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Should NCUA Be Helping with the Country’s Immigration Surge?

The unprecedented flow of persons seeking to enter the US in the Southwest is at very high levels. This is a situation  that concerns many people of goodwill.

Should NCUA leadership be seeking full time staff to go on temporary assignment to help out?

If confirmed that this volunteer recruitment effort is underway, the situation raises important questions. These include:

Who at NCUA approved this request and under what authority?

How does the effort assist the credit union system which funds all the agency’s activities?

If NCUA can spare these “volunteers” for months at a time, how critical is their role in the agency to begin with?

If this is a proper action, why is it being done with no transparency?

The Cooperative Way

Finally, if the situation is so urgent and just, why not ask credit unions to participate?

When Hurricane Katrina devastated New Orleans, the agency opened its office to volunteers and former employees to man telephone lines answering member calls and coordinate industry recovery efforts.

Few would turn away when asked to help one’s fellow human beings. But NCUA should follow the appropriate authority when asked to deploy its “independent” agency resources. More importantly, as a government agency such actions should be done with full public disclosure.

The Collaborative Advantage

On many occasions credit unions have  provided collaborative solutions to strengthen their system.  The resource sharing and mentoring programs as well as the credit union funded NCUSIF and CLF configurations are some examples of agency-industry joint efforts. Volunteer capital is a cooperative advantage and value.

Increasingly however, NCUA leaders have pursued unilateral actions without industry participation or, when asking for comments, do what was proposed despite substantial objections.

Individual volunteering is the American spirit at its finest, whether the Peace Corps, AmeriCorps, or thousands of non-profit and charitable endeavors.  It is an unfortunate precedent for leaders in an independent agency to privately promote an activity, apart from its mission.  And for senior leaders  to then solicit their employees to take part.

The agency must be transparent; this is not simply an internal matter.  For it deploys personnel hired and trained with credit union’s fund for activities unrelated to the agency’s purpose. NCUA is not a private business or organization, but a congressionally defined institution.

Moreover, should something go awry, NCUA employees should have the confidence their good intentions are known and supported by the industry they chose to serve.

There is a right way and a wrong way to request staff to volunteer no matter how worthy the cause. Doing so secretly impedes necessary, open discussion and could bring unintended consequences tarnishing positive intentions.

 

 

 

 

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For Mother’s Day

The Lanyard by Billy Collins

The other day I was ricocheting slowly
off the blue walls of this room,
moving as if underwater from typewriter to piano,
from bookshelf to an envelope lying on the floor,
when I found myself in the L section of the dictionary
where my eyes fell upon the word lanyard.

No cookie nibbled by a French novelist
could send one into the past more suddenly—
a past where I sat at a workbench at a camp
by a deep Adirondack lake
learning how to braid long thin plastic strips
into a lanyard, a gift for my mother.

I had never seen anyone use a lanyard
or wear one, if that’s what you did with them,
but that did not keep me from crossing
strand over strand again and again
until I had made a boxy
red and white lanyard for my mother.

She gave me life and milk from her breasts,
and I gave her a lanyard.
She nursed me in many a sick room,
lifted spoons of medicine to my lips,
laid cold face-cloths on my forehead,
and then led me out into the airy light

and taught me to walk and swim,
and I, in turn, presented her with a lanyard.
Here are thousands of meals, she said,
and here is clothing and a good education.
And here is your lanyard, I replied,
which I made with a little help from a counselor.

Here is a breathing body and a beating heart,
strong legs, bones and teeth,
and two clear eyes to read the world, she whispered,
and here, I said, is the lanyard I made at camp.
And here, I wish to say to her now,
is a smaller gift—not the worn truth

that you can never repay your mother,
but the rueful admission that when she took
the two-tone lanyard from my hand,
I was as sure as a boy could be
that this useless, worthless thing I wove
out of boredom would be enough to make us even.

From:   The Trouble with Poetry by Billy Collins

Recommended by Joseph P Mclaughlin, Jr.

 

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Mistake-aholics Anonymous

The end was quick.  Like all hidden executions. The 60-year-old Indianapolis Newspaper FCU was conserved on January 14 and liquidated on March 31.  The $6.3 million credit union served 1,143 members.  In December 2019 it reported 10% net worth and a breakeven operation with 1% delinquency.  One year later the credit union reported a $990K loss primarily due to a $741K loan loss provision expense.

NCUA gave no explanation except the “unsafe and unsound practices” mantra in the January 2021 press release.  Why is this minor event worthy of any further attention?  A local credit union, Elements Financial, took over “most” of the members’ savings.  NCUA retained “a portion of members’ shares” and all the credit union’s loans.   The loans are being collected by a small private company, Statebridge in Colorado.  An unusual arrangement: why did Elements not also collect the loans? And only a portion of savings?

What’s to be gained spending more effort to understand this credit union’s demise?

Why Transparency Matters

The most powerful action NCUA can take is to close a credit union.  The agency has refused to say how or why it acts in all such cases.   By not providing any detail the press then speculates about circumstances using the last call report. Or more common, the true story comes out years later as a result of legal actions against bad actors. The agency vacuum creates an impression of covering up its own supervisory shortcomings.

