Category: Cooperative Design

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When Goodwill Becomes Ill-will (part II of II)

In this second blog I look at examples of goodwill. What are  some of the financial and regulatory implications of this ever increasing intangible asset?

The following are the  34 credit unions (out of 277) with the largest amounts  of good will at September 30, 2022.

The goodwill net worth ratio, column three, compares the size of this intangible asset to net worth. This ratio ranges from a high of 31% for Chartway to a low of .32% for Navy FCU.  There is no regulatory limit on how high this percentage can be.

While I do not know the details of every credit union listed,  most of these goodwill leaders occur  from either whole bank purchases or mergers with other credit unions.  The first two names, GreenState and State Employees (NY) are examples of each activity.

The Regulatory Situation

As discussed in Part I goodwill is an intangible asset representing  future economic benefits arising from assets acquired in a business combination,  traditionally mergers or purchases.

It is not part of equity or retained earnings from a presentation standpoint.

Goodwill lacks physical substance.  It is an accounting estimate based on assumptions used to project potential future value. Unlike mortgage servicing assets which are also an intangible, goodwill can’t be bought or sold.

If credit union A merges with credit union B which has goodwill on its books, credit union A receives no benefit.  Credit union B’s goodwill is devalued to zero. It is not carried over onto credit union A’s books.

As the underlying  benefits  are realized, impairments to goodwill can be recorded.  A credit union can also amortize goodwill over ten years.  In both instances those charges flow through the income statement and reduce  retained earnings.

In either option, all goodwill must be assessed for impairment at least annually.

Goodwill and Net Worth

For credit unions following CCULR:   Goodwill is not part of Net Worth (numerator) for ratio purposes but is included in total assets (denominator) to determine the net worth ratio (NWR).  Goodwill balances must be less than 2% of total assets to opt into CCULR.

For credit unions subject to RBC:  Goodwill is a reduction from the RBC Numerator and also from the Denominator.

Goodwill Uncertainties

In corporate America public companies report over $4 trillion of goodwill on balance sheets, primarily from mergers and acquisitions.

While accountants agree on what goodwill is, how to value that goodwill after it’s passed onto the buyer’s ledger sparks plenty of argument.

There is much uncertainty about forecasting goodwill’s future benefit for a firm – it involves more judgement calls than many accountants are comfortable with. And while goodwill is listed as an asset on the balance sheet, is it really worth its stated value? What if it was a bad buy at an inflated price in the first place?

In June 2022 FASB announced it had given up on a four-year effort to simplify goodwill accounting determinations.  The current annual impairment test remains the requirement versus a  straight line annual amortization approach.

The Credit Union Goodwill Challenges

When creating goodwill, credit unions have all of the same accounting challenges as public companies but none of the checks and balances .

The ongoing difficulty is assessing post acquisition performance to see if  it is meeting the values projected when the goodwill was first established.

In cooperatives this  is made much more difficult because in both mergers and acquisitions, there is virtually no public disclosure of an acquisition’s costs  let alone  future projections.

For purchases, credit unions rarely report the total price paid(except when a bank is publicly traded)  the broker and transaction fees,  the future impact on ROI or ROE and the longer term performance goals to be achieved.   For mergers, no details of a combined operational plan are provided just the asserted advantage of bigger size and more capital.

Most large mergers and whole bank purchases take years for operational and business integration to be fully realized.   These transactions generally end relationships  and market presence created from years of continuous service.  That history  and local advantage is now gone.

In some large credit union mergers a whole new corporate brand and identity are part of the combined entity’s future business plan.   Shedding past connections to create a whole new market persona would seem to undermine a valuable legacy.

No Accountability

Credit union mergers and bank purchases are not market based transactions.  They are private deals negotiated for mutual advantage by CEO’s and then announced to members. Because there is no transparency or numbers provided,  little future monitoring possible.

Both transactions create  goodwill but the credit union is playing with members’ house money.   If the deal works out after three or four years, whatever benefits of expansion have been achieved are trumpeted as the result.   If  the bank purchase was overpaid, there is no stock price or performance metric that would highlight this misjudgment.

