Warren Buffet’s Wisdom for Coops

Someone’s sitting in the shade today because someone planted a tree a long time ago.

Buffet’s phrase would appear to state a fundamental truth about cooperatives.  After all, cooperative results are meant to be paid forward to benefit future generations.

As I follow credit unions, other interpretations of his observation are apparent. Here are some:

Different Views of Shade Trees

Some believe the trees should be cut down and sold for firewood.  Others want the trees removed because it restricts their view.

Some did not notice the tree until they were in its shade.  The conclusion is they were the ones who did the planting.

Occasionally, some uproot their neighbors’ trees to replant nearby to expand their shade.

When asked to help plant a tree for others, the response is, “there is no need, just sit in our shade.”

The government inspectors come to see how the trees are doing.  They direct certain limbs to be cut down because they interfere with the power lines. They believe no new trees are to be planted. The existing canopy gives all the shade the community needs.  Besides it takes too long for a sapling to grow big enough to provide real shade.

Instead of a cooperative forest passed to future generations, the landscape slowly becomes a level field.  All the trees are privately owned, and the communities’ open spaces require members to pay a fee to sit in the shade.

Buffet’s question:  Are today’s credit unions planting trees or living off a forest created by others?

 

 

Taxi Medallions in the American Cooperative System

In February 2020 when the NCUA board voted to sell over 4,500 credit union members’ taxi medallion loans to a private hedge fund, it broke faith with the borrowers and the credit union model authorized by Congress.

Cooperatives are intended to be a financial option different from the market-driven, for profit business models.

Yesterday’s blog, “Low Balling Price to Win Market Share,” described the Uber/Lyft business model’s use of venture capital to underprice the regulated cab industry fares to achieve market dominance.  One reader commented:

The “destroy the competition” at any cost business model is capitalism at its most ruthless point (and it’s what China is doing right now too).  I’m a capitalist but running the competition out of town with an unprofitable business model backed by a war-chest of reserves is poor form.  Don’t know what to do about it; legislating it away may do more harm than good. 

But that legislation is already on the books.  First by state charters, and then in Congress (in 1934), consumers and groups were given an option to fight predatory practices by forming not-for-profit, member-owned financial services.  The question is whether the leaders of the system–regulators and credit union CEO’s–believe in this cooperative difference today.

Cooperative Ownership Supports Individual Owners

To recruit back their driver business partners, Uber and Lyft have reportedly paid incentives of $250 million and $100 million to entice them to return to their platforms.  But this time these price incentives are being passed through in the fares which are as  much as 40% higher.

What made the credit union financing of medallions special was that it gave drivers the chance to buy a medallion and become an owner, not just a worker.

A person familiar with the medallion financing industry described this credit union role as follows:

The decline of the 75-year history of the taxi industry is very complicated.

 But one thing remains true.  “Ownership” was key in its success and if the medallion rises from the dead, that will be why. In America, it is better to own than be owned by your employer-no matter how benevolent that employer might be. That is why immigrants of many colors and nationalities turned to the taxi industry.

 The incentives the ride share companies gave passengers and drivers when they were initially focused on destroying “Yellow” are now gone.

 The medallion buying market is now only owner-operators, so investors and speculation are gone.

As long as the purchase price affords the “new” owner the chance to earn what they earned as a worker, they will choose the owner option.

 Cooperative financing gave these members a way to create their own business-the American dream.  Credit union lending has always intended to enable individual empowerment for productive purpose.

NCUA’s sale of the members’ loans to a hedge fund seeking control of a significant share of the NYC medallion market undercut this core purpose. Several credit union and borrower groups with firsthand experience managing these portfolios asked to provide options and were ignored by NCUA.

If borrowers had been given the payment options based on balances similar to the amount the agency received from the sale, the member workout transitions could have been accelerated and future values enhanced for both NCUA and these borrowers.  But NCUA decided to wash its hands and walk away.

The Credit Union Way or Not?

