Garrison Keillor of Prairie Home Companion fame, is taking his radio performance on the road around the country in one night stands.
Recently he was in Des Moines and drove across the Iowa farmscape prompting this post:
It was dramatic to drive for hundreds of miles and see no barns or silos, no windmill or grove around a farmhouse, the Grant Wood landscape of rural America, and see what corporate industrial agriculture looks like. It looks like Siberia. A place you send people as punishment.
A culture is slipping away that raised some fine self-reliant relatives of mine like my Aunt Eleanor who could handle a rifle, hitch up horses to a wagon, bake bread, plant a garden, throw a baseball, kill a chicken, sew clothing from a pattern, do basic repairs, and speak her mind in firm declarative sentences. The farm made her a strong woman and I say the world could use more like her.
Well, cultures are mortal, just as we are, and it’s a shame when the worthwhile peter out and the worst prosper, such as the culture of consultancy. Some of the stupidest managers I’ve encountered in my life now hang out their shingles as consultants prepared to advise on strategic planning and team building, who when I knew them were adept at strategic blather and creative imitation. I believe that AI will devastate their ranks and soon we’ll encounter them at drive-up windows, consulting on condiments and large vs. medium shakes.
Mortal Cultures
I found myself reflecting on the idea that cultures are mortal in this obsevation which Keillor titled Looking Around, Not Looking Ahead as I read the following ad via a virtual credit union daily subscriber list:
Dollar Associates has successfully guided over 400 credit union mergers in their 22 years in business. As their tagline says, “We know credit unions backwards and forward. Especially forward.”
Mergers as a so-called growth strategy began in earnest following PenFed’s national McKinsey-like strategy of seeking mergers nation-wide in 2016. The first big success was acquiring Fort Belvoir FCU, a local well-entrenched competitor. The standard gambit was promises of a better future combined with multi-year sinecures for the CEO, plus bonuses for senior management, three-year employee commitments or large separation payments to staff. And of course, nothing for members except a bigger organization. All details wrapped up with non-disclosure agreements including non-disparagement clauses for everyone who cashed out.
The solicitations were overt. And PenFed’s over two dozen mergers from a post office credit union in Wisconsin to a Sperry Associates in New York did not add a single member, loan or asset to the movement.
But it changed the merger game from historical rescues of faltering credit unions in return for expanded FOM’s by regulators, into a wide-open pursuit of non-organic growth strategies. Mergers looked easy, quick and most importantly, the continuing credit union gets paid in-free capital. Just for taking over a business you already know how to run.
These are not market based transactions despite occasional regulatory utterances suggesting the same. They are private deals, done in secret without any member input or notice, documented by signed “definitive agreements” and then sprung upon members. Often accompanied with a PR barrage with videos of the two CEO’s proclaiming a new promised land all executed without any member input or knowledge.
This is the merger world today. Dollar claims to have “guided over 400 credit union mergers” which it would be fair to assume the bulk have taken place in the last decade of the movement’s merger frenzy.
Not Business Combinations But Political Events
These transfers of control of an entire credit union’s operation, net worth, facilities and its legacy franchise value are not business transactions. The only “negotiations” involve how much the selling CEO and senior staff and sometimes board members will gain from the deal. If there are enforceable agreements about future commitments, they are never disclosed or done so with the caveat “if conditions permit.”
While members have a say in all states except Illinois state charters which use proxy voting, the process, transparency and information for informed consent is a charade. Almost all votes are returned by mail ballot with the official Board Notice letter urging member approval—as the event has already received regulatory blessing, subject only to the member vote.
The Need for Facilitators and Go-Betweens
Because these are political events not real business transactions, facilitators are needed. Brokers to quietly solicit candidates, test the waters and make introductions. Accountants, “strategic” consultants and lawyers to draft the private definitive agreements, Most importantly, external professional experts, such as former regulators, to assure boards, for whom this will be a singular and the final event of their tenure.
These volunteer board members need external assurance that they are doing the right thing, because it is irreversible. The so-called professionals will assist getting the necessary regulatory sign-offs-just look at our track record of 400 cases. Trust us, everybody else is doing it as well. You are in good hands.
The facilitators all take their cut of the pie, the vendors who are eliminated get cancellation fees, and staff promised greater professional opportunities. The member-owners receive nothing and lose their accumulated net worth. Most consequential is that the legacy relationships and goodwill which built the credit union as a community resource to be paid forward for future generations is now gone.
“Looking Backwards”
Invoking Dollar’s hindsight, almost all mergers in this decade long period of private deal making have been of credit unions at least three generations old, with long serving records of meaningful community relationships and contributions.
Per Dollar’s claim, the industry now has lost 400 independent charters, their several thousand volunteer board members, and the CEO and other professional community leadership roles. Their local and state political standing is gone.
Most importantly their function as an economic intermediary, taking the savings of local members and reinvesting back into loans for those same owners, no longer exists. For now all these functions and responsibilities are controlled by a new board, often without any connections or knowledge and whose priorities are set following their historical ties and priorities. The merged entity has no standing or recourse as the new brand and culture assert their sway and operational model over the merged field of membership.
“Looking Forward”
The facilitators and apologists for this cooperative self-annihilation claim they are positioning credit unions for the future. Consolidation is inevitable, just let us show you the charts. You need to get ahead of the game before all the “best” options (read payoffs) are gone. Or worse, there might be a new regulatory change that would make it harder to get your cash prize payout. Or worse, you may have to be more transparent in your intent and process.
Let’s be clear. No one knows the future, Change is inevitable. The current culture and political example of getting yours while you can, may indeed continue. The animal spirits of capitalism, the drive for monopoly power may infect credit unions so thoroughly that the industry goes the way of the S&L’s. The big go away. The small and traditional, still around, but humble, toothless in all except a few communities and a charter neither sought by individuals or desired by the public
But change could also come in the form of a backlash–public, political or regulator. New coop regulatory leadership might start asking questions such as, what is the public duty credit unions owe in return for their federal tax exemption? What is the common good member-ownership is supposed to inspire? Are credit unions following their own principles of governance and historical values? Has cooperative leadership been usurped by self-interested individuals oblivious to their inherted legacy, current members’ welfare and their future generations?
The credit union system knows full well what this period of merger manipulation and self-dealing entails. For at the same time credit unions are actively buying whole banks as part of their “external growth” strategies. And in these events, the owners get paid out for their common equity interest and then a premium on top as credit unions can only pay cash, not stock to bank owners.
Certainly, one potential path to the future is the Dollar model. The firm claims 400 success points to prove it can get the job done. Cash out now, forget the past legacy, take the money and let someone else worry about the future of your members.
Will That Be With Large of Small Fries?
I may just be like Garrison Keillor surveying the loss of the family farms to the industrial agriculture industry today. I would prefer a different, more diverse set of credit union options and leadership voices drivng the future. But sometimes the next generation’s responsibility may be to clean up past excesses before creating something that inspires again.
If a credit union improves its capital ratio while its members’ average credit score drops, did it have a good year?
We don’t have a standard way to answer that and I think that’s a problem.
Financial health metrics for institutions are mature, required, and reported quarterly. Member financial health metrics are voluntary, inconsistent, and often absent.
To my credit union colleagues: