Category: Observations

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A Haunting Poem for Halloween

Our neighbor’s yards have been filled with signs of the season these past several weeks.  They include white ghost-like specters hanging from trees, scattered skeleton parts on lawns, mock tomb stones and the endless variety of orange-lighted pumpkin carvings-some real and others plastic.

Halloween is a secular recognition by costume and irony-trick or treat-of the final reality that we all share.

Our neighbors invite us to join with them around an open, outdoor fire pit  with the greeting of “Happy Halloween!” Adults accompany children dressed as multiple characters on their door-to-door hunt for sweets and show.

Yet Halloween is about death’s reality-sort of.  One of the most popular poems in England is Thomas Gray’s Elegy Written in a Country Churchyard.  It captures the haunting challenge of life observing death.

Published in 1751, the narrator uses the setting of a church’s graveyard to mediate on the inevitable fate of everyone, whether rich or poor, known or unknown, skilled or day laborer.   It begins:

The curfew tolls the knell of parting day,

         The lowing herd wind slowly o’er the lea,

The plowman homeward plods his weary way,

         And leaves the world to darkness and to me.

The poet then enters the churchyard cemetery:

Beneath those rugged elms, that yew-tree’s shade,

         Where heaves the turf in many a mould’ring heap,

Each in his narrow cell for ever laid,

         The rude forefathers of the hamlet sleep.

The breezy call of incense-breathing Morn,

         The swallow twitt’ring from the straw-built shed,

The cock’s shrill clarion, or the echoing horn,

         No more shall rouse them from their lowly bed.

The remainder of the poem’s 32 stanza’s is a meditation on the democracy of death no matter one’s station in life.  From the poor to the powerful.

Let not Ambition mock their useful toil,

         Their homely joys, and destiny obscure;

Nor Grandeur hear with a disdainful smile

         The short and simple annals of the poor.

The boast of heraldry, the pomp of pow’r,

         And all that beauty, all that wealth e’er gave,

Awaits alike th’ inevitable hour.

         The paths of glory lead but to the grave.

The complete poem can be found here.

Happy Halloween!?

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Learning from Other “Movements”

Richard Rohr is a Franciscan Scholar who  created the Center for Action and Contemplation in Santa Fe, New Mexico.

His writings focus on the universal themes found in all spiritual traditions.  Often his concerns are directed at the transformation of religious activity as a source of hope and societal betterment through love, to becoming part of established authority and values.

Richard: It’s possible to trace the movement of Christianity from its earliest days until now. In Israel, Jesus and the early “church” offered people an experience; it moved to Greece, and it became a philosophy. When it moved to Rome and Constantinople, it became organized religion. Then it spread to Europe, and it became a culture. Finally, it moved to North America and became a business. This isn’t much of an exaggeration, if it’s an exaggeration at all. The original desire or need for a “Jesus” experience was lost, and not even possible for most people. Experience, philosophy, organized religion, culture, business—in each of those permutations and iterations, Christianity was seen as above criticism. It simply was the religion, the philosophy, the culture.

Parallels for the Cooperative Movement

Credit unions are just over a century old versus the two millennia of Christianity’s evolution.   But it is hard not to see a similar transformation occurring in this very short experience.  From a movement, to a self-supporting system, to an industry, and finally just becoming another option in the financial services business sector.

The “member’s best interest” has become a rhetorical phrase to justify leadership actions, organizational priorities and political lobbying positions that have nothing to do with member’s well-being.

While individual credit unions may pursue their own plans for a while, the two strategic choices would appear to be:

  1. Continue the transition to becoming an indistinguishable part of the broader banking industry, or
  2. A reformation where the member’s involvement and benefit are once again the primary reason for a credit union’s being.

Is there a third choice?

 

 

 

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The Cooperative Leadership of Ralph Swoboda (1948-2021)

(Editor’s note:  The following remembrance of Ralph’s leadership at CUNA was contributed by several of his colleagues.  CUNA’s announcement on September 14 of his passing  can be read here.)

A uniquely talented executive, Ralph successfully led the Credit Union National Association (CUNA) during a critical period of credit union modernization in the 1980s and 1990s. Modernization required transforming the movement’s structure that had remained unchanged since passage of the Federal Credit Union Act in 1934 and soon thereafter, the creation of CUNA. Modernization ensured credit unions’ viability into the twenty-first century by enhancing their capabilities to compete in a deregulated market. It is this historical transition that best captures Ralph’s contributions.

His credit union work began when he joined the Credit Union National Association (CUNA) in 1974 just as the movement recognized the need to change. It lasted through his untimely death while working on behalf of Irish and British credit unions through the nascent Centre of Community Finances Europe that he cofounded.

He initially served as CUNA’s general counsel and then as CUNA’s CEO from 1987 to 1995. He had an innate set of skills that included the foresight to anticipate new challenges before they appeared and overcome the unexpected but inevitable obstacles every endeavor confronts.

By any measurement of the qualities necessary to be a leader, Ralph met them all. He possessed vision, steadfastness, empathy, resilience, and compassion. Those traits – blended by his splendid intellect and indefatigable personal energy – defined Ralph as an unusually gifted executive.

The Forces for Credit Union Modernization

Ralph was at the center of the credit union movement from the early 70s on. The number of credit unions reached a high near 23,000 in 1972. However many credit unions lacked a too narrow a base from which to grow. Chartering new credit unions became challenging.

CUNA embraced the new regulatory era initiated by the National Credit Union Administration that allowed credit unions to accept small employee groups in their membership so long as each group had a common bond.

Ralph’s leadership during this transformative period is incalculable. Playing an instrumental role in ensuring credit unions had the tools to compete and thrive, Ralph advocated changes to the structure of the credit union system that served the movement since the 1930s.

Organizational Change

Among the reforms led by Ralph was the creation of new movement entities that enhanced the competitive capabilities of credit unions by leveraging their ability to collaborate.  It required a transformation of CUNA’s Governance structure. Formed initially as an association of state associations, CUNA’s Governance needed to blend the role of both credit unions and their state leagues.

CUNA Service Group, a CUNA and league subsidiary, was created to enable credit unions to become full-service financial institutions. Through partnerships with reputable financial-service companies, credit unions were able offer a range of new services beginning with a form of checking called share drafts that new legislation had enabled. As an attorney, Ralph played a prominent role in creating the share draft program from its successful pilot to the national rollout.

Within a few short years and under Ralph’s leadership, additional partnerships were formed to enable credit unions to offer members credit cards, mortgages, and a new service called individual retirement accounts (IRA’s)created by Congress to improve retirement savings options for consumers.

Ralph helped create U.S. Central Credit Union that functioned as a corporate credit union for natural-person credit unions.  It then evolved to become an integral part of a new Corporate Credit Union Network providing a full menu of wholesale services to credit unions.

Under Ralph’s leadership, the CUNA Foundation progressed from supporting credit unions  responding to environmental disasters into the influential National Credit Union Foundation. In addition to CUNA’s president and CEO, Ralph was president for each of these organizations.

Renewal

While modernization reduced the number of credit unions, the number of members and assets grew exponentially.  Their growing operational independence created different relationships between credit unions and their associations. The CEOs of large credit unions sought greater direct input into their national organization.

Under the movement’s original structure, credit unions belonged to the state leagues and the leagues belonged to CUNA. Ralph initiated the first steps of revamping this ownership structure. He created a task force of credit union and league executives which proposed recommendations that led to a significant changes and new association bylaws.

Called “Renewal,” the process provided a combination of credit union and state league representatives on CUNA’s governing Board. For the first time credit unions became members of CUNA. Elections to the board were regionally based.   Divisions representing credit unions of differing asset sizes ensured fair representation among an increasingly diverse movement, while still including a membership category for leagues.