Time and again credit unions have demonstrated their ability to act in borrowers’ best interests even when this means reducing the credit union’s bottom line or using reserves.   The industry’s wide-spread fee waivers, deferrals, refinancing and just being there for members during Covid is the latest in a history of such actions.

Unlike for-profit firms, cooperative structure provides a shield against the ever-present market pressures for earnings.  Patience provides for both individual circumstances and market cycles to play out so decisions are not made when events seem at their worst.

Cooperative patience is a valuable capability.  It means the industry can act counter cyclically in a downturn by keeping loan windows open and giving members options to defer or even reduce payments.  Even now, there are  reports that the “Yellow” taxi option is making a comeback versus the technology disrupters.

But if this unique advantage is not understood and used by regulators or credit union leaders, then credit unions will end up responding to crises no differently than their banking competitors.  That is not what Congress intended.  It is not what America needs.  It is not in the member-owners’ interest. That banking approach would violate both cooperative design and values.

 

 

 

 

 

What Credit Unions Can Learn from Morris Plan Banks

In justifying whole bank purchases credit union CEOs will reference learning from their competitor’s experiences and banking knowledge. Several areas include expanded commercial loan opportunities, entry into new markets and adding staff with  different expertise.

Trying to beat the competition by becoming the competition has always been a dubious strategy. Moreover, the example of early competition from the Morris Plan banks suggests credit unions will be more successful developing their own unique competencies.

Credit union success was never guaranteed. In fact, one of the earliest and largest competitors for the untapped consumer credit market grew much faster and was far more consequential than the slowly emerging credit union system. That is, until the 1934 passage of the FCU Act ushered in a new era of cu expansion.

Morris Plan Banks

In 1910, attorney Arthur J. Morris (1881–1973) opened the Fidelity Savings and Trust Company in Norfolk, Virginia.

The Virginia lawyer, was troubled that a securely employed workman, seeking a small loan, was denied access to credit from local banks and forced to borrow from loan sharks. Morris thought that a country that denied bank loans to a large part of its population had a “weak spot” in its banking system. Morris studied the various banking laws in the U.S. in the hopes that some type of “banking institution could be evolved that would correct the existing evils and supply credit to the needy”

Under a concept called the “Morris Plan” he offered small loans to working people. In this approach would-be borrowers had to submit references from two people of like character and earnings power to prove the borrower’s creditworthiness. Repayment of the loan was made through the weekly purchase of Installment Thrift Certificates equal to the face value of the loan, less origination and investigative fees.

Morris Plan Banks expanded relying on state charters just as did the nascent credit union movement. By 1931, there were 109 Morris Plan banks operating in 142 cities with an annual loan volume about $220,000,000.

In a November 23, 1931, TIME magazine personnel announcement, the industry’s two decades of success and growth were described as follows:

“Walter W. Head, past president of American Bankers Assn., was elected president of Morris Plan Corp. of America, succeeding Austin L. Babcock. Morris Plan Corp. has large stock holdings in all the Morris Plan banks, the largest industrial banking system in the U. S. In the last 21 years these banks loaned $1,750,000,000 to 7,000,000 people, and now do about $200,000,000 annual business with 800,000 customers.”

Morris Plan banks pioneered the use of automotive financing through arrangements between the Morris Plan Company of America, the holding company for Morris Plan banks, and the Studebaker Corporation. In 1917 through the subsidiary Morris Plan Insurance Society, credit life insurance was offered to pay off any outstanding loan balance if the borrower died. Any insurance left over went to the borrower’s estate.

In their description of Morris Plan banks, authors Phillips and Mushinski offer one explanation for model’s success versus credit unions:

“The Morris Plan structure was more attuned to the individuality of typical Americans than were credit unions.

“It should also be noted that the Morris Plan was not without critics, especially from the Russell Sage Foundation which viewed the lending procedure to be misleading at best, and at worst, an attempt to defraud the borrowers. Hence, many viewed the profit-seeking Morris Plan institutions as little better, and in some respects worse, than loan-sharks.”

