant Ancin Cooley described one industry challenge:

A core question is about advocacy in our movement: Who are we really advocating for? If we claim to represent the interests of members, why does it so often feel like so much public energy is spent protecting interests that don’t align with members’?

So, should we be out in front of the overdraft fight or supporting legislation that limits corporate ownership of single-family homes? The response you get from some folks is often very telling. I often wonder who is actually making these decisions for the credit union movement because the direction we are going seems out of touch with our members and the communities we serve.

A good example to understand Cooley’s concern is the debate on credit card fees.  This article clearly outlines the conflicting positions credit unions must balance for members.  One of the author’s observations:  “Nobody ever got rich through credit-card rewards, yet lives have been ruined due to credit-card debt.”

Innovative ideas and compliance mandates cannot create the kind of priorities that clearly define credit union’s unique role in the American economy.  That can only come from persons who care deeply about their members’ future and financial lives.  When leaders combine both mind and heart in their roles, it may be possible for coops to discover possibilities  never imagined before,

The Loosening of Social Norms-Culturally and Politically  (by David  Kaiser, American Historian)

“From Shakespeare: “The fault, dear Brutus, was not in our stars, but in ourselves.”  So it is again.  What my generation has done was only human.  The self-restraint which, as the Founders realized, was essential to make the American experiment work, had weighed upon too many generations for too long. 

“It could not, human nature being what it is, endure indefinitely, and it didn’t.  It had indeed gone too far in some ways, and humanity has benefited from loosening some of those restraints. 

“Now it will fall to future generations to re-establish some of those restraints and enable us to live together and solve new problems in the large, cooperative communities which their vast numbers now need to survive.” 

The Proper Use of Artificial Intelligence (AI)

What if AI is unleashed and never quite controlled — not in the sense of a robotic takeover but, as Harvard law professor Jonathan Zittrain puts it, as a new form of asbestos: dangerous, everywhere and hard to get rid of.  

Trump Administration: Uncertainty about Everything

( Analysis from  Kellogg Insight, Northwestern University)

Two months have passed since the election and the policy landscape under a second Trump presidency remains as uncertain as ever. We suspect that the Republican-controlled Congress will squeeze some savings out of the budget, but not enough to have a material impact on economic growth 

Economists generally view innovation as the main long-term contributor to living standards, as new ideas make people more productive and richer, freeing up time to innovate anew. But there is a second strand of thinking in the economic growth literature, and it holds that political institutions matter most of all.

Peter Thiel famously said, “We were promised flying cars; we got 140 characters.” With crypto we were promised DAOs and smart contracts; we got $100,000 Bitcoin.  

Technical progress desperately needs to be matched by social progress that increases trust and delivers better decision-making — from neighborhoods to boardrooms to relations between heads of state.

The Outlook for Interest Rates

How will markets perceive the growing burden of national deficits and debt?

From the Rising Burden of US Government  Debt

Federal Debt as a Percentage of Gross Domestic Product

From Bloomberg Forecasts:  Hopes that the Federal Reserve would keep up a swift pace of interest-rate cuts have dwindled. That means stocks and US consumers could face mounting pressure, and borrowing costs could remain higher for longer.

An Environmental Change That Aligns with Credit Unions?

From: Addison Del Mastro on Bringing Back America’s Small Cities and Towns

In last year’s predictions roundup, I predicted that 2024 would see the housing crisis, and urban policy more generally, become more of a mainstream issue. Of course, that didn’t happen all at once, but I feel pretty good about the trajectory of these issues’ salience.

This year, I’m thinking about a laterally related issue that may have the wind at its back: the question of economic revitalization in small cities and towns.

However much (or little) the incoming administration may do in terms of housing affordability or lifting the fortunes of deindustrialized or “forgotten” places, the hope that they might do something about it was certainly a factor in Donald Trump’s victory. And a lot of small cities and towns are seeing new construction in their old downtowns for the first time in decades.  

The eye-watering expense of housing in the biggest metro areas, the rising appreciation for classic urban patterns and the sense that perhaps we owe something to places that have lost out to globalization, may all combine to create a real movement or effort behind bringing back America’s intact but battered small old cities and towns.

(From Discourse)

 

 

 

 

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A Plea for Patelco:  Seek Member Paraticipation, Not Proxies

Yesterday I received the following email signed by Patelco’s CEO Erin Mendez.  It read in part:

Dear Charles,

As part of a member-owned credit union, you benefit from our commitment to your financial wellness. Our volunteer Board of Directors helps guide the credit union – and you can allow them to vote on your behalf, making decisions to benefit you. Our Board of Directors and senior leadership work together to guide Patelco and provide the best service and benefits for you.

To help things run smoothly, we use proxies, which give authority for the Board to represent your interests when they vote. (A proxy is a person you designate to vote for you at meetings. By designating a proxy, you allow that person – in this case, a qualified member of our Board of Directors – to cast votes on your behalf.)

Update Your Proxy Today  

Clicking the update proxy link brings the following instructions:

Updating your proxy only takes a few seconds and remains in effect for three years. By updating, you will:

  • Have your vote represented with no need to attend meetings
  • Provide authority to our member-centric Board of Directors
  • Allow qualified business people to look out for your financial interests, and those of all members

Your current proxy expiration date is 10/11/2023

My Concern with This Request

The email was sent from  a no-reply@email.patelco address. This is a one-way message and recipients could not respond to the CEO’s signed request.  Therefore I am taking this public route to voice my concerns about members transferring their basic franchise responsibility to incumbent directors.

Proxy voting is prohibited for federal credit unions.  It eliminates the concept of the member-owners democratically (one-member, one-vote) electing their representatives.  While a small number of states, like California, permit proxy voting in board elections, these statutes were passed before the 1934 Federal Credit union Act was in place.  These initial coop governance models were lifted from existing mutual savings statutes that permitted proxies.

Proxies give existing leadership who already control the nomination process and the candidates selected, absolute control over director choice. Instead of empowering members, proxies further entrench existing directors. The process removes  member-owners from any meaningful role in choosing their leaders.  The unique democratic design of credit unions is rendered meaningless. Proxies shield directors from accountability to the coop’s owners via elections.