Modernization and the growth of large credit unions required more sophisticated educational and training services for the growing numbers of professionals joining the industry. Credit Union marketers approached Ralph to propose the creation of a Marketing Council run by the marketers themselves with CUNA providing support services. This first council led to more organized around the professionals now employed in credit unions—finance, lending, technology, human resources and operations. The councils now have a multi-decade record of sharing their knowledge among over 6,000 members.

Regulatory modernization, credit union growth, and the rise of professional staff led to concerns that the movement would lose touch with the cooperative philosophy of its roots.  In response Ralph supported a program called Development Educators so credit union personnel could be ambassadors to explain the cooperative tradition of service over profit and the importance of credit union’s historical role.

Leading In an Era of Change

Ralph’s tenure during this era of multiple modernization forces was in many ways equal in importance with the founding years credit union development. Ralph’s leadership role was as vital to credit unions today as those achieved by the movement’s founders.

Leaders earn respect by combining a commitment to the execution of strategy with sensitivity for the people with whom they work.  Ralph understood that compassion does not dilute a leader’s strength. It complements it. Humility is not a weakness, but it is a sign of confidence. All leaders make unavoidable difficult decisions.  Ralph made many, but he never lost sight of such decisions on people.

His recent death in Dublin, Ireland while continuing his credit union work with Irish and British credit unions was stunning. It is difficult to conceive the loss of such a vibrant individual who played an instrumental role in credit union modernization. To those who worked with him through his long commitment to the mission of credit unions, he will always be remembered with great fondness and deep respect as an exceptional person and an astoundingly skilled leader.

These personal attributes made him a leader who earned the admiration and respect of credit unions worldwide. He will be missed.

(Editor’s Note:  Ralph was succeeded by former democratic congressman Dan Mica as President and CEO in July 1996.  This leadership choice resulted in moving the CUNA President’s principal office to Washington DC. Political lobbying became CUNA’s primary activity.)

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What Can We Learn from the Oldest FCUs?

An S&P 500 company was projected to last for more than 60 years in the last half of the 20th century. Today that lifespan is down to  18 or fewer years.

Many believe this shortening  of business’ existence is  merely the accelerated playing out of economist Schumpeter’s theory of creative destruction, i.e. the free market at work.

However there is another way of looking at business sustainability by asking which are the oldest business still operating today.  What can their stories tell us versus the inexorable extinction  that seems to be the market’s dominate outcome?

Several articles trace the origins of these Methuselah-like firms that have existed for centuries.  Their commonality is that they provide products or services that people always need: wine making or breweries, inns and hotels, weaponry/foundries and mints,  and personal services such as Shore Porters or an Istanbul Turkish bath.

The Oldest Federal Credit Unions

NCUA’s June spread sheet of all 5,032 federally insured credit unions gives everyone the chance to analyze FCU charters by longevity.  The latest financial performance information is laid out in charter number order. Starting with charter #1 Morris Shepard Texarkana to # 24,927 Credit Union of New Jersey, a conversion from a state charter founded in 1943.

While some FCU’s conversions from states are much older than their indicated by their fed charter order, the vast majority listed through the early 1980’s are an accurate indication of institutional longevity.

While most credit union adherents know the first charter was from a state, St Mary’s Bank in 1909, the evolution of the federal charter is less documented.

Of the initial 100 charters granted by NCUA, 22 are still active. These are listed below.

These initial charters were granted in 1934/5 during the Great Depression, immediately following passage of the 1934 Federal Credit Union Act. These startups have persevered through nine decades of economic cycles, WWII, financial deregulation, competitive reconfigurations, and technology changes unimaginable by their founders.

Their survival rate, 22%, is almost double that of all FCU’s which is 12.6% (3,146 active charters and 24,927 issued). What can we learn from these long- serving charters? How can their stories provide insight for today’s credit unions? Is there a reason they have twice the sustainability as FCU’s generally?

Initial Observations on Sustainability

I am not familiar with any of these credit unions, however reviewing the data here are some initial thoughts along with questions that might be interesting to  pursue.