Morris Plan Banks vs Credit Unions’ Growth

Morris Plan banks began the same year as credit unions. In just two decades, by 1931, they became the leading provider of financial options for consumers.

The following slides summarize this state chartered, for-profit enterprise.

1. Begun by a lawyer to meet the need for unsecured personal credit.

2. Innovative legal structure incubated in the state chartering system.

3. Loans were made based on character, for a good purpose with at least two cosigners of similar economic standing.

4. Morris plan banks’ annual loan volume in 1931 is estimated at over $200 million. The state-chartered credit union system reported just over $40 million.

5. Morris Plan banks failed during the Depression. Many converted or were sold to commercial banks which took consumer deposits and had broader lending options.

Today the descendant of this banking model is the Industrial Loan Company (ILC) state chartered, FDIC insured banks that primarily serve as specialty lenders.

Morris Plan institutions relied on wholesale funding and stock subscriptions. Credit unions which offered savings options and consumer loans quickly became the preferred option for members and communities in the Depression. Their non-profit cooperative design, self-help appeal and local leadership created a positive reputation and loyal members following numerous failures in the banking system following Roosevelt’s bank holiday in March 1933.

Some Reflections for Credit Unions from the Morris Plan Experience

  • Being first to prove a market need and establishing a dominant position does not guarantee ongoing success. Second movers can create a long-term advantage.
  • Growth requires innovation and staying in touch with a market’s needs.
  • The more flexible the institutional model, the greater the chance of sustainability;
  • The Credit Union system took on a new wave of expansion and credibility when a federal charter option became available—Morris Plan banks were dependent on state-by-state legislation;
  • Values and perceptions matter. Although Morris’ instinct was to serve the unbanked, the for-profit structure created a public perception of conflicting purposes.
  • Dramatic or sudden changes/crises in the economic, social, or political environment can lead to demise of models developed in another era.

Buying Used Up Models?

As credit unions pursue whole bank acquisitions, are they buying “tired” business models built with different values and goals? Are these credit unions giving up the advantages of cooperative design and innovation attempting to purchase scale? Will combining competitors’ experiences (and customers) with the credit union tax exemption create an illusion of financial opportunity that fails to prove out when evaluated years down the road?

Two decades ago, the prophets of cooperative doom were selling charter conversions, first to a mutual option and then later, going public with stock. The pitch was: more capital flexibility, no common bond restraints and expanded asset and investment options. And oh, you could also make a lot of money if the former credit union went public.

Between 30-35 credit unions bought into this vision of future financial nirvana. Today only one institution remains, still a mutual whose growth has trailed its cooperative peers since the conversion took place. But that is a story for another day.

We know the fate of the Morris Plan banking model and the “consultants” siren calls to convert to another financial charter. We don’t know if bank purchases will indeed add value for members or their co-op.

But we can learn one thing from history—if these purchases do not create a stronger cooperative, the credit union’s future may have just been attenuated in this effort to induce growth by paying out members’ collective wealth to bank owners.

The Key to Cooperative Success

Everyone has a different perspective on the advantages of cooperative design.  For some it is self-help and self-financing.  For others, member ownership.  The tax advantage creating free capital. Cooperative values. Collaboration. Etc.

One CEO described his operational priority that states this critical factor most clearly:

Invest in your owner’s agenda and remember, it’s outside your own. The success of your members is the only chance you have at success.

 I would add that everything else is just becoming the competition.

What Bubble?

Much professional and political debate is occurring as to whether the real economy’s outlook, measured by GDP, and stock market values are aligned.

One source of uncertainty is whether the increase of fiscal spending will lead to greater inflation (more money chasing fewer goods) or just a temporary adjustment before returning to some steady equilibrium.  That is, a “normal” of both GDP growth (3%) and of inflation, around 2-3%.

Some facts to throw into the confusion.