The Opportunity of the Annual Member Meeting

The annual meeting should be a celebration of member-ownership and institutional progress.  Owner participation should be encouraged.  Member voting is one of the ways this engagement is meaningful, not just a coronation. The second largest credit union in the country SECU NC has demonstrated that individual member voting is feasible in even in the largest coops.

Voting is a fundamental right of ownership.  Credit unions should be leading examples of democratic governance.  As the general public feels increasingly distrustful of elections and democratic processes for public institutions, credit unions should be an example of how this form of governance works. It can function well even when it comes to the management of their most critical matters of personal finance.

In the last several years Patelco has expanded aspects of its annual meeting agenda to encourage member engagement. Last year there was an extended Q&A with the Chair and staff responding to pre-submitted questions.  The prior year CEO Mendez prepared a lengthy live presentation distinguishing Patelco’s liquidity and funding strategies from the recent Silicon Valley and other bank failures.

In 2024 Patelco suffered a major cyber attack. Some member services were limited for weeks. Much time and resources were required to stabilize the situation.  Direct, open conversations with members at the Annual Meeting about this and other performance challenges are a way of sustaining member-owner confidence.

More importantly member enthusiasm for their coop is enhanced if the meeting includes both business and celebratory events. This gives directors the chance to connect with and be seen by members—not just spectators watching scripted formalities by the Chair presiding over a required agenda.

An Alternative Communication Approach

Rather than requesting members hand over their most important ownership role to the existing board, why not instead survey members about their experiences at the credit union?   Give them the opportunity to become involved, to raise their issues (e.g.why is my HSA account dividend only .25%) and to encourage thoughtful engagement and attendance at the meeting.

A brief survey would show respect for members’ opinions, create interest in the upcoming meeting, and promote the cooperative difference of member-ownership.

The credit union advantage is the capacity to create long standing member ties. Credit unions should welcome participation. It would educate the owners about the credit union’s performance and their critical role in its success.

In brief: Drop the proxy solicitation.  Seek member input.  Demonstrate the credit union democratic governance model in action.

A closing suggestion: Please include your direct contact information in these kinds of member communications to show your openness to hearing our point of view to your message.

 

 

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Form Follows Function Even in Credit Unions

A principle of both internal and landscape architectural design is that “form follows function.” The concept was developed by Louis Sullivan, who used the phrase when he designed the Wainwright building in Chicago.  It was utilitarian in design reflecting the office work that would take place within.

Examples of this premise can be found in numerous areas of biological evolution:

  • Coral reefs, which protect other species from ocean waves and currents
  • Bears, which have sharp, curved claws to help them catch fish
  • Walruses, which have blubber to keep them warm
  • Giraffes, which have long necks to reach leaves on tall trees

More to the point, credit union organizations are subject to this same evolutionary  principle. The member owned, self-funded, locally focused, democratically elected leadership reflected the founding purpose of a financial cooperative.  That is to combine individuals’ resources to assist those left behind or preyed upon by existing consumer options.

This special economic focus on those on life’s financial margins was supported politically with a blanket exemption from federal taxation.  Credit unions were seen as an example of doing good for communities and groups rather than rewarding institutional profit and private ownership.

Today with abundant financial choices for almost all levels of society, the original purpose seems somewhat muted.  The middle class of employed workers is doing well. Those with  home ownership and savings in ever rising markets, even better.  Serving those left behind is hard.  These groups today are often the focus of special governmental or nonprofit programs

What happens to credit union design when the original function, or calling, is changed by market forces?

As in many other areas of life, the form changes as the focus of an organization evolves to serve all-comers not just those left behind by America’s promise of opportunity.  The previous cooperative design elements are replaced by institutional priorities of growth, increased marketplace visibility and reach.  These ambitions are driven by CEO’s and boards who inherited a legacy of financial resources held in common, but who chose to pivot away from traditional community and member investments.

This evolution places profits before people, thus turning upside down the cooperative priority.  Growth comes from acquisitions using the collective capital pursuing other financial organizations. Internal value creation for the member-owners is seen as boring. Geographic diversity, new revenue sources and investing in fintech startups are the key to future success.

In short, these new designs make some credit unions indistinguishable from their for-profit privately owned competitors.  Members are no more than customers, each a potential revenue or profit center.

This evolution is neither inevitable nor the ultimate outcome.  But it does garner the headlines and lots of external brokers, consultants, advisors who introduce credit unions, as their next meal ticket, to the wonders of market capitalism. Credit union boards, executives and even external advisors who have limited grasp of their organizations’ legacies are easily seduced by the thrills of this market-place capture.

Self-awareness and self-restraint are hard characteristics to nurture when one is in a position of power and privilege.  However, I believe the leaders of credit unions in the year ahead will be those whose vision may seem modest compared to more dramatic short term activities.

For values that sustain are not the result of temporary market success, but rather the hard-earned relationships nurtured over years. These values shape the functions to which leaders give priority.  For those in positions of credit union leadership, cooperative design is still true to the original purpose.

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It’s a Wonderful Life in Ravalli County Montana

Ravalli County FCU is a $75 million credit union with its main office in Hamilton, Mt.

It is an organization led by three women who  believe and daily implement the credit union spirit.  It is the same commitment memorialized in the Christmas classic movie, It’s a Wonderful Life.

With 17 employees and 5,924 members out of a county population of  48,000, its focus is lifting up the entire community.  Their mission statement:

We Believe in Our Community!

At Ravalli County Credit Union, we believe in “People Helping People”, we believe in better banking, and we believe in creating beneficial, life-long, financial relationships for our members and community. As a credit union member, you can take pride in knowing you are part of something bigger. Throughout the year, Ravalli County Credit Union volunteers, sponsors, and donates to local non-profits and schools to enrich the lives of those in our community.

Examples of this commitment on its website are the Thanksgiving meals provided, scholarships awarded, completed VITA tax returns and the volunteer hours by employees and the organizations they support.

It’s $53 million loan portfolio is growing over 8% this year.  The delinquency rate is just .06% with net recoveries of $117,710.  Capital is 12.8%.

A Community Need

What caught my attention was a December 2, 2024 article in Next City by Connie Aitcheson, In One Montana Town, Women in Need Get New Financial Support.