The bank owners are paid a cash premium for their shares from the members’ savings. They have left  with cash in hand. If a transaction is poorly priced or managed, then the goodwill is written down from  members’ existing capital.

The goodwill concept allows managers to pay premiums for purchases absent any performance goals.   In a merger, goodwill in excess of book net worth just enhances the  ongoing credit union’s capital but members receive nil for this value.

Transforming Goodwill Into Ill-will

When leaders operate in a closed environment, unconstrained by member or board governance, personal ambition can run amok.

With no meaningful credit union disclosures to members or the public in either mergers or bank purchases, managers are free to wheel and deal.   A number of CEO’s have been very public about their “nonorganic” growth plans.   Goodwill is the intangible asset created to make things appear OK regardless of price or terms.

The animal spirits of capitalism are quickly embraced versus the cooperative focus on members’ well being.  But unlike truly competitive markets, there is no stock price or market assessments monitoring  performance.

When goodwill accounts begin to approach 10% or higher of net worth, the credit union has disguised its ability to produce operating earnings.   To keep the game going, more purchases and goodwill are pursued, always justified by scale and more diversification.

At some point the economy turns, the acquired assets become overvalued and members are given the short stick as dividends are reduced to keep up the ROA goals. In several of the credit unions  listed dividend payments were reduced in 2022 versus 2021 to sustain ROA even though short term rates have risen by over 3%.

Staff layoffs are another indication of overcommitments.  Examiners or accountants  will start to question the goodwill asset’s value.

The goodwill that underwrites cooperatives can quickly turn to ill-will.  When members realize their collective legacy in mergers was transferred to solely benefit senior managers, the loss of confidence will undermine both the new entity and the cooperative system’s reputation for fair dealing.

When the out of state or out of market bank purchase shows no growth, the tactic of buying market share begins to fail.

The facade of goodwill falls away for both the credit union and the members.   Once gone, it is lost forever.  That is what intangible means.

 

 

 

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Two Meanings of Goodwill (part I of II)

Tis the season for evoking goodwill.   Company/organizational holiday parties, the daily mail full of greeting cards,  Giving Tuesday, community food drives and dozens of other personal and firm initiatives make Advent a time of joy.

Wonderful and colorful decorations enhance this sense of a special time of year. Sporting events promote opportunities to help others. Even if there is constant hurry up, it is a toward good ends.

Concerts and carols bring back familiar lifelong memories.  There is even a heavenly musical declaration of good will in music.

This most dramatic announcement is in the Messiah’s fourth chorus, Glory to God.  As described in Luke 2 v.14, the heavenly hosts sing to shepherds of Jesus’ birth:  Glory to God . . . and peace on earth. This opening is followed by repeated proclamations  of “Goodwill towards men.” 

Angels celebrating a new era in words repeated still today.

More Than Christmas

 Goodwill is not limited to this holiday season.  In everyday usage, goodwill is the feeling of trust, loyalty and support that emerge from a relationship or event. It is the bond greater than any underlying transaction.  It is much more than a feeling of satisfaction.

Rex Johnson, the credit union lending guru, described this as the art of converting members to fans, not just spectators.

For cooperatives, goodwill is an essential component of their market advantage.  It is rooted in members’ belief that the credit union acts in their best interest.  It is embedded in cooperative design. Current generations expect the fruits of their loyalty will be passed to future ones.

When active, goodwill underwrites member relationships giving credit unions a competitive standing no other firm can match. Although real, it shows up nowhere in a credit unions ordinary financial reports.

Accounting Goodwill

There is also an accounting term, goodwill.  It is an intangible asset.  It arises when a credit union acquires a bank or merges with another credit union. The excess of book value  over fair market value of the net assets gained, creates accounting goodwill.

Credit union accounting goodwill has grown dramatically.  The first reported total as of March 2009 was $160 million.  At September 2022, the total was $2.2 billion recorded in 277 credit unions.  Since that initial March date,  it has grown at an annual rate of 21%.

Goodwill is only 2.2% of these 277 credit union’s net worth.  But in some cases it is much higher: 31% of Chartway’s and 21% of Lake Michigan credit unions’ total capital.

Why an Intangible Asset?