The current price earnings ratio of the S&P 500 index stands at 40 times or so.  This is up from a same index’s P/E ratio of 23X one year ago.  Historically the ratio hovers in the mid to high teens over an extended economic cycle.

Tesla is priced today at a P/E ratio of 204 times.   Over the past twelve months of trailing earnings, its P/E of 128X is eight times the domestic auto industry’s similar trailing P/E of 16.5X.

The business pages are full of daily stories of meme stocks such as AMC or GME where pricing bears no relationship to actual performance.  Irrational exuberance?  Retail investors with too much time and surplus cash on hand? Historically low interest rates pushing up the value of assets such as homes and used cars? Bit coin and other cyber currencies–the wave of the future for protecting wealth or just a giant Ponzi scheme where another buyer proves the greater fool theory of investing?  Until there are no fools left!

How Should Credit Unions Respond?

Some members, those with retirement, savings or other assets in stocks and real estate are probably feeling confident about their financial situation. Especially if they just refinanced at lower rates.

Those without these assets, or just holding savings accounts earning .10-.50 basis points are undoubtedly less sanguine about their situation.  Living on fixed incomes with prices rising on everything can raise anxiety about being left behind.

No one knows the future.  Most forecasts are based on past data and current assumptions about the environment.  But learning from these past forecasts might just help us navigate current uncertainties.

The 1978-1979 Inflation Takes Off

In 1978 the economy was experiencing dramatic rises in short term rates and inflation was a constant source of governmental attention.   In that year the money market mutual funds began to attract consumer deposits from all financial intermediaries whose rates were fixed by government regulation: generally 5% for banks and 51/4% for S&L’s on passbook accounts.  No interest was paid on checking–prohibited by regulation.   No depository money market accounts permitted. All CD rates and terms were similarly government controlled. Federal credit union rates were capped at 7%.  Share drafts were us just barely introduced although all Rhode Island state charters offered NOW accounts and paid interest on them.

Illinois chartered credit unions operated with a 12% loan usury ceiling in place since first the first act was passed in the 1920’s.   The Department issued updated guidelines for certificate accounts trying to help credit unions remain competitive if they had sufficient earnings.   I can remember, as Credit Union Supervisor, offering Ed Callahan, the Director of DFI, my considered opinion that rates would never rise about 12%.  They had never done so in the past. That loan ceiling reflected the collective judgments of generations of lawmakers and policy analysts that gave the number an aura of human observational certainty like the law of gravity.  What could be closer to a natural law than paying simple interest on loans at 1% per month?

Ed didn’t argue with my facts or logic.  He only replied: “Don’t ever say never.”  Meaning that when someone asserts something cannot change, be careful.  One year later his comment was proven true, and the economy and all financial institutions started responding to Treasury yields that would eventually soar to the mid-teens and 30-year mortgages became unavailable at any rate.

Consumers transferred billions from deposits to money market mutual funds which could pay these higher rates.  This disintermediation was the ultimate straw triggering complete deregulation of the depository institution industry.

Credit unions transitioned this financial earthquake by continuing one critical strategy-serve the member well and good results will follow.  A credit union advantage is being partially shielded from the everyday pressures of the market and the power of stock price on performance and management behavior.

Some data today suggests that certain parts of the economy are overpriced.  Others believe there are still bargains to be had and don’t want to miss out on the action.  It can be an entertaining game to watch, but not one credit unions are supposed to play.  Fortune tellers can only make a living if someone believes in their crystal ball.

Resist  the allure of future predictions and focus on getting ever better for members in the present.

 

 

 

Intergenerational Thinking and Co-op Design

The concept of paying forward is inherent in the credit union model.  Current leadership begins with a legacy of common wealth inherited from previous efforts.  The assumption is that the current generation will in turn pass an even greater legacy to their children’s children.

This is not the performance standard dictated for profit making firms in a market economy.   Rather the inexorable force of the invisible hand drives a firm’s stock price.   Success or shortfalls, are measured quarterly against explicit annual performance expectations.

What Will our Descendants Thank Us For?