The article describes the credit union’s initiative helping single mothers and working women in poverty to improve their opportunities. 

The need: “There are so many women in our area living at the poverty level,” says Darci Parsons, the president and CEO of a local credit union called Ravalli County Credit Union (RCCU).  Some of the reasons for the large amount of women living at the poverty level are the death of a spouse, divorce, unplanned children, domestic violence and the high cost of housing in the area.

For single mothers in the area, poverty rates jump to 49%, also according to the American Community Survey 2019. In Hamilton, the largest city in Ravalli County, a staggering 83% of single mothers are in poverty and earn 75% less than married couples with children — an average of $18,074 vs. $71,429. About 30% of RCCU’s clients are female-headed households, and their median earnings are 20% less than men.  

The article summarizes the recent demographic changes occurring in the county:

Their community of Ravalli County is experiencing a tension familiar to many metro areas across the country. A new wave of retirees and remote workers — in part sparked by COVID-19 — have moved into Montana, increasing both housing costs and the general cost of living. The median price for a home in the county, according to Realtor.com, has risen to nearly $770,000.

The good news is that the credit union has received a $560,000 grant from the US Treasury’s CDFI fund to underwrite this effort.

“There are a lot of people who move to our area with means,” Parsons says. “And, unfortunately, there’s a lot of people in our area who are underserved, who are struggling to make ends meet. Our job is to have that balancing act of where we’re serving new members who move into our area who have funds as well as the large population of people in our area who do not — primarily women.” 

How the CDFI grant will be used: “We can write loans for people who are maybe more credit challenged … or who might have collections.”

The credit union also offers an account that protects against overdraft fees and offers a $500 line of credit — regardless of someone’s credit score. They also do not perform background checks on any applicants. “If they’ve had problems at other financial institutions, they can still open a checking account with us,” Parsons says. “We can write loans for people who are maybe more credit challenged … or who might have collections.”

According to Parsons, many women “don’t have that confidence in themselves.” 

“As a credit union, our mission is helping people, and that’s what we do every day,” Parsons says. “I have an amazing staff who embody that and make a difference in the lives of our community.”

The angels from George Bailey’s story can now be found, collectively leading a Montana cooperative.

Darci Parsons,   Ravalli County FCU – CEO

Why Ravalli County FCU? The better question is WHY NOT Ravalli County FCU? Our philosophy is all about people helping people and our promise to you is to: simplify your financial life, work in your best interest and partner with you to achieve financial success. We get it.

Sirikit Vieyra, Ravalli County FCU – COO

Ravalli County FCU has served this amazing community for 66+ years and is going strong! We even added another branch in Florence, MT. It is a privilege working for you and with you and as we update and increase our services, I’ll always strive to meet your financial needs and goals. We get it.

Laci Rose,  Ravalli County FCU – CFO

At Ravalli County FCU we ARE people helping people. I love that we are constantly working to improve technology and increase services to better serve our members with all their financial needs. We get it.

 

 

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The Second Expression: Credit Unions Member-Facing Value Stories

Yesterday I  compared credit union’s public personas  to the tragedy-comedy masks of ancient Greek theater.

The face I discussed was that of credit union’s institutional achievements:  the growing sponsorship of stadiums and sports teams, the continuing mergers of long standing organizations with no member benefit, and the rebranding from legacy origins to aspirational names (Bethpage FCU to FOURLEAF FCU).

Today’s alternate face is member focused.  They celebrate the many ways credit unions are sharing and enhancing their value for members and communities.

It is for the reader to decide which credit union expression may be tragic or life affirming.

Sharing the Annual Financial Harvest

The most frequent member-centric announcements this time of year are the numerous bonus dividends credit unions pay members.  This is a pattern of member value sharing that goes back decades.  Some examples.

The largest  yearend bonus in credit union history.  That is how the Ogden, Utah Goldenwest Credit Union described its recent $3.5 million  bonus dividend.  It added, “During the last 21 years, Goldenwest has returned more than $30 million to its members.”

These distribtutions are is not new or unusual.   If one types “bonus dividends” into the search box on CU Today’s  home page, 2,482 matches are listed.  Some stories go back decades of coops sharing success their with member-owners.

These payments can be structured in many creative ways.  On December 2, 2024 CEFCU (Peoria, Il) announced a $55 million Extraordinary Dividend:  $52.25 million shared equally between borrowers and savers, and $2.75 million going to CEFCU Debit Mastercard users. The video announcement  states the credit union has distributed over $500 million in bonus dividends since 2000. Listen to CEO Matt Mamer’s explanation for why and how this bonus was paid.  You may view one of many member’s stories featured on the site, that of a single women buying her first home.

The $1.9 billion Tyndall CU paid $1.6 million using the following formula:   To get their holiday cash, members had to participate in everyday banking activities, such as online banking, bill pay, direct deposit, card usage, e-statements, and loans. Each member had the opportunity to receive up to $700.

More Than Special Dividends

Being part of a community is more than sharing financial success.  It is leaders’ personal participation in special events as described in these LinkIn posts:

From the CEO of Desert Financial:  My family and I had the opportunity to volunteer with the Desert Financial team at a special Hometown Heroes event last night at the Phoenix Zoo. The highlight of the night was seeing the kids’ faces light up as they picked out gifts and met Santa. This initiative is a small gesture of gratitude for the sacrifices these veteran and first responder families make for our community and country.

From San Francisco Fire’s CEO: This is my favorite time of year when SF Fire Credit Union staff volunteer alongside members of the San Francisco Fire Department and others to give out toys to children in our local community as part of the annual SFFirefightersToyProgram. Thanks to all who joined us and everyone who supports this amazing program.

Special Community Investments

From the December 11, 2024 Youngstown Business Journal:

YOUNGSTOWN, Ohio – The city has selected 717 Credit Union to administer $13 million in American Rescue Plan Act funds across three programs to improve housing. 

As part of the Youngstown Affordable Loan Program, the city allocated $8 million for the construction and/or rehabilitation of quality affordable housing. The credit union proposed to parlay the $8 million into not only funding for housing development, but also $35 million worth of discounted mortgage financing.