Goodwill is classified as an asset because it provides an ongoing revenue generation benefit that extends beyond one year. It may include  such items as customer relationships, liabilities (shares) acquired at below market rates, corporate expertise,  operating (FOM) authorities, or proprietary technology.

Goodwill is recognized only through an acquisition. Unlike member relationships, it cannot be self-created. It is the excess of the “purchase consideration.”

Negative goodwill arises if the acquired assets are purchased at a discount to their fair market value (FMV) and is referred to as a “bargain purchase.”

A description of goodwill accounting and how it works is at this site.

The Status of Accounting Goodwill in Credit Unions

Since December 2018 the total of accounting good will has doubled to the present $2.2 billion. The reasons are two:  premiums paid on whole bank purchases and mergers with credit unions uncovering significantly understated value.

An example of the premiums on whole bank purchases is GreenState which reported $123 million  (12% of its net worth) as goodwill.  The second highest is State Employees in Albany at $112.5 million (16% of net worth) as a result of its merger with Capital Communications.

Because accounting goodwill is an intangible asset, there are numerous issues about how it is considered in net worth calculations, its amortization, and its role in financial decisions.

Tomorrow I will look at the largest reported individual goodwill totals, NCUA’s view of the asset and how it could change the future of the cooperative system.

 

 

 

 

 

 

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From the Field

The following are excerpts from two CEO November  reports to their employees with examples of  credit unions acting . . . like credit unions.

Inactive Accounts and Escheatment

From Day Air:  Heidi and the Accounting area started with 95 dormant accounts with balances totaling $279,000 and worked those numbers down significantly to keep member money from being turned over to the State of Ohio in compliance with escheatment laws.  Most of those members were located so balances of only $26,000 from 35 accounts are being remitted to the State.

From Weokie’s Vice President, Operational Support:

We had a deceased account that was up for escheatment, and I noticed that there was a beneficiary, Nick, listed but that we had never heard from him.

I asked Paula about this and all we had was return mail for this person. I noticed an old cell phone listed on the card and suggested we call as most people don’t usually change a cell number, even if moving out of state.

Paula called, left a message, and the beneficiary returned her call the same day. He was still in the same apartment building in New York but had changed apartments.

After confirming we had the man we were looking for, Nick began to tell Paula that he had been adopted and never really accepted by his extended family (cousins, aunts, uncles) but did have one aunt and uncle that were always very kind to him.

Long story short, Nick will now be receiving just over $436,000 that he was not expecting. 

Most of time when we escheat there is not much money but when I saw this account with $436k, I could not see letting this go so easily.

To me, $436,000 is life changing money and so happy that this money will be paid out as our deceased member had wished.

Our Advantage: Day Air

One of our primary value propositions is that we’re local.  We’re Dayton area people helping our friends and neighbors in the Miami Valley with their finances.  It’s easy for people to be attracted to fintechs and Internet banks, but when you have a problem being local can be all the difference.

I just heard a story of someone who was using Chime, had a problem and couldn’t get the issue resolved.  Of course, Chime doesn’t have any local offices – just a website and an 800 number. 

Here at Day Air, we’re human and so make mistakes.  The difference is that we’re local, we’re here to help our friends and neighbors, we’ll address the situation and make it right.   

Day Air’s Selected market updates for staff::

  1. Amazon announced a hiring freeze and the following companies announced layoffs: Chime 12% of its workforce, Opendoor 18%, Zillow 5%, Lyft 13%, Stripe 14%, Peloton 12%, and Twitter is laying off an undetermined but large number of people.  Meta (Facebook) and Citigroup also announced layoffs.
  2. Carvana’s market cap dropped from $60 billion last year to $1.4 billion.

Weokie and Employee Support:

We hit another milestone in November as the credit union has now contributed $125,000 to the Community Impact Fund to support our zero-interest loan program for members of Team WEOKIE who have found themselves in financially stressed positions.

We have granted $89,161in loans with $43,576 having been already repaid and making these funds available to be re-loaned to other team members who find themselves in financial difficulty.

A chart showed how the $89,000 in loans has helped employees.