Credit unions were founded with a different ethic of success.  The member ownership allows co-ops to play “the long game.” Performance encompasses obligations for the common good of members and their communities.

John Ruskin (1819-1900) was a leading English art critic of the Victorian era.  He was an art patron, draughtsman, watercolorist, philosopher, social thinker and philanthropist. He wrote on subjects as varied as architecture, myth, literature, education, botany and political economy.

His vision for human enterprise uses an architectural metaphor which I believe embraces this unique, intergenerational scope of cooperative design:

“When we build, let us think that we build forever. Let it not be for present delight nor for present use alone. Let it be such work as our descendants will thank us for; and let us think, as we lay stone on stone, that a time is to come when those stones will be held sacred because our hands have touched them, and that men will say, as they look upon the labor and wrought substance of them, ‘See! This our fathers did for us.”

 

Two Reflections from Memorial Day

Opposition to the Vietnam war on many college campuses led to the cancellation of ROTC programs.  Subsequently the draft was ended with all branches of the military now relying on volunteers to fill their ranks.

One observer commented on the fewer ROTC programs and the elimination of the draft as incentives for college graduates to serve in an all-volunteer military.  He foresaw a possible outcome as follows:  Societies fall to folly when they draw distinct lines between their warriors and scholars. What this ultimately leads to is society’s thinking done by cowards and its fighting done by fools. 

What if we are called to serve and fail to answer?

The heydays of credit union charters began in the Great Depression with passage of the Federal Credit Union Act in 1934.   Post WWII saw another upsurge in new chartering activity.  From 1949-1970 between 500-700 new FCU charters were issued per year.

By yearend 1978, when NCUA became an independent agency, 23,278 federal charters had been granted of which 12,769 (55%) were still operating.

Many factors affected this chartering explosion.   One was the social ethic of the Greatest Generation.  The cooperative values of self-help, local leadership and community service were closely aligned with the ethos of the generation forged by depression and world war.

Some writers believe this capacity for social responsibility has been superseded in current generations by a more individualistic focus,  personal independence  and financial success.

A guest editorial by Margaret Renkl on this change of values was published Memorial Day, May 31, 2021 in the New York Times.

My question is whether this attitude might contribute to the virtual absence of new charters in this century.   There have been 193 FCU’s in first 20 years of this century, or fewer than 10 per year.  Here are several excerpts of the writer’s thinking:

“Young men of my father’s generation grew up during wartime and generally expected to serve when their turn came. No generation since has felt the same way. There are compelling reasons for that shift — the protracted catastrophe in Vietnam not least — but I’m less interested in why it happened than in what it tells us about our country now. What does it mean to live in a nation with no expectation for national service? With no close-hand experience of national sacrifice? . . .

 The need for some nonmartial way to nurture communitarian qualities is more urgent now than ever. We have lately been reminded of the absolute necessity for Americans to be motivated by warm fellow feeling across divides of region, race, class, politics, religion, age, gender, or ability; to cultivate a sense of common purpose; to make sacrifices for the sake of others. And that reminder came in the form of watching what happens when such qualities are absent, even anathema, in whole regions of the country. . .

If Vietnam exploded the unquestioned commitment to national service, the coronavirus pandemic should have been the very thing to bring it back.

That it did exactly the opposite tells us something about who we are as human beings, and who we are as a nation. There is more to mourn today than I ever understood before.” 

The Question for Credit Unions

To the extent that our society has lost capacity to “nurture its communitarian” responsibilities, how does this affect the cooperative model?  Credit unions rely on volunteers. Their greatest strength is the fabric of relationships they cultivate with members and their communities.   Has the model lost its way as a new generation of leaders takes control without a link or even knowledge of the qualities that created the institutions they inherit?

Have credit unions abandoned their capacity to cultivate a sense of common purpose; to make sacrifices for the sake of others now that they have achieved financial sufficiency and can stand apart from their roots?

Is credit union leadership today susceptible to the social folly described by the first writer?