To begin development, 717 will create a $5 million revolving commercial development fund to be used for developers to rehabilitate vacant downtown buildings into residential condos, to build homes on vacant lots and to develop neighborhoods. After renovation or construction, the units will be sold to individual buyers and the funds recuperated to be invested in additional projects. 

A press release yesterday from SECU North Carolina:

SECU Foundation Initiates Phase Two Disaster 
Relief Package of $1.75 Million for Western North Carolina 
RALEIGH, N.C. – SECU Foundation’s Board of Directors approved a phase two disaster relief package with an additional $1.75 million in grants to three organizations, providing intermediate assistance to the hardest hit residents and communities impacted by Hurricane Helene. Funds awarded will help address temporary housing needs, financial crises, and food insecurity. Grantees include:

  • Baptists on Mission – a $1 million grant to support its Essential Rapid Repairs program.
  • The Salvation Army of the Carolinas – a $500,000 grant to expand its capacity and help ensure impacted families receive financial aid to recover effectively.
  • MANNA Food Bank – a $250,000 grant for a six-month produce distribution pilot program beginning December 2024 that will expand accessibility of fresh fruits and vegetables to impacted communities.

Phase two funding builds upon the Foundation’s $3.75 million relief package announced in October to help expedite provisions of water, food, supplies, shelter, and other emergency services to Western North Carolina.

Credit Union Teams Having Fun Supporting their Community

The annual polar plunge with purpose video from Affinity Plus FCU (St. Paul, MN) for the Special Olympics program.

Polar Plunge With A Purpose

(https://creditunions.com/features/polar-plunge-with-a-purpose/)

A Credit Union’s Example of It’s  a Wonderful Life

Every day in numerous communities, credit unions put their members’ well being first in all they do.  They are the current expression of  George Bailey’s mutual savings and loan in Frank Capra’s memorable film .

Here is one real life example from Wright-Patt Credit Union in Dayton, Ohio:

(https://www.youtube.com/watch?v=yMJT0nneRaM&t=18s)

The Credit Union Challenge

Which mask, the corporate or the member facing one, will the American public see in  credit unions today?

Will it be the continuing acquisitions fueled by payments to senior leaders, the public branding campaigns and naming rights on buildings, suplemented with continued efforts to purchase banks?   Or, wlll member-owners recount stories of goodwill, shared financial success  and innovative projects with partners to advance their communities?

If institutional success dominates public discussion and headline events, the results could be tragic for a separate, member-owned cooperative system.  Does American really need more growth maximizing financial firms fueled by internal and external acquisitions?

If special member value delivered results are the lead story, America could certainly benefit from these modern day George Bailey-like coops.   Ones where purpose for member and community progress are the priority.

I believe it is clear which expression members prefer; but will their leaders meet this moment for their institution’s choice?  And the movement’s future?

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The Two Faces of Credit Unions Today

 

In  theater comedy and tragedy are a pair of masks, one crying and one laughing. Originating in the theatre of ancient Greece, the masks were said to help audience members far from the stage to understand what emotions the characters were feeling.[1]

Today these two masks are a metaphor for two contrasting public faces of the credit union movement.  One is the corporate face. The other the member one.  I will present one persona today of the corporate face; tomorrow the member one.

The reader can decide which of the Greek interpretations might apply to their credit union face.

A Critique of the Credit Union’s Corporate Persona

Here is an excerpt from an October 2024 article by Aaron Klein a senior fellow and financial regulatory commentator with  the Brookings Institute.  The full article is called Why Are Non-profit Employee Credit Unions Spending Members’ Money on Stadium Naming Rights?   An excerpt of one example in his analysis:

Northwest Federal is quite small, America’s 91st largest credit union. Two years ago it spent a total of $2 million on advertising. But in August, it secured naming rights to the Commander’s home stadium – now Northwest Stadium. According to news reports, the deal runs eight years at a higher cost than the roughly $7.5 million a year that previous rights-holder FedEx paid.

How is this a safe and sound decision in the best interest of Northwest Federal’s members? Why would CIA employees want their credit union’s name on a football stadium? How can one argue that money is better spent on the side of a building than on serving the needs of Northwest’s members, particularly those living paycheck to paycheck? 

I asked the nation’s top credit union regulator, NCUA Chairman Todd Harper, about credit unions buying stadium naming rights. His response was spot on: “If I were on a credit union board, I would be advocating that rather than spending that money necessarily on naming rights, I’d be pointing in the direction of what can we do to lower the prices of our loans and increase the service to our members”. 

But Klein could have chosen many other examples of this growing marketing practice. In October Dort Financial Credit Union announced a ten year extension of naming rights to the Dort Financial Center Flint Firebirds hockey team through the 1934-35 season.  The first sponsorship agreement was signed in 2015.

Two months later, Credit Union Times on December 17 reported that Flagler CU Signs Major Naming Rights Deal With Florida Atlantic Athletics.  

The article points out that the $2.3 billion Dort Financial’s head office is in  Grand Blanc, MI.  In 2023 the credit union  purchased the $513 million Flagler Bank in West Palm Beach.  CEO Brian Waldron in the purchase announcement noted. “This is a big step in Dort Financial’s strategy, allowing us to better serve our members who spend winters in Florida.”

When completed  the bank was renamed Flagler Credit Union, a Division of Dort Financial.  Dort also shows over $68 million of goodwill in its latest call report, presumably the premium paid the bank’s owners in excess of its net book value.

Dort gave no data to support the number of members who visited this part of Florida.  However it follows a pattern of two other Michigan credit unions, Dearborn and Lake Michigan, who purchased banks with a similar rationale.  It makes one wonder what Michigan members who vacation in Arizona think of these justifications.

Subsequently, CBS News reported in a December 16 article that:  Florida Atlantic’s board of trustees is expected to approve a $22.5 million, 15-year deal that would give Flagler Credit Union the naming rights to the school’s football stadium.

The deal — both in terms of total and average value — would be the biggest publicly known naming rights agreement for any school in the American Athletic Conference currently with an on-campus stadium.

The Flagler bank purchase and naming rights with FAU means that the Michigan based Dort will have invested almost $100 million of members’ money in their Florida expansion.