 

 

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Dreams Can Be Dangerous

After the Gettysburg Address, the most memorized speech in high school is Martin Luther King’s I have a Dream speech.

Dreams drive human aspiration.  The inspire political and social movements.   America is a land built on the hopes of a better life by the millions seeking this land of opportunity.

Many a credit union purpose statement includes the goal of helping members achieve their dreams.  At their best, cooperatives nurture communities that uplift each other.

Dream Bigger

Dreams also become entwined with human ambition.   In a competitive market-driven economy, it is inevitable that some will be captured by the impulse to grow and dominate.

Patient organic increase, member by member, is not fast enough.  I have described examples of PenFed’s over two dozen mergers of successful, long-serving credit unions that have nothing to do with its prior market or roots. These mergers are incentivized with staff payouts followed by layoffs and ultimately the ending of local presence in exchange for virtual, digital service.

GreenState in Iowa is one of the highest performing credit unions in the country.  But that record was not enough.   They have pursued three or four whole bank purchases outside their home state to achieve even faster growth.

It is no accident that when the economy turned and the real estate markets and rise in rates created headwinds, these were two of the first institutions to announce staff layoffs.

Sometimes dreams come at the expense of others.  At some point, ambition distorts dreams.  Survival dominates decisions.

New Personalities and New Tactics

Chasing dreams of a bigger, commanding future has resulted in some leaders overlooking the incredible success that was right in front of them.   That oversight is the danger every CEO and board will face.

The risk of this loss of perspective about the value of what has been created can be acute with new leaders. The push and pull between past success and future direction can be traumatic.   One observer has described this tension as follows:

“One side says do MORE – more TACTICS, for MORE people, for MORE communities, etc.

One side says do the same.

Now doing the same is more – more of the right things, for right reasons, and for the right people.  But it sounds like less – people, especially people not vested in the “right” things intuitively chose more, new, often along the lines of the competition.

Professionals are easily swayed toward competitive calculations based on just MORE and peer trends and ideas that serve professionals.

Therefore cooperatives are a niche easily outgrown and defeated as missions wane, as purpose grays, retires and dreams end.”

Keeping Dreams Alive

Examples of both positions are abundant in credit unions today.  The test of any system, especially one that claims to be democratic, is whether we can discuss what troubles us.   The founding generations will continue to move on with their dreams.

Cooperative success is more than management tactics. The good news is that it  only takes a few leaders dedicated to this unique approach to member well-being to preserve the ideals, not just the balance sheets, they inherited.

 

 

 

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A Jubilee Event

“Forgive us our debts, as we forgive our debtors.”   We say these words in the Lord’s prayer.  Where have we seen this ever done in “real” life?

Society, especially market-based ones, do not practice debt forgiveness.  Capitalism is built on finance, i.e. all kinds of debt—corporate, consumer and government.

In the bible, the Jubilee year – occurring after every seventh Sabbath year, thus, every 50 years is an economic, cultural, environmental and communal reset, when the land and people rest, and all those who are in slavery are set free to return to their communities. (Leviticus 25:1-13).

Debtor’s prison or indentured servitude, was a reality in England and other countries for those who failed to pay up.  It was the basis of more than one of Dicken’s novels.  Scrooge is more than a Christmas story.  It was reality.

President Biden’s forgiveness of either $10,000 or $20,000 in student debt has been met with gratitude by millions of former students who have applied for this reduction.

On the other hand, multiple organizations and opponents have taken to the courts to stop the plan absent Congressional approval.  The question of whether the President has the authority to do this unilaterally is now before the courts.

Some former students who paid off their loans, feel this action is unfair to those who honored their obligations.

Credit unions were founded to provide debt.   Credit for members funded by savers.   Often the  phrase “for provident and productive purposes” is intended to show debt as a positive event.

Founding stories such as that at BECU where a small group employees contributed 50 cents each in 1935 to create Covenant credit union to provide tool loans during the depression, are apocryphal.

Credit unions spend much effort and processes to make sound loans, track delinquency and minimize loan losses.

But debt forgiveness?  That is rare indeed. Recently this video by Canvas Credit Union shows the power of debt forgiveness. Addie Greenacre, a long-time Canvas member, wife and mother was surprised with a $40,000 loan payoff as part of a drawing during an auto refinance promotion.