Should Credit Unions Buy Banks?

Two major credit union purchase and assumptions of commercial banks have been announced recently.   The $7.5 billion GreenState Credit Union in North Liberty, IA is buying two banks outside Its home state with total assets of $1.1 billion.

In April the $10 billion Vystar Credit Union in Jacksonville, Fla., agreed to buy the $1.5 billion Heritage Southeast Bank of Jonesboro, Ga., for $189 million, becoming the credit union industry’s largest bank acquisition.

Excess Cash on Hand?

With the average annual asset growth over 20% for the largest credit unions, the explanation that buying size to get to the future faster  would seem questionable.  Organic growth has taken off.

Is it possible that all the excess cash on hand is burning holes in credit union pockets?   If that is a factor than it is well to remember the age-old wisdom about money and value: asset values of banks tend to benefit from excess liquidity and suffer from a dearth of it, like most other asset classes.

Three Ways of Approaching the Issue

In upcoming blogs I will look at several examples, some pending and others completed, around three topics.

  1. Is the purchase of whole banks consistent with the public policy role of credit unions, a role that  justifies their exemption from income tax?  In the political arena, local and nationally, do these transactions help or harm credit union’s reputation?
  2. How do purchases benefit existing member owners? Are the disclosures and information credit union CEOs provide about these transactions adequate for existing members whose loyalty created the capacity to do these cash purchases?
  3. Looking at several examples, albeit with incomplete details, do these investments appear to be financially sound, especially in instances where the announced price is substantially above recent market value?

No Easy Answers and No System Dialogue

At each level of analysis there will be differing viewpoints.  NCUA has taken a hands-off approach signaling that these are merely “market-based transactions.”   I believe this is a misuse of the term.  At one point Chairman Harper, as a board member, indicated concern that “former consumers of the acquired banks will not have the same level of consumer financial protection oversight in their new credit union.”

Because an activity is legal does not mean it is wise.  Either as policy or in a specific instance.

Another difficulty is assessing the financial impact of these larger events on the purchasing credit union.  It may not be possible for years to know the benefits or costs on the acquiring credit union or the communities and customers  whose accounts were transferred.  For example what is the retention rate of depositors?  It is one thing to acquire assets, it is another skillset to manage them effectively.

As a general maxim, the purchase or merger of commercial entities tends to reduce shareholder value.  Before its recent disposal of its media assets, AT&T (T) spun off its DirecTV and other pay-tv services into a separate company, with private-equity firm TPG Capital as a 30% owner of the new entity. The deal valued the pay-tv services at a combined $16.25 billion, compared to the $66 billion that AT&T paid for DirecTV alone in 2015. (CNBC)

My goal in following articles will be to ask questions and to confront the seemingly nonchalant acceptance of this activity within the credit union community.   Through dialogue I hope credit unions can become more aware of what is at stake and what future actions might be, if different from the vacuum that now surrounds these activities.

A Brief Motivational Speech for Credit Unions-For Anytime

Leadership involves passion. That is the ability to motivate listeners to rise above matters of the moment to strive for greater success.

The skill is rare. It must speak to the heart and the head, ideally with humor.

One person who achieved this art was a former high school football coach who years later became Chairman of NCUA. Whenever Ed Callahan spoke, he would often end his talks with a rouser. It was a throw back to the halftime coach’s exhortation to go out and win the game.

I miss this communication mastery in today’s credit union world. It is more than a celebration of financial accomplishments. It is a spirited message that uplifts by affirming belief in and ambition for the future of the cooperative system.

Then I found a 1994 VCR video that captured the feeling of this endless opportunity to serve people in what the speaker asserts is the “best movement in the world-second to none.”

You may not need your morning coffee after listening to this minute and a half excerpt. It is a momentary summing up during a lending seminar by Rex Johnson. His persuasive tone and style undoubtedly owes a debt to the Southern Baptist preaching from his upbringing.