The 22 are diverse in size, number of members and geographic location. From $2.4 million to $5.3 billion in assets, they demonstrate the diversity and flexibility of the coop charter.   It serves all institutional sizes, towns and cities and geographic regions.

Of the eleven states where these credit unions operate, four are in Connecticut. Why? Was there not a state charter option, and therefore the initial credit unions were all federal?

Many of these initial charters served persons working in the public sector: firemen, postal workers, teachers, state employees and a university. Even Morris Shepard, charter #1, initially served the city employees of Texarkana. These public sector sponsors still exist and in many cases have expanded.

Is the relative stability of their public employment a key to credit union sustainability? For example, Long Island Postal Employees reports only 244 members and $2.5 million in assets. But it is still supported by these  members with an office in the basement of the Post Office.

Credit Union History Still Present For Us

Understanding credit union history is about more than honoring longevity. Their experiences can be instructive for present day prognosticators.

Cooperative design is intended to be perpetual.   Privately owned firms rarely transition beyond their initial founders.  Public companies including banks can be bought and sold in the open market at any time.

Coop capital is paid forward to benefit future members.  While every credit union is subject to the forces of a competitive market, outright failures are rare.

However there are a number of seers who routinely offer their view that coop design is not sufficient for longevity.  In their foretelling what is required  is size (scale), the latest technology and  “innovative” strategies which emulate their competitors.

While several of these long-timers might validate these tactics, most do not.   Rather the common factor that seems to sustain is what created the credit union in the first place:  the  service to and loyalty from the members.   Morris Shepard FCU’s origin statement on their website says it  clearly:

As a member-owned, not-for-profit financial cooperative, Morris Sheppard Texarkana FCU will continue to uphold its fundamental responsibility to actively serve people within our field of membership, which consists of the employees of the City of Texarkana TX, City of Texarkana AR, Bowie County and their spouse, children, and grandchildren. We will continue to deliver a range of low cost products and services to the diverse economic and social makeup of our members and potential members.

They continue to celebrate their first in the country creation:

Our History

Morris Sheppard Texarkana Federal Credit Union was named in honor of U.S. Senator Morris Sheppard, who represented Texas in the Senate from 1913 to 1941 and was one of the credit union movement’s greatest supporters in Congress. Senator Sheppard drafted several pieces of credit union legislation in the early 1930’s. But it wasn’t until 1934 that the passage of a Federal Credit Union bill appeared likely, thanks to the efforts of Sen. Sheppard and another Texan who had become convinced of the bill’s importance, Congressman Wright Patman. Our local credit union chapter, an affiliation of credit unions, is named after Congressman Patman.

What These 22 FCU’s Help Us See More Clearly

I’m not sure what is in the cooperative DNA of these credit union managers and boards.   But it might be worth learning more about.  For if their attitude and efforts had been shared by the entire FCU system, the could be as many as 2,338 more credit unions active today.   They would not necessarily be a State Employee or a Long Island City Postal, but they would be serving  a perpetual need human need with an institution they own.

Today credit unions rarely close due to external forces or financial failure.  Rather leaders of sound institutions  at the close of their tenure merge their credit union to reward themselves with an additional cash payment.  Unfortunately, credit unions are not exempt from personal cupidity.

One of the lessons these 22 and the oldest commercial companies provide:  the needs for these services does not go away.  That alone should be enough to keep the lights on when the harbingers of combinations issue their predictions of inevitable consolidation.

And the enduring need for values based, honorable leadership of these organizations.

 

 

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Marketing: A Critical Credit Union Advantage-Lost, Forgotten or Misunderstood?

My initial class at the Navy’s Supply Corps School in 1969 was inventory management.   The instructor opened the first session by passing out membership cards to Navy Federal Credit Union. As new officers, he encouraged all of us to join.   He said that it was an important benefit of being in the Navy.   The credit union would be available no matter where we were stationed-even at sea in some cases.

At that time my wife and I were living in a trailer home.  Base housing was not yet ready.  We lived paycheck to bimonthly paycheck. I didn’t want to split our only cash flow into two separate accounts.  So, I didn’t act.