It is a powerful example of what removing the burden of debt can mean to a person.

(https://www.linkedin.com/company/canvasfamily/videos/)

How do credit unions founded to provide debt ensure that loans lift up and don’t become a lifelong burden?

Looking at the Canvas Credit Union model one sees an organization dedicated to financial well-being. In their words, We’re here to Help You Afford Life.

While this “debt forgiveness” may have been a promotion, it demonstrates the power of jubilee thinking for people, and a community.

As credit unions review their personal loan portfolio at yearend, seeking those with the longest tenure or constantly rolling over draws, might a debt jubilee be a timely addition to every credit union’s service profile?

It can literally change a person’s life.  Isn’t that what credit unions were meant to do?

 

 

 

 

 

 

 

 

 

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A New Class Act?

Risk based lending (RBL) was introduced to credit unions in the mid 1990’s.  Many credit unions now use this approach in some or all  of their lending offerings.

The debate continues as to whether this is consistent with coop principles.  Here is one CEO’s view.

(from Jim Blaine)

Balanced lending…

Many, many credit unions have successfully implemented risk-based lending to the benefit of each and every member. More and more members are calling out and demanding increased risk-based lending by credit unions. Never has one concept been so uniformly and enthusiastically accepted by the masses. RBL is the top requested service on every member survey – right?.


One CEO told me that RBL was an easy sale to the Board after one Board member got back from an RBL seminar cruise. Evidently, in the bar, the Board member was chastised by an RBL advocate with the arguments: “You mean you charge the same loan rate to an admiral as you do to an E-4? You mean your school superintendent pays the same rate as the first year teacher?  The blue collars get the same deal?! Do your maid and gardener get the same rate you do?  That’s not fair! You’ve got to start running that credit union like a business these days!”  

It’s an especially easy sale, when you lace the poison with a few high heat words like unfairness, subsidy, unprofitable, freeloading – free riders. Fairness, of course, is something every credit union person supports. Every effort should be made to assure fairness is a fundamental, core value of the credit union philosophy.


Evidently for the first seventy or eighty years of the credit union movement, boards and members didn’t care much about fairness in lending. Unfairness existed in all credit unions since none used risk-based lending….

Secret formula…

Critics try to make an issue out of the “unfairness” in RBL. They always want to claim that while RBL may achieve consistency in credit union lending decisions, RBL was never designed to achieve fairness. With RBL, members are divided into risk “classes” (A,B,C,D,E, etc.) based on a secret formula of risk criteria.  

Although the secret formula for risk criteria isn’t advanced enough to tell us which exact member will default, it is explicitly accurate in knowing which “class” to which you and I should belong. There are no shades of gray in an empirical, statistical model. Don’t tell me about the divorce, the flood, the death in the family, or the reporting error. Your statistical record speaks for itself. The secret formula knows who you really are in your heart of hearts.    Cut the whining, pay the rate; fair is fair!


Complainers also don’t seem to appreciate the need to eliminate the subsidies within a credit union to “low class” borrowers. The financial stability of the wealthy few is being imperiled by the working class majority. If the poor can’t pay their loans, logically they should be charged a higher rate. 

A New Class Act?

But we haven’t even begun to fully exploit the benefits of risk-based pricing for the membership. Hope we can use the secret formula to help make some of the other operations of the credit union fairer. We’re already getting behind on the innovations being implemented by our guiding lights over in the banking industry.

Some local banks have used secret formulas to determine even more precisely which customers are profitable and which are unprofitable. Who wants an unprofitable customer? And there certainly isn’t any difference between an unprofitable customer and an unprofitable member, is there? Hey, credit unions aren’t welfare states, are we?

Those creative banks have started coding customers into green, yellow, and red “classes” at the call centers. Regardless of how long you’ve been waiting, green goes to the head of the queue. Greens have separate, fast teller lines and receive special services. Bright, bright greens can even receive “private banking” services so they never have to rub elbows with “the riffraff”. Don’t we want to serve our “best” members, too?

Whose credit union is it anyway?