Reversing the Plot Line of It’s a Wonderful Life

 

The most memorable movie replayed again and again this time of year is the story of George Baily’s savings and loan.  It is the story of a local financial institution which served its community faithfully, only to face a takeover by Potter, a financial predator to whom George owed money.

Credit unions are increasingly reversing this whole story line.  It shows Potter’s fundamental negotiating error.  Instead of just paying off George in a private deal, he tried to take the mutual direct from its local owners who turned up to support George when he most needed their cash.

Here’s how the reversal plays out in credit union land now. Two days ago the $2.6 billion Addition Financial Credit Union in Lake Mary, Fla., and the $871 million Envision Credit Union in Tallahassee, Fl announced their intent to merge by the end of 2025.

As reported in the Credit Union Times article the reasons for this $3.5 billion  combination according to each CEO include:

“This merger will significantly increase the ability of Addition Financial to serve more members, and support both communities,” Addition Financial President/CEO Kevin Miller said in a prepared statement. “By joining forces with Envision Credit Union and the people-first culture they have cultivated for 70 years, we can provide even greater value to our collective members and team members and continue our shared mission of supporting our communities.”

And, “This merger enables us to provide more access to services, broaden offerings of innovative products, and deliver personalized support to every member and future member.” 

The final paragraph of the article may best describe the motivation behind the rhetorical flourishes in the announcement:

If the consolidation is approved, Worrell is expected to continue on in a strategic role with Addition Financial through his planned retirement in 2027, according to an Envision spokesperson.

Just another example of a CEO who reached the peak of credit union leadership, and then pulled up the ladder so no one else will have the same opportunity.

It should be noted that in this as in most mergers, members are promised nothing that they don’t already have the capacity to receive from their own independent cooperative. 

An even larger merger announcement of two successful credit unions was announced earlier in this Christmas, Wonderful Life, season.

On December 5, the members of LA Financial Federal CU were sent a formal letter by the Board chairman announcing the credit union’s intent to merge into the Credit Union of Southern California, creating a $3.9 billion combination.  LA Financial’s official Member Notice can be read here.

Members will receive nothing from the merger that they do not already have.  However, the CEO Carol Galizia, who has worked at the credit union for just 11 years will receive a 7-year contract for giving up her leadership role. Her new title: Chief of Strategic Initiatives. Four other senior executives will receive various bonus amounts for helping complete the merger, but the member letter makes clear they are “at-will” employees.   A term that undoubtedly extends to all other employees of the credit union.

Chartered in 1937 the member-owners will receive nothing for their 87 years of loyalty, their collective shavings of $483 million, $409 million of performing loans and accumulated net worth of over $ 47 million.

If this privately negotiated deal had been a public transaction at true market value as in the Flagler Bank purchase by Dort credit union, the owners would have been paid upwards of two times their net worth in cash.  Or one can compare this to the member-owners of  Thrivent FCU which received their entire collective reserve plus a premium at 12% of each members total savings in selling to Thrivent Bank.

Instead, the CEO gets a 7 year contract, at an undisclosed amount, for turning over the entire credit union’s resources and members to a credit union they know nothing about and had no role in their success.  This change of control is the exact opposite of the Wonderful Life outcome.  Potter’s approach was all wrong—all he had to do was to payoff George and he could have controlled the mutual for free.

Except in this case Credit union of Southern California is getting paid almost $50 million for merging this very stable, long serving and successful credit union.  The member-owners get nothing.

Which Credit Union Mask Will the Public See

Both tragedy and comedy are present in Greek theater.  But which face will the public see in these corporate announcements? Is Aaron Klein’s critique fair?

Tomorrow I will describe some of the member facing announcements by credit unions.  Then the reader can decide which mask best expresses their credit union’s circumstances.

For the stories that resonate with the public, professional analysts and ultimately political leaders are the ones that will shape the future of the cooperative option for America.

 

 

 

 

 

 

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Becoming Part of a Bigger Story

(This is the second of two posts on the first and only National Examiner and Credit Union  Conference in December 1984 organized by NCUA. Part one is here.)

In March 1984 when NCUA announced its organization of the first ever National Examiners’ Conference in December in Las Vegas, much skepticism was heard.

The first concern was “You will need professional planners or you’ll never pull it off.”  But NCUA central, regional and field staff put the conference together piece by piece without hiring a single consultant.

To get the lowest possible hotel room rate, NCUA booked the MGM Grand Hotel for early December.  The critics were not optimistic.  “Credit union people will never come to Los Vegas two weeks before Christmas.”

And the ultimate quip, “You think credit unions are going to pay to meet with their regulator?”

Once the marketing started, a limit of two per credit union had to be imposed.   As one credit union explained, “I  knew it would be a sellout so I reserved 12 slots up front so I could take all my volunteers.  We’ve never been to a credit union conference  and a lot of things are coming down the line.  I thought it was extremely important for them to see what was going on.”

By October the conference limit of 2,500  had sold out.  No new registrations were possible.  A wait list was set up.

Examiners Come First

More than 900 federal and state examiners and regulators met from Monday through close of business on Tuesday.  The goal was sharing experience and expertise.   One theme of the conference was the changing economy.  America was moving into a new era transitioning from an industrial economy to an information one.

Financial transactions were about moving information for members. Credit unions were at the center of this change.  According to the most recent American Banker consumer survey, they had become America’s favorite financial institution.

Chairman Callahan opened these initial sessions saying, “Better trained examiners and better communication between federal and state regulators and credit union officials are essential in a deregulated financial environment.  This national conference is a chance to discuss current concerns and share problem solving techniques.”

Some examiners had been on the job for years; others for just months.  One commented about this joint effort:  “We’ve always been first cousins but never knew each other.  I was surpirsed to learn how much we have in common.”

One professional challenge was the increase in examiner responsibility.  NCUA had been delegating to the regions and their field staffs greater responsibility for safety and soundness.   The need as one NCUA executive stated was “to get close and stay close” to credit unions.

Case studies were presented in breakout sessions to practice analysis and problem solving approaches.   The Early Warning system of 1 to 5 ratings was reviewed.  NCUA was the first federal regulator to share its individual ratings with the institutions it supervised.  Not all agreed this was a good idea.   One regional director said some credit union managers used the ratings as a measure of personal performance and for negotiating higher salaries.