However I still remember his friendly advice and effort to sign us all up.  Later we became members of United Credit Union in Yokosuka, Japan when needing cash for an R&R trip during an extended deployment.

Traditional marketing practices have an ambiguous history in coops.   The 5300 call report line item under which marketing expenses are listed is labelled “educational.”

One of State Employees North Carolina’s (SECU) contrarian tactics is eschewing all traditional marketing media and advertising efforts. At mid-year SECU reports total “educational” expenses of $185,000 out of a total operating spend of $490 million.   The intent is that SECU’s foundation’s many good works and press releases, plus word of mouth, provided the public messaging necessary to communicate its availability and value to potential members.

Rethinking “Marketing” as a Competitive Advantage

In September 2021 Bank of American announced it would eliminate the Chief Marketing Officer’s position.  Henceforth all marketing will be under the head of digital channels.

In a recent analysis by Visual Capitalist, its comparisons showed that Tesla spent $0 on marketing per car sold, whereas all its major competitors expensed from $400 to $660 per car.   The strategic advantage Tesla developed was in R&D.  Tesla spends almost $3,000 per car sold; the closest competitor of the big four, Ford, spends $1,100.

Word of mouth is Tesla’s marketing “strategy.”  The article summarized its market leading reputation as:

And while Tesla technically spends nothing on advertising, the company is a marketing machine that is rated as the world’s fastest growing brand, and Tesla often dominates press mentions and social media chatter.

Two Recent Examples of Credit Union “Marketing”

One of my credit unions recently mailed an expensive marketing package offering free $1,000, no-questions-asked term life insurance, plus the option to buy more at a fixed price.   My only question was why did I receive this marketing message at the age of 77?  Life insurance is not only unneeded, but a waste of money.

A second experience. Terminal C is United’s primary location for gates at Dulles airport.   To get to this outer terminal requires travel by underground, up an escalator and a 200 yard tunnel walk to the next up-escalator and the gates.  Along the walls of this walk are panels maybe 15 feet high and wide completely covered with ads for two products only.

The first is Capital One’s Credit Card.  Panel after panel announces its advantages. The second effort, right alongside,  is for PenFed’s Platinum Rewards Visa Signature Card.  Both offer no fee, initial bonus miles, multiple extra points for certain purchases,  cash back, and other benefits that the moving sidewalk traveled too fast to compare.

Both institutions have head offices close to in each other in Virginia.  The difference ends there.  Capital One has $370 billion in assets, the 10th largest bank in America.  It is the fifth or sixth largest credit card issuer in the US with approximately 75% of total revenue from its card program.   PenFed is $27 billion in assets with a card portfolio of $1.7 billion, or 8% of its total loan portfolio.

It hardly seems like a fair ad fight on the walls of this Dulles corridor by  two firms seeking business from the traveling public.

How do Credit Unions Win? Or Why Market?

The 5300 line item calls marketing “educational” expense for a reason.  Most credit union start with a common bond.  Members were most often employees who knew each other, recognize the board and shared a familiar place of work, worship or gathering.

Marketing was not needed to inform employees  about the credit union.  It was often referenced in new employee orientation as a company benefit. The credit union’s role was to inform members about fair value for financial products (educate) and be convenient to their place of work.

Once credit unions expanded their ambitions to larger areas these personal connections no longer existed.  Credit unions tried to reach these new groups by emulating the public marketing efforts of competitors.  The commonality shared by early groups was often lacking.  It became imperative to find new ways to attract members; so, why not do what everyone else does?

As this evolution continued, credit unions even shied away from  their unique design urging consumers to see them as “better than banking.”  Instead of replacing the competition, credit unions mimicked the institutions with which they compete.   Trying to beat the competition by becoming its shadow.

The challenge is not size, expansion or even growth. Navy Federal has been able even at $150 billion to focus on “members as the mission.”  With an added inference, not everyone can join-which is why you should.