Serving the members based on the distinction of “class” will go a long way toward increasing a sense of fairness and building unity within the credit union. We certainly haven’t been “a class act” in the past but surely everyone agrees that – in a cooperative – some members are more equal than others.

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An Old Tale, Updated for Credit Unions

Down On The Farm…?

(by Jim Blaine)

George Orwell masterfully described the erosion of values and the rise of exploitation in his classic novel Animal Farm. The book written in 1945 is a satire of the decline in the Russian Revolution from idealism to the overlord State of Stalinism. To Orwell, what the Revolution had become in post-WWII Russia bore little resemblance to the high hopes of 1917.

In case you’ve forgotten the plot; in Animal Farm the slothful, tyrannical human proprietor of Manor Farm is overthrown by his much abused and neglected farm animals. The revolutionary animals quickly come to realize that when united in cooperative effort, they are quite capable of sensibly managing the farm and their own affairs. 


Each animal, by nature and design, has different capabilities and unique qualities. Separately they are weak. But, cooperatively, working together; the united effort becomes far greater than the sum of the individual parts. Each animal contributes in full measure, in its own special way, to the overall success of the enterprise. 

The cows and chickens provide milk and eggs for food. The sheep provide wool for cloth; the dogs provide protection; and the horses provide strength for plowing. The pigs, who seem to be the brightest, provide direction and management (surprise, surprise!).

Every civilized society, every social movement, every cooperative effort needs and creates a set of guiding principles – a social compact, a credo, a charter which explains shared beliefs and values. The animals of Animal Farm were no different. They carefully crafted rules for their new social order and painted them on the side of a barn for all to see.  

                  ORIGINAL PRINCIPLES:
 
 1. Whatever goes upon two legs is an enemy.
 2. Whatever goes upon four legs, or has wings, is a friend.
 3. No animal shall wear clothes.
 4. No animal shall sleep in a bed.
 5. No animal shall drink alcohol.
 6. No animal shall kill any other animal.
 7. All animals are equal.

Over time, several incidents occurred which seemed to be out of keeping with those original purposes. The pigs were found sleeping in the former owner’s bed; alcohol reappeared at social gatherings of the pigs; an animal who complained about the changing values was killed; and the pigs seemed to be working less and consuming more than their fair share. 

When the animals returned to the barn to review their original principles; they found, much to their surprise, that those principles somehow had evolved into something a bit different!

“EVOLVING” PRINCIPLES:
 
1. Whatever goes upon two legs is an enemy.
2. Whatever goes upon four legs, or has wings, is a friend.
3. No animal shall wear clothes.
4. No animal shall sleep in a bed with sheets.
5. No animal shall drink alcohol to excess.
6. No animal shall kill any other animal without cause.
7. All animals are equal, but some animals are more equal than others.

The pigs, however, were always there to explain away questions, concerns and objections. Bad became worse at Animal Farm! Eventually, when the animals returned to the barn, they found a whitewashed wall with just one remaining principle.

“CURRENT” PRINCIPLES?

“All members are equal, but some members are more equal than others.”

“Isn’t that what we originally revolted against?,” some quietly asked.

So, what’s the point? In the beginning, there were several essential ideas which formed the core values of the credit union movement: one member, one vote; cooperative; non-profit; equal service to each member; consumer advocacy; volunteer leadership; unstandard answers; shared concerns; us not me. 

 Have you checked the barn lately?    
 
When did we abandon the average man and woman – the working class; change our focus to the primacy of the bottom line; lower ourselves to worshipping before the false altar of market share; begin acting in the best interest of “the credit union” – not the members !?!; and start offering excuses rather than solutions?

Hey really, what happened…   

Who let the pigs in?



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False Prophets and Chasing Idols

The email marketing headline read:  Is there a merger in your future?

Another suggested the opportunity to protect the CEO’s fate by adding  a “change of control” clause to the manager’s contract.

Many credit union leaders and most vendors are selling a vision of the future they want to help implement.   The focus is on the future, not the present circumstances.

The more apocalyptic the future predictions, the more urgent the message.   These prophets pretend to know the unknowable.   But the failure is not in their projections.   It is their misunderstanding of the present.