Dual chartering came up at several panels.  Private coop insurance representatives sat alongside NCUSIF examiners.   The focus on choice of charter was critical to the evolution of the credit union system.   Share insurance options were an essential component of  a meaningful dual charter choice which provided a check and balance on each system’s responsiveness.  It was pointed out that deregulation of savings accounts, field of membership options, and broader investment choices had occurred first in individual states before these were adopted in the federal system.

The Grand Convocation

On Wednesday 1,500 volunteers and professionals joined for panels, workshops,  and informal conversations.  There were over 300 speakers and 60 different breakout sessions.  While some of the sessions were repeated, the plenary sessions and many of the panel discussions were filmed, edited and then rebroadcast on the conference’s 24-hour video magazine.  These excerpts were shown over the MGM Grand’s in-house television giving attendees a chance to watch sessions they couldn’t make. The broadcasts also included live interviews and comments from attendees.

Major topics included the future of the common bond with a panel of both state and federal regulators;  how to monitor investments and find useful information; whether deregulation was beneficial for consumers and financial institutions. Breakouts covered mergers, the role and future of CUSO’s,  and changing examiner skills and new analytical data base resources.

Richard Breeden, the Vice President’s Deputy counsel for Financial Institutions, moderated the  panel Is the Regulator Obsolete?   Will technology and the speed of money transfers make it impossible to track critical changes in a timely way?

Federal Reserve Governor Martha Seeger described how deregulation had changed the role of regulators: “We must think of ourselves as business advisors, not as policemen.  To me, examiners and credit union mangers are partners in fostering depositor trust and we have just got to work together in this.”

Popular sessions at both parts of the conference were led by Rex Johnson, the president of a newly charter credit union in Illinois.  He had been deputy supervisor for the Chicago office of the DFI before taking over the cu startup.  His had provided training for NCUA examiners using actual examples of credit underwriting prior to this conference.  Rex’s unique collections of case studies generated a lot of interaction.  He noted,  “We had a lot of fun in the breakouts, but more important we learned a lot from each other”

The Bottom Line and Bigger Story

One of the guest speakers was former Marquette basketball coach Al McGuire.  He remarked: “You’re a family; you’re a team and there’s no “I” in team. Credit unions are on a fast break and have unlimited potential.  You must make the maximum effort and you must be together.”

The conference was a gathering where people could translate a belief in themselves and their credit union into practical terms.   Comments included: I’d give it four stars , , , because of the enthusiasm of the people and the direct involvement of NCUA  Chairman Callahan himself.  Usually people at that level don’t become involved.  He lit one hell of a fire in Las Vegas.”

That fire was because this first National Conference of examiners, supervisors and credit unions showed that their efforts were all part of a bigger story.  Everyone contributes, no matter their credit union’s size or time on the job.  What each does individually adds to the greater purpose of the cooperative system in America.

Selected Photos

Dick Ensweiler, President of the Illinois League, Callahan and Board Member Mack.  The League presented Ed with a framed motto on his departing for NCUA, that read We Don’t Run Credit Unions.  It was in the Chairman’s office at NCUA.

Larry Blanchard then editor or Report on Credit Unions.  He worked for Austin Montgomery at NCUA, ran a credit union and has been involved with multiple credit union firms from TruStage to Callahans–still to this day.

Federal Reserve Governor Martha Seeger speaks to the full conference.

NCUA Executive Director Bucky Sebastian with regional directors Carver, Riley and Skyles.  

Texas credit union Commissioner Pete Parsons and NASCUS Chair on a panel on dual chartering.

Carmen Hyland, credit union attorney, mother of Gigi. (corrected from first description) Her daughter became counsel for a corporate credit union, NCUA board member and President of the National Credit Union Foundation.

At a reception:  Ted Bacino, NCUA Director of the Office of Administration, Laura Rossman, Senior Advisor to PA Mack, and Callahan.

There are two NCUA videos of the conference plus more than 300 more photos if someone wants to use in a more detailed report on the event.

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A Credit Union Christmas Story

The problem of debt and Christmas is a theme of literature.  Who does not know the story of Scrooge and Little Tim by Dickens?  The play is presented every year at this time at Ford’s Theater here in DC.

The vignette that follows shows this reality for members still exists today.  The story as told by a credit union employee:

I’ve Been There

Yesterday I had a member call in asking to refinance her auto with us to get a better rate. I let her know about our interest rate reduction product and made her aware there is a $100 fee associated with this. After speaking with her and getting to know her circumstances, I learned she is a single mother with two kids. She is working multiple jobs.

She has several credit cards that she is struggling with and really trying to get these under control so she can one day purchase a home.  The cards had 0% interest rates because her husband was active military. But they got divorced and now the interest rates are extremely high and she is stuck with all the debt.

 She also told me she couldn’t afford gifts for her girls for Christmas. I told her it sounds like she doesn’t have the $100 right now to even do the interest rate reduction.  So let’s start with a Trinity referral and get her debt under control and hopefully put her in a better financial situation.

 I also referred her to my church which does a Christmas store at which I volunteer.  I told her we could get her kids some Christmas presents. She was beyond grateful.

I said I could relate with her as I’ve been there, and we at Day Air will help her through this. Our short term goal is to get her debt down to raise her credit score. Then she can get a better rate on her auto loan. Our long-term goal is to eventually get her and her girls in a home they own.

The Opportunity for Goodwill

How will your credit union help debt burdened members who are struggling and feel anything but cheer this time of year?

 

 

 

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Learning from the Past:  NCUA and Credit Unions During a Change in National Political Leadership

The 1980 election of Ronald Reagan brought a spirit of hope and joy for some.  For others , deep concern about the future of the federal government’s role.

Recall Reagan’s policy priorities:  Supply side economics-tax cuts, defense spending to counter the Soviet Union, tighter money supply, reducing the rate of government spending and deregulation.   In August 1981, one of his first dramatic actions  was firing 11,345 striking air traffic controllers and banning them from federal service for life after they refused to return to work following a contract dispute.  Federal agencies and employees were worried about their future.