How can a small, easily examined credit union that has been in business for over 60 years suddenly fail and lose every cent of its capital?  The lack of specific facts and any NCUA person willing to take public responsibility suggests there is something to hide.  No “body cameras”– Vice Chairman Hauptman’s suggestion at the April NCUA board meeting–for these closings.

NCUA’s silence reminds me of a college student’s essay addressing the difficulty people and organizations face when something goes wrong.  The brief paper was titled Mistake-aholics Anonymous and reads in part:

“Ah, mistakes. Such an ugly word that carries quite the negative connotation. However, if you ask people if they regret their mistakes or would go back in time to change them, more often than not the answer is no. So why do we not like mistakes?

And why is retrospect so important to be able to see the true beauty in these unfortunate circumstances?

As a human I am inevitably a member of mistake-aholics anonymous; mistakes simply aren’t a choice; however, what you do about them is.

One learns that mistakes are essential to one’s evolution. But – like in AA- the first step is to recognize the problem and admit we are powerless to prevent them, so start there.

A second challenge is failure to ask others for help. However, a person must be ready to listen. Part of the journey with mistakes, is coming to these realizations personally and then seeking assistance.  Step 2 in AA: come to believe and accept that we need strengths beyond our awareness and resources.

Another obstacle, I can’t seem to stop taking things personally. Whenever someone criticizes or critiques something I have done, I feel as though they are criticizing or critiquing me.

Fast forward to last week when I received non-ideal feedback from my manager. I noticed feeling demotivated and internalizing that I was not good at my job. However, the keyword here: I noticed. I relate this recognition in AA step 5: admitting to ourselves the nature of our wrongs.

             Mistakes are important. They force us to re-think previously held beliefs and assumptions as well as encourage us to explore alternatives and pivot.

How easy would it be to just live life and never mess up? Never be wrong? I think we can all agree life would be boring. We learn by experience that mistakes are natural.

They are what it means to be human, yet we often shun those who own their mistakes. When that occurs, everyone loses. Mistakes owned, offer insight for making all things better.”

Action Required

No one expects perfection from NCUA supervision.  But as described by this student, it is reasonable, even necessary, for a responsible person or firm to learn from its failures.

Today NCUA just buries its mistakes.  Indianapolis Newspaper is just another incident hidden in a pattern of silence.  How can a credit suddenly suffer huge losses on a portfolio years in the making?  There are no postmortems.  Institutional failures become accepted, a way of life, a cost of doing business.

Is anyone at NCUA willing to enroll in Mistake-aholics Anonymous?  The entire credit union system could benefit if NCUA followed AA’s step one: recognizing it has a problem.

Police body cameras  were necessary when  transparency was avoided and after-the-fact explanations  proved self serving.   Is this the accountability process NCUA wants imposed on its most critical supervisory activities?

 

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Reader’s React to Posts

On NCUA’s 7-Year Investment at .90%

Where are the NCUA Capital Market Specialists when you need them? Did the NCUA shock test this $600 million investment in a +/- 100, 200, 300 bps environment?
For credit unions this is a required a first step. When I was a CEO, examiners forced my peers to sell long term investments at a loss after NEV shock tests. Appears such assessments are not applicable to the NCUA. This is not a smart investment in this phase of the economic recovery cycle. Who made this decision at Duke Street.? What is their ALM experience? Why is there no public discussion of this at the April Board meeting? Where is NCUA getting their investment advice?

Would the persons responsible lock up their personal savings at a rate of .90% fixed for seven years? Commonsense says absolutely not. So why lock up credit union’s collective savings this way?

Investing in treasuries is not rocket science. When this $600 million dollar launch crashes in value soon, it is credit unions that will pay the cost. What is the end game? This $600M will have a huge decline in value as rates move up in the coming months or years.

The NCUSIF has a backup plan in the NCUA. When the NCUA needs to raise more revenue, they play the A word…Assessments. This is why my CEO peers and I read NCUA as Not Credit Union Accountable.   Never  Shocked. Just Disappointed.   Stuart+Perlitsh

On Watermelon Oreos

Can I interest you in some Marshmallow Peeps Pepsi?  Esteban Camargo

 On Berkshire’s Annual Meeting

I grew up in Nebraska and have attended the annual conference in person.

The comment about two 90+ year-olds holding court, taking unscripted questions live, for over four hours is an example I have used several times during presentations to CU CEOs and board members. I have a great photo of 12,000 attendees in the downtown arena with Warren and Charlie sitting at a modest table on a makeshift stage.

After the first annual meeting I attended, I walked away with great appreciation for how Warren could take complex concepts and distill them down to a few key points and tell it with a story people can relate to. . .

The takeaway I see for credit union CEOs and board members  is as follows:

1) Financial services is a system of numbers and tradeoffs. It is imperative the board elevate and self-educate to a level of acumen that can appreciate not just the numbers, but the nuance of the numbers. It’s difficult to effectively govern otherwise and can lead to risk avoidance (rather than risk management), inefficient deployment of resources, and at its worst, an incorrect assessment of reality.