What Prophets Do

When leaders present their vision, they are making predictions about the future they hope to bring. In fact, prophets do exactly the opposite! They insist the future is highly contingent on the now.

From all the flotsam of events, beliefs and analysis, real prophets  have the ability to identify what really matters.  Focusing on this is essential for ongoing success.

That’s not predicting the future as much as it’s naming the way human reality works today and tomorrow.  The true prophet dares to tell what is essential in the face of marketing hype, rhetorical cliches and the latest innovation that will cause members to leave current institutions behind.

An Example

Decades ago I first met Rudy Hanley, the long time CEO of SchoolsFirst FCU in California.   He asked how I approached strategy.   As I outlined the model and summarized  growth options, he stated that the credit union’s primary goal was not growth.  It was ensuring the members’ trust.   No matter the circumstances or cost, the critical success factor was continuing to place member confidence at the center of every decision.

If member relationships were built on this foundation, he believed growth would naturally follow.

This is not every CEO’s priority.   Some believe size guarantees success, the bigger, the stronger and the more resilient.   Others put their trust in technology and introducing the most compelling solutions or latest crypto offering.  When winning in the open competition of the market seems to slow, others will chase the chimera of buying out or merging competitors.

All these approaches can bring short term success.  However member-owned cooperatives were established and succeeded as an alternative because of the unique consumer-member relationship.   Emulating the corporate strategies of banks and other commercial firms is following false idols.

There are a host of idolatries at the center of the cooperative system today.   Many aspire to the prestige and stature of banking competitors.   Making money becomes the number one priority albeit always clothed in the phrase of serving members.

Instead of seeking those who are often victims of current financial choices, credit unions aspire to serve everyone.  Speaking truth about why coops exist becomes prophetic because the “powers that be” that benefit from the system, cannot see this simple message.

The Transition of Leadership

The challenge of understanding who coops are and how credit unions are unique is especially front and center in leadership transitions.

One CEO who recently oversaw this change in his institution observed these dynamics:

It’s hard for today’s leaders to make their bones when they are up to bat.

Then lazy new leaders simply fall in line with the best practices of the day, currently community banking tactics 101.

New leaders will not see staying the course as the means to their hopeful ends.  They have been given the reins for change, not just continued success.  They are vested in their peer’s approval not their members, nor history’s standards.  

The new actors today are vested in their choices.  Logic will not be enough – it’s too nuanced to turn back the belief that change is the catalyst to bigger things.

These are a prophet’s words for the present.   Will anyone hear the message?  Or will there have to be a cost to chasing idols versus trusted service,  the core of Rudy Hanley’s leadership?

 

 

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What Large Credit Unions Might Learn from Elephants

The largest, most powerful land animal is the elephant.  In many of their traditional habitats in Asia and Africa, their numbers are falling due to the loss of their traditional habitat and poachers.

The Elephant Whisperer is the story of a person who lived with elephants on a game preserve to try to preserve a “rogue” herd.

The author Lawrence Anthony devoted his life to animal conservation protecting the world’s endangered species. He was asked to accept a wild elephant herd on his Thula Thula game reserve in Zululand. His common sense told him to refuse, but he was the herd’s last chance of survival: they would be killed if he wouldn’t take them.

To win the herd’s trust, he had to convince the Matriarch  of the herd. The eldest female is the leader, until she relinquishes it. He slept in his Land Rover near them until they accepted him.

In the years that followed he became a part of their family. In creating a bond with the elephants, he came to realize that they had a great deal to teach him about life, loyalty, and freedom.

He learned elephants mourn their dead , and recall the time lapse of a year to the day of death to assemble round the remains.  When Lawrence Anthony died in 2012 , they gathered  to mourn him.

The Instincts of the Herd

Elephants care for newborns together.  When one is unable to stand up to nurse, they surround to help lift her up to the mother. Sometimes realizing the infant needed more nutrition, they would seek out Lawrence and his team.

The elephants thrive very much together, protecting and playing with each other but ferocious if threatened.  They will accept help from humans they trust.

An iconic picture of this group effort is when the herd will lie down to sleep for several hours each day.   As shown below the matriarch is at the top, the smaller, younger elephants protected by the older ones.   Most importantly, the picture shows how each member stays touched by another as they sleep.