He wants credit unions to “get rid of the box” when making loan decisions and to exercise creativity serving members in “these difficult times.”

The message sounds just right for today and maybe all time.

https://youtu.be/WMBRunsCVGw

 

America’s Most Responsible Credit Unions

A headline like that would certainly get lots of attention. That is exactly what got mine: only it actually read, America’s Most Responsible Companies.

The January 14, 2021 article was based on an analysis by Newsweek and Statista. Companies were ranked on the three criteria of the ESG corporate model, environmental, social, and governance. The process included a pre-screening of a large universe of firms, as well as in-depth corporate social responsibility (CSR) reviews, and a consumer survey.

Companies were given a score out of 100 and ranked accordingly. With a score of 93.2, HP placed first as America’s most responsible company. The top 20 included nine tech firms. General Motors received the top score for social as the only firm with women as CEO and CFO.

The full methodology used by Newsweek is described here. The initial pool of over 2,000 companies was narrowed down to 400 which were then evaluated in a four-phase process. One phase was a survey of 7,500 U.S. consumers plus a review of the companies’ published key ESG performance indicators.

Is a Credit Union Responsibility Analysis Needed? Possible?

The purpose of the ESG ranking is to provide another, vital perspective on corporate performance beyond the traditional financial and stock price benchmarks. This recent model has been a lens used increasingly by large investors such as pension and mutual fund managers. Many companies are now publishing these additional indicators to enhance investor and public confidence in their business plans.

The primary rankings published on credit unions today are by size (assets, members, branches, etc.) or financial ratio performance—ROA, growth, or net worth.

Recently, like the corporate world, there are efforts to publish DEI statistics-diversity, equity and inclusion–for the credit union’s staff and board. This data has become more important as all organizations respond to systemic inequalities increasingly called out by events. Yet this focus is not unique for coops.

As cooperatives, credit unions have positioned themselves as more socially aware and responsible than traditional financial providers. Rate comparisons and how much members save annually are examples of financial value. But should there be more than simple financial markers if this unique design is doing something significant versus competitors?

A Cooperative Scorecard

Almost a decade ago CU*Answers, a CUSO 100% owned by credit unions, developed a cooperative scorecard providing a self- assessment created using the seven cooperative principles. The complete template is available here. The CUSO offered $50 for credit unions to send in their scores to encourage participation.

The scorecard’s purpose was to “operationalize” and measure the seven principles and to assist credit unions who wanted to enhance their cooperative advantage.

The form even included a scoring summary ranking:

Your Score How You Did
More than 104 points Congratulations, you are a shining example of a true cooperative.
80-103 points Not bad, not bad at all. You are doing well.
58-79 points Need to work a little more on your core cooperative values.
Step 1: find someone who scored higher than you and ask how they did it.
Less than 58 points You are a cooperative, right?

Today some of the key performance questions under the seven cooperative criteria might need updating, for example in responding to Covid. Note that none of the measures are based on financial performance. Rather the scores are indicators of cooperative conduct.

The Need for Cooperative Measures

With credit union performance today graded almost solely by financial outcomes, the result is an erosion of differences with other financial options. The cooperative “brand” is blurred. Member purpose becomes just “a little better financial deal.”

Most importantly, the advantages of the cooperative charter are minimized, becoming just a 7-part marketing slogan on lobby posters. When in fact the customer-owner relationship has been pivotal in creating the competitive advantage credit unions enjoy today.

A scorecard, thoughtfully designed, is more than a form to create another set of rankings. It should revitalize leaders’ attention on what makes credit unions unique. These coop measures can then translate into key performance indicators in business plans.

NCUA’s CAMEL ratings focus almost exclusively on financial performance, even when rating M, or management. This lens does not include critical measures of cooperative success, which in turn underwrite most financial outcomes.

This measurement gap is an opportunity for the system’s leaders to really “open eyes” to the credit union difference. And as the corporate headline above suggests, demonstrate each credit union’s “responsible” cooperative role within the American economic system.