A specific initiative that has parallels with Trump’s appointment of  the Musk-Ramasamy duo to reduce government spending was the Grace Commission.  Here is a summary of its role:

The Private Sector Survey on Cost Control (PSSCC), commonly referred to as the Grace Commission, was an investigation requested by  President Reagan authorized in Executive Order 12369 on June 30, 1982. In doing so President Reagan used the now famous phrase, “Drain the swamp“.[1] The focus was on eliminating waste and inefficiency in the United States federal government. The head of the commission, businessman J. Peter Grace,[2] asked the members of that commission to “Be bold and work like tireless bloodhounds, don’t leave any stone unturned in your search to root out inefficiency.”[3]  (Wikipedia) 

A year later when the Commission issued its report it called NCUA Board Chairman Edgar Callahan a “role model” for government agency executives.  It noted that, “in one year, NCUA cut Agency staff 15% and its budget by 2.5% while maintaining their commitment to preserving the safety and soundness of the credit union industry.”  (NCUA 1983 Annual Report page 3).  What was this transformation like?

How NCUA and Credit Unions Fared During Reagan’s First Term

When Reagan took office, inflation for the prior year 1980 was 13.5%.  The short-term Fed Funds rate was 13%.  Federal Reserve President Volker’s goal was to drive inflation down by raising rates further if necessary.

The NCUA’s new Chairman was Edgar Callahan, whose immediate prior responsibility was over five years as Director of the Department of Financial Institutions in Illinois. DFI supervised over 1,000 state chartered credit unions.  At the February 1982 GAC conference, the primary concern for the audience of national attendees was industry survival.  Callahan said the response was to put responsibility for fundamental business decisions in the hands of credit union boards and managers, not the regulator.  He called this multi-faceted change “deregulation.”

During the next three years NCUA became what the Grace commission described as a model for effective governmental performance.

The following are highlights of how NCUA changed from a November 15, 1984  agency press release titled: FCU Operating  Fee Scale Slashed 24%; Third cut in Three Years

The excerpts from this two-page, detailed release describe how this unprecedented reduction was achieved.

The NCUA Board today slashed by 24% the operating fee scale for federal credit unions in 1985, bringing to 64% the fee scale cuts over the past three years.

The dramatic 24% cut will save federal credit unions more than $4.3 million in 1985 and has saved them $14 million since 1983, the first year in NCUA’s history that the fee scale was cut. 

“For the third straight year, the efficient operation of the Agency has allowed us to put money into the pockets of federal credit unions, “ said NCUA  Chairman Edgar Callahan.  “It’s an impressive track record, one that the agency and entire credit union system can be proud of.”

“NCUA is the only  federal financial regulatory agency that is assessing its constituents less this year, than it did three years ago and I think that is a tremendous accomplishment,” said NCUA Board Vice Chair P.A. Mack. 

Federal credit union operating fees, which are pegged to a sliding scale based on federal credit unions’ assets, are the primary source of funding for the Agency’s operating budget.  The fee pays for the Agency’s annual examinations of each federal credit union as well as its chartering, supervisory and administrative activities.  NCUA receives no tax dollars.  Operating fees, the earnings on the investments of those fees, and insurance premiums are the sole sources of funding for the agency. 

(The next six paragraphs show the specific dollar  impact on credit unions of different asset sizes including Ft Shafter, Hawaii Federal and State Employees and Navy Federal Credit Unions.)

Continued cost cutting efforts at NCUA, coupled with a projection for robust federal credit union asset growth and increased earnings on NCUA investments are the key elements that made a third consecutive operating fee scale cut possible. 

The NCUA board attributed the Agency’s success in keeping costs down to high productivity by NCUA staff, personnel reductions and the shifting of resources from the central offie to the field where they are needed most.

For example, NCUA for the second consecutive year has completed an annual examination of each federal credit union, and achievement not seen since the mid-1970’s.  Although total agency employment has been reduced by 15%, the number of examiners has increased to an all-time high (369).  Getting back to a once-per-year exam cycle exemplifies the Board’s desire to promote safety and soundness while leaving the management decisions in the hands of each credit union.

The resulting gains in efficiency enabled the Board to reduce the Agency’s fiscal 1984 budget by 4.9%-the biggest cut in the Agency’s history.  It was the third straight year the Board approved a total agency budget that was below the previous year’s request. 

Federal Credit unions in the six months ended June 30, 1984 had grown 12.5% from $55.5 billion to $61.3 billion. 

Taken together, the budget cuts, investment income and credit union growth are expected  to leave NCUA’s operating fund with substantially more than it needs to meet its expenses. By slashing 24% from its operating fee schedule, the board is effectively eliminating a $3.4 million surplus.  “We believe in returning as much as possible to credit unions,” Chairman Callahan said. 

This action is another in a series fiscal and operational improvements the NCUA Board has approved of in the past three years. . . most recently the adoption of rules to revitalize the National Credit Union Share Insurance Fund (NCUSIF) transforming it from the lowest reserved to the strongest of the three federal deposit insurance funds. (End quote) 

Some of the Lessons

Chairman Callahan’s leadership at the agency was based on professional competence, experience and pragmatic solutions.  Some of his colleagues had worked with him on credit union issues for over five years. Internally Callahan placed responsibility for problem solving with the six regional directors.  The agency had become top heavy in D.C. where issues got bogged down between 16 separate offices.  He streamlined this structure into two primary responsibilities: an office of administration and the office of programs.

Resources were moved to the field so that an annual exam became the minimum standard for performance. Competence, not seniority or appointment status, were the criteria for responsibility.  Mike Riley went from head office to become RD of the largest and most problem challenged region as the youngest RD ever.  Rosemary Hardiman was board secretary and Joan Pinkerton, and Sandy Beach led public information and congressional affairs—all were appointees chosen by the previous Chair Larry Connell.

Money was not the most critical resource; it was management talent and willingness to innovate to resolve problems with effective supervision.  Staff was provided enhanced training that included Video Network recordings such as Rex Johnson of Lending Solutions, leading sessions with  examiners to identify sound and  unsound loan underwriting.  Another video session was a case study of an actual credit union problem for the agency led by a business school professor.

These efforts were supported by disciplined research, constant dialogue with credit unions and open, frequent communications.  New data analytical tools (financial performance reports) from the call report were provided for both examiners and credit unions.  NCUA board meetings were taken on the road so credit unions could attend and speak directly with senior staff and board members.