 

Is there a lesson for cooperatives from this natural behavior of the world’s largest land animals?

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When The Bullet Hits The Bone…

Two credit union press releases this week reminded me of the 2012 post below by Jim Blaine.

The first was the announcement that five Minnesota credit unions had loaned $31 million to Opal Holdings, a New York real estate developer and investment firm, to purchase a 17 story office tower in Bloomington, MN.  “The financing included two senior secured notes on equal footing issued in June: One for $22.1 million at 5.1% for 36 years and the other for $8.1 million at 5.32% for 40 years.”

The second from Summit Credit Union stating it had completed the purchase of the $837 million Commerce State Bank  “in the largest credit union acquisition of a bank in the state’s history.”

“Twilight Zone”  (by Jim Blaine)

Nobody said it better than Golden Earring.  No, this is not the golden earring you fearfully imagine sprouting some day from your teenager’s nose or navel.  It’s the late ‘70s rock group and the song is “Twilight Zone”.  The question:  “Steppin’ out into the twilight zone.  Entering the Madhouse, fears that have grown.  What will become of the moon, and stars?  Where am I to go, now that I’ve gone too far?”…  The answer:  “You will come to know, when the bullet hits the bone!  Yes, you will come to know, when the bullet hits the bone!”

The Heartland….

The Amana Colonies, 26,000 acres of picturesque Iowa farmland, sheltering seven immaculate villages, are up Highway 151 about 100 miles east of Des Moines.  This is the Midwest, the Heartland.

The place where the Deere and the antelope play.  A warp in time through which, you may, perhaps, be able to catch a glimpse of the future – the future of the credit union movement.

The Amanas were settled in 1855 by the Society of True Inspirationists.  The sect was formed in Germany; adopted a communal structure; and had unique, idealistic, and firmly held beliefs – sound vaguely familiar?  The communities were self-sufficient and prospered richly.  

All things were shared.  Products, such as woolens, handmade furniture, meats and wines, were sold to the outside world.  A sterling reputation was built upon high standards of craftsmanship and a close attention to detail.  The “Amana” name – remember that refrigerator? – became synonymous with quality and value – sound vaguely familiar?

“Why don’t you download this app…”

The Amanas appeared to be the true Utopia, the new Eden.  But trouble, eventually, always comes to Eden.  At first, the Inspirationists called it “The Reorganization”, then “The Change”, and finally, “The Great Change”.  It started as a murmur, became a grumble, heightened to an argument, and ended in 1932 as a split.  

Eighty years of success forced onto the scaffold of change by a diminished intensity of beliefs, a cooling of religious fervor, a forgetfulness of original purpose and vision – sound vaguely familiar?

Their world, however, did not come to an end in 1932.  The Amana Colonies continued on.  The communal structure was abandoned; the religious and the secular were separated.  Homes and personal property were divided; stock was issued in the businesses and agricultural interests.

The Amana Society Corporation now controls and manages the businesses.  The Amana Church Society now deals with spiritual matters.  Today, the Amanas are on the National Registry of Historic Places and the Amana Heritage Society strives diligently to preserve the cultural heritage of the community and its descendants.  Today, the Amanas are still many things, but mostly the Amanas are a novelty, an oddity, a quaint museum of past hopes and ideas.  

Why did this happen?  The guidebook says:  The Amanas were… “a goal:  visioned through faith; created and established by faith; named for a faith and dedicated to a faith”.  And, “the first generation had an idea and lived for the idea.  The second generation perpetuated the idea for the sake of their fathers, but their hearts were not in it.  The third generation openly rebelled against the task of mere perpetuation of institutions founded by their grandfathers.  It is always the same with people.” – sound vaguely familiar?Which credit union generation is this?  Are you still living for “the idea”?  Is your heart… still in it?

“… destination unknown.” 

“Steppin’ out into the twilight zone.  Falling down a spiral, destination unknown.  What will become of the moon and the stars.  Where am I to go, now that I’ve gone too far? 

…You will come to know, when the bullet hits the bone.  Yes, you will come to know when the bullet hits the bone.”