Every organization wants fans, not just consumers who can be wooed away with a better price and slicker commercial.  Members are the roots from which every credit union grows year after year.  When the focus becomes the tree and not the roots, that’s when credit unions lose a critical advantage.

Credit unions will rarely out-market competitors.  The two largest credit unions in the country retain the connection with members as the center of their strategy and messaging efforts.   Their belief is that great organizations create great brands; great branding does not build great firms.

 

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Wise Reflections on Two Topics:  RBC and the Inflation Outlook

Two experienced bank regulators on risk-based capital:

Comment by  leo.sammallahti@coop.exchange:

What banks perceive as safe is more dangerous to the financial system than what banks perceive as risky. Financial crises are not caused by banks engaging too much in activities deemed risky, but by activities deemed to be safe turning out to be riskier than thought.

Per Kurowski is a former Executive Director of the World Bank for Costa Rica, El Salvador, Guatemala, Honduras, Mexico, Nicaragua, Spain and Venezuela who has been on a decade long crusade against risk weighted capital requirements. Recommend googling him – if you come across a YouTube channel with covers of Latin American pop songs don’t be mistaken to think that is not him. It is him, and the channel includes also videos about his thoughts on banking. He also has a blog.  A recent memo on RBC.

As Paul Volcker, the former head of the federal reserve said:

“Over time, the inherent problems with the risk weighted bank capital-based approach became apparent. The assets assigned the lowest risk, for which capital requirements were therefore low or nonexistent, were those that had the most political support: sovereign credits and home mortgages. Ironically, losses on those two types of assets would fuel the global crisis in 2008 and a subsequent European crisis in 2011.”

The Inflation Tax-an Excerpt

“… So, yes, inflation is here. It’s real. And it’s slowing the economy. It’s like a giant new tax on households and businesses, and wage hikes aren’t a panacea. And now you have a Fed that has partly caused the problem, by overstimulating demand relative to the preparedness of the supply side, and ends up with an economic slowdown anyway. What’s worse, these resulting high food and energy prices hurt low-income households the most–the very contingent that the Fed’s super-easy-monetary policy was supposed to help by letting things “run hot” this time around.

And finally, on the fiscal side, the situation doesn’t look much better. Politico has a piece today about how the stimulus checks and child tax credits aren’t delivering for Democrats; “whatever political benefits were supposed to accrue…have seemingly faded,” they write. “Giving people money may not be the dispositive political winner that they imagined.”

It may simply be that voters are smart enough to connect the dots and realize what all this cash and Fed stimulus has done to the economy–and how little it can fix of the lingering Covid challenges.”

From: Kelly Evans, kelly@cnbc.com, The Inflation Tax, October 11, 2021

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Columbus or Indigenous People’s Day?

In grade school I learned about the discovery of American with the phrase “In 1492, Columbus sailed the ocean blue.”  An event that was ultimately honored in the Columbus Holiday the second Monday of October.

It became a legal holiday in 1971.  However it was President Franklin Roosevelt in 1937 who proclaimed Columbus Day a national holiday, largely as a result of intense lobbying by the Knights of Columbus, an influential Catholic organization.

The current renaming of the holiday as Indigenous People’s Day celebrates the people who had lived here for thousands of years prior to Columbus’ “discovery.”  The histories of some of these existing populations are increasingly noted in the naming of some of  many natural and new  landmarks in their tribal territories

For example the Anacosta River in DC is named after the Anacostia Indian peoples who live in what is now DC.  There are several dozen geographic features and constructions such as high schools in the areas that incorporate the name.

Is the Issue Historical Truth?

The holiday has been a political issue since Columbus Day was first declared.   In 1892, the 400th anniversary of Columbus’ voyage, President Benjamin Harrison declared a one-time national celebration following the lynching in New Orleans where a mob had murdered 11 Italian immigrants.

Continuing today Italian American politicians walk in parades to celebrate the prior contributions and today’s success of the descendants of these immigrants.