NCUA and credit unions worked collaboratively to transform both the agency-the  CLF, the NCUSIF and the exam program-and the credit union system to the new world of open market-based competition.  These institutional changes have endured even when subsequent Chairman were chosen from individuals with no coop experience, and several who had just lost a recent election (Senator Jepsen and Congressman Norm D’Amours).  The agency staff and administration were comfortable working with the industry even when board members had little or no relevant credit union, regulatory or leadership experience.

Celebrating Success

The high point of this collaborative approach was the largest ever regulator-credit union conference held in December 1984 in Las Vegas, organized by NCUA.  All state regulators and examiners and NCUA staff met with over 2,500 credit union attendees to hear from experts and debate the future.  I will write more about this seminal event that has never been repeated.

The conference demonstrated the power of cooperatives to share and learn from each other. This was a summit that ushered in over three decades of credit union expansion and resilience as the S&L industry failed and the banking system and FDIC went through multiple bailouts.

The bottom line: as shown by this 1981 transition, new faces can be opportunities for creative leadership and strategic change. The 1981 selection of Ed Callahan as chair enabled NCUA and credit unions to become financial pacesetters for their members and the country.  It is the quality of the appointee, not the party, that matters.

One should advocate for a similar considered appointment and proven leadership in this coming transition.

 

 

 

 

 

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The Strategic Advantage of Being Local

The Institute for Local Self Reliance (ILSR) has turned 50 years old.  Its mission is to build local power and fight large corporate control through research, advocacy, and community assistance to advance vibrant, sustainable, and equitable cities and towns.

This 11-minute video below provides its history from founding in 1974 in D.C. to its present multi-faceted efforts.   The organization became national in the early 1980’s when it  opened its head office in Minneapolis.

(https://www.youtube.com/watch?v=Wp_DNUXVDt8&t=108s)

In the 90’s It was an outlier in the world of “bigger is better” and the pull of the global economy on large corporate growth ambitions.  However, its focus on local self-reliance regained momentum and focus as the power of monopolies became increasingly questioned, especially its impact on local economic communities.

The Institute’s  approach is decentralization emphasizing local control and resisting corporate displacement of independent options. The goal is enhancing freedom and democracy with self-reliant economic projects  and political control.  Today it has four areas of focus:  community broadband efforts, composting, energy democracy and promoting independent locally owned businesses.

While the advocacy and research efforts would seem to make the ILSR a natural ally of credit unions, there appears to be no overt participation in this cooperative financial sector.

Why Local Matters

In an era in which many tout scale as the most important competitive necessity, the real sustainable advantage for most credit unions is their “local” character, identity and related service advantages.

At September 2024, the industry’s call report data suggests that over 87% of credit unions offer some form of on online transaction access.  The Internet advantage, no matter how sophisticated, is rarely a sustainable or unique delivery channel or even special user experience. However, being local is.

An Example of a Large, Local Advantage

Recently Jim Blaine has posted several articles on the founding of the country’s second largest credit union, State Employees of North Carolina (SECU).  The post below details the founding character and common bond of the credit union.

Almost every state in the country had at least one or multiple credit unions with state employees as their core FOM.  But only SECU made the breakout to record this growth achievement versus many states with much larger potential in their employee base.

How was this breakout accomplished?  As the credit union’s operations expanded to locations and counties throughout the state, the critical advantage was keeping local input, oversight and responsibility at the branch level.  Loans were made and collected by each branch; local advisory boards and committees were formed; employees were local; and the various aspects of community involvement were locally determined.  Out of this local self-reliance, the second largest credit union in America was constructed.

Here is SECU’s brief founding story from a post on November 19, 2024 SECU Credit Unions as An Employee Benefit:

“No one questions that credit unions were created in the U.S. to provide access to credit for working men and women – particularly those of “modest means”. Why? Because “back then” many payroll offices were confronted with regular, recurring employee requests for “a short-term advance” prior to payday. Money is always in short supply for most folks – both “back then” and now.

“Not helping an excellent employee in a time of need was “bad for business” and employee relations. Sending them to a loan shark was worse. “Payday lending” at rates usually exceeding 100+% – both “back then” and now – creates a death spiral of financial dependency for a consumer. Shackles not made of iron, but shackles just the same.

.

. …” I owe my soul”... that can be a problem, … beware.

“Employers embraced “company credit unions” as an added benefit which could be used to assist and retain employees. Employers liked having an independent, employee-owned and led lender making the decisions on which employees qualified for loans – choices the employer did not want to make. Employers didn’t want to be in the lending business, nor have to “advance” company funds. To help out, employers frequently provided back office support, payroll deduction, office space and assisted employee-member volunteer leadership of the credit union.

“SECU, although a separate, independent organization, was “the company credit union” for North Carolina state government and the North Carolina school systems. The idea of a credit union as an important employee benefit caught on! 

“Other N.C. companies also formed credit unions – R.J. Reynolds, AT&T, IBM, Champion Paper for their employees – as did many municipalities, local post offices, our military, and churches. At its peak, there were 360+ different credit unions in North Carolina, today just 60 remain. 

“Is SECU still “the company credit union” for North Carolina state workers? What has changed?  In order to know where you’re going, it often helps to know where you have been.”

(End Quote)

SECU’s Relevance for Today

Some of the companies and many of the 360 credit unions referenced in Jim’s blog no longer exist.  However, the local communities and their residents are still present—even if now in separate lines of work.  Local does not go away.

Local does not mean an effort must remain small.  No, local wins because it is built on the ultimate credit union advantage of relationships and self-reliance.

A billion dollar credit union’s car loan, savings account or even mortgage are often a commodity, no different from similar products offered by a ten million dollar institution.  The difference is personal, being able to talk with a real person who is familiar with your community and circumstance.

The ILSR has continued to present the power of local solutions and control in its newsletter.  A recent article was on grocery prices:  High prices are a problem. Here’s how to solve it.  Perhaps its opportune for credit unions to align and participate with the work of the ILSR.  For it appears to capture the ultimate advantage of a member-owned cooperative-its local identity. control and focus.