As the injustices of the country towards the native populations has become more acknowledged and patterns  of systemic wrongs better documented, there has been an increased focused on correcting the tragedies and changing the traditional narrative.

One effort is to dishonor Columbus and remove statues or other names celebrating his role.  Last Friday a Philadelphia judge ordered a plywood box hiding Columbus statue for over a year be taking down before the parade today.

Thus another issue is added to the cultural clashes now infecting the political dialogue.

But is it possible that both views could be “truths” and that society benefits from knowing about each historical circumstance and their relevance to current priorities?  And what does this example suggest for credit unions?

President Biden has  proclaimed this holiday will celebrate both Italian Americans and indigenous communities.

Individual Achievement and Society’s Circumstances

America has had a long tense debate between what is good for society as a whole and the celebration of individual enterprise and success.

Individual effort, passion, ambition and fortitude matter.   We celebrate accomplishments in every area of activity from business, to entertainment, to sports to academia.   We honor these superstars with prizes, fame and enormous fortunes.

However much of that success depends on context—the training, the resources, the organizations and the examples that make individual achievement possible.  Everyone benefits from this social infrastructure and the connections that make success possible.

In credit unions this same tension exists.   Current leaders take actions which they believe are in the best interests of their organization sometimes oblivious to the legacy they inherited.  They see a different, more “modern” future than their forebears.   This limited grasp of both history and the kind of future being passed on, could undermine the future of the cooperative system.

Cooperatives were built on human connection.  Every society needs these organizations so individuals can prosper and help each other.  Today when three and four generations of members are separated from their credit union’s roots by merger, the ties of loyalty that bind are broken.

Credit unions need persons who want to build a better tomorrow for their own organization and the entire system.   It is OK to be self-interested.  However that motivation needs to be tempered with honor.

The charge against Columbus is he had no respect for the native people he encountered.  Only the search of gold mattered.  Many Europeans who followed had the same belief in their own superiority and right to ownership of the seemingly open lands.

We can see  issues more clearly with the benefit of history.   But it is an error if in our own lives and responsibility within coops today we believe we are immune from such hubris.    The future of credit unions needs innovation.  But it also requires character that respects the legacies we all inherited to achieve our positions of responsibility.

 

 

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A College Student Interviews a Credit Union CEO

A student recently shared a paper for a senior  leadership course that required two interviews with active CEO’s.

One interview was with a small silicon valley based startup. The second  was the CEO of a multi-billion dollar credit union with a two-decade long record of incredible performance-excerpted below.  At the end are her conclusions about leadership, which suggests the influence of the credit union CEO’s wisdom.

CEO Interview Comments from the Paper

He said “I really don’t do anything.” While we both laughed, he really wasn’t joking. He clarified saying, “Sure, I set what the credit union stands for, I get to influence strategic direction, and I point the various leaders in the right direction, but I sit back and let them execute.”

However, his leadership practice was truly the opposite of “doing nothing.” He describes it as “servant leadership” which requires “complete transparency” with the understanding that the “way to get what you want, is to help people get what they want.” This transparency he believes, “pays huge dividends in terms of helping the company meet its goals.”

That ”servant’s heart” is what he looks for when  hiring someone: “You can train technical skills – and sure, some jobs require certain backgrounds – but you can’t teach someone the desire to serve others.”

He meets with every new-hire in the beginning of their careers.

He wants them to know that they are making a difference in people’s lives – not just cashing checks – and here’s how. “Our prices and services are not our competitive advantage. What makes the credit union special is “Us,” each and every employee.”

He wants his employees to think of him as just another person, because quite simply, he is. He makes mistakes, he goes on vacation, he has a family, just like everyone. To emphasize the point he tells all his employees: “You don’t work for the credit union; you work for the dreams and ambitions you have. The role of this credit union is making those dreams possible.”

 The Student’s Leadership Conclusion

I had believed that to be a leader it was essential to hold a position of authority. One where people report to you, often indicated by some swanky leader-esk title. However, what I’ve learned is that leadership has many different styles and can mean a lot of different things – and it doesn’t have to be directed downward.

One can hold a position, not formally recognized as a leadership role, and still have the ability to lead.  Leading is related to your influence as an individual more than any job title. Not only have I learned this is possible, but also just how necessary it  is. To be good at your job, and to make the right impressions on those around you, it is essential that you are able to lead – even your bosses.

My Note:  The art of leadership is not the responsibility of a single position.  For any organization to be successful, everyone must feel responsible for their role in serving others.

 

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A COVID Program to Assist Smaller Credit Unions That Few Know About

Note:  the numbers initially published of eligible credit unions were updated as of October 7, 2021.

Recently the former NCUA General Counsel Bob Fenner, now in private practice, asked if I was aware of the Employee Retention Credit grants provided under the Cares Act.

I had no knowledge.   He sent me a brief description:

There is a provision in the federal stimulus legislation not well publicized and not well understood that may entitle a credit union to significant federal funds.   

The criteria to qualify are:

  • the credit union averaged fewer than 500 full-time employees in 2019, and
  • the gross income in quarter 4 of 2020 declined by 20% or more when compared to quarter 4 of 2019, or
  • gross income in any quarter of 2021 declined by 20% or more when compared to the same quarter of 2019.

The reason for the decline in gross income does not matter.

The credit union is eligible for up to $7,000 per employee per qualifying quarter in federal funds, in the form of so-called Employee Retention Credits. 

Finally, if your CU has an 80% or more interest in one or more CUSO’s, you must consolidate the books for purposes of determining the number of employees and applying the gross income test.

This IRS official website gives a January 26, 2021 update on the program’s extension into this year.

Estimate of Number of Credit Unions Eligible

 

Scanning the data for credit unions with fewer than 500 employees in 2019 and declines in total revenue in one of the three applicable quarters (2020-4th, 2021-1st and 2nd) shows the following count:

For test 1 (empl <500 @ 2019, 4Q ’20 income -20%+): 782 CUs

Test 2 (excluding test 1): 350

Test 3  (excluding test 1 & 2): 135

The total of 1,267 includes mostly smaller credit unions.  However the results show that a few credit unions with over $1 billion would also qualify.

This list could be expanded if additional credit unions meet the negative 20% fall in revenue for the third and fourth quarters of 2021 versus the comparable quarter in 2019.

Next Steps

Bob is working with a colleague, Darrell Smith, CEO of Highmark Companies.  He describes their approach as follows:

There is no fee for a consultation and a determination whether a CU qualifies. There is a fee only if a CU qualifies and uses our services to obtain the credits. We don’t talk fees until we do the initial consultation.  

Our services include determining qualifying amounts, preparing the forms to be filed with Treasury, providing a pre-submission audit review from an independent accounting firm, and working with the CU and their payroll provider to submit to IRS.

He continues:  It is a complicated process unless you have studied it carefully and understand it. Sometimes credit unions who have not carefully studied the law and the IRS guidance often conclude either they are not qualified when in fact they are, or they don’t get everything they are entitled to.

Once you understand all the ins and outs of the process, it does not take long to complete the forms. It does however take anywhere from 2 to 10 months to receive the money from the Treasury Department. So while it is definitely good money that qualifying credit unions are legally entitled to, it’s not quick money.

As one example, we recently worked with a with 55 employee credit union that will obtain $1.1 million based on the first three quarters of 2021.  We will assist credit unions of any size.

Resources to Help

Bob’s contact information is  bobf1228@gmail.com and  Darrell Smith at Highmark Companies is dsmith@highmarkcompanies.com.   The only information about their program is what they have sent me.  So as with all contacts, credit unions should always perform their own due diligence, as I am sure Bob in his former General Counsel role would advise.

I am not aware of any other organizations providing credit unions assistance to access this program’s funds.   Bob’s heads up could be a valuable service especially if smaller credit unions who are likely most in need, can be easily qualified.

If readers have other information on this program that would benefit credit unions, I would be glad to offer it in future posts.