2) Financial services is a system of numbers and tradeoffs (Part II). It helps when the CEO has enough mastery of the numbers not to just explain them, but to teach their subtlety to an audience that has not worked in financial services or does not have a significant amount of their net worth tied up in a financial institution. If a CEO wants a role model, watching Warren work his craft is a great place to start.

3) When 1 and 2 listed above are not present, it leads to distrust among the parties. The CEO will over-simplify things to gain trust, but when a simple explanation won’t satisfy a complex problem, trust may be eroded.

4) When 1 and 2 listed above are present, greatness follows because attention is shifted to higher order items, built upon a foundation of trust and understanding.  Mike Higgins

 On Jim Blaine’s Inaugural Address

“Because I could never accept that in America those who had the least and knew the least should pay the most for financial services.”   Well said!

I’m planning to create a Wikiquotes page about cooperatives. Wikiquotes is a sister project of Wikipedia, that collects quotes from people and about topics. This is going into the page! Leo Sammallahti

On Rex Johnson, Player Coach

I read the Player-Coach article early this morning, which caused a bit of reminiscing about Rex. In 1978, fresh out of college and having moved from downstate Illinois to Elgin to find work in a period of high unemployment and high interest rates, I entered the HFC management training program. That is where my path intersected with A. Rex Johnson for the first time. As chronicled in your article, he worked his way up to District Manager at Household, a position responsible for approximately 10 branch offices in Illinois and Indiana. The Elgin branch was a stop in my training period in 1979 and in 1980, Rex promoted me to my first branch manager assignment. He would leave a short time later for the position with the state. Rex would always look at the glass as half full and despite the high interest rates charged, the exceptional delivery of customer service enabled this company to thrive for many years.

Fast forward to 1985 and a job opportunity for a lending supervisor position was posted at what today is Healthcare Associates Credit Union. I applied and received an interview and thoroughly prepared for that. As we began the interview, Dan Vaughan, the general manager of the credit union was very casual and asking more questions about my personal interests than professional qualifications. Possibly half-way through the interview it became apparent that the job was mine if I wanted it. This puzzled me as beyond a resume, he didn’t know me from Adam.

He went on to tell me that he too had been a branch manager at HFC and worked for Rex. Positive feedback from a person who would become one of the greatest influencers in the credit union industry provide the break that brought me to our industry 36 years ago.

The first time I heard Rex speak to a large credit union audience was at the Illinois Credit Union League convention, possibly in 1985. He gave the same message about lending that we constantly heard at HFC, except now we had the advantage of extremely competitive rates and were the good guys, not a lender of last resort. Over the years it was always enjoyable to listen to his presentations and his message would serve as reminders of the block and tackling steps we need to consistently perform to build strong and lasting relationships with our members. I’ve done my best to teach people throughout my career, but nobody did it like Rex Johnson, with his charisma and passion that was always genuine.

Thanks for reminding people of the journey and impact one driven and good man has had on our entire industry.       Jim Dean, CEO, Affinity Credit Union

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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.

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Takeaways from Berkshire’s Annual Meeting on May 1st

While Warren Buffett’s success and reputation is built on the capitalist market system, some of his observations overseeing his 60 plus companies are also spot on for the credit union system.  Especially so for NCUA and the half dozen or so organizations that play lead roles by size or function.  Some remarks I noted:

  1. The biggest risk to a firm: Picking the wrong CEO.  Any organizations come to mind?
  2. The most common problem for firms: The myths people have about their own organization.  They are passed on from one leader to the next.  The CEO does not want to critique is predecessor. Subordinates are afraid to speak up.  These myths lead to enormous errors.  What myths are repeated defending otherwise dubious proposals in cooperative organizations?
  3. The key to success in running a business: You must be in love with your business to be good at it.   Know any leaders out of “love” with credit unions?
  4. The economy is red hot: Not a price sensitive economy right now (supply chain disruptions and scarcity shortages).  A lot more inflation is going on than realized.  How will this affect interest rates?
  5. Lessons from last year under covid: You have to be a learning machine.  Right now is very confusing.  We’re in uncharted territory in government policy.
  6. Their thoughts on firms providing free online trading apps for new retail stock market investors (the gamification of investing): They are preying on people’s propensity to become addicted to gambling.   Just like state lottery systems which took over the numbers games and pushed the Mafia aside.  These activities are immoral.  An interesting word, immoral.   Any credit union activities that fall under this umbrella?

What Credit Unions Can Learn

Buffet (90 years old) and his partner Charlie Munger (97) were on TV live for over 4 hours, no breaks, taking questions on all subjects before the 20-minute scripted formal annual meeting.

I believe if a CEO and senior leadership were to similarly interact with their members in a virtual annual meeting, the example could increase credibility, confidence and trust in the credit union.

Buffet believes his primary responsibility is to his shareholders, to manage their investments well.  He admits mistakes.  His logic is transparent.  His confidence in his organization is second only to his fundamental optimism about America.

This link is a summary of the meeting Q&A on Yahoo Finance.   Watching even 30 minutes of this multi- hour questioning will show that the Oracle of Omaha is about more than his businesses.   What if credit union leaders publicly affirmed a similar belief in their performance and the cooperative system at this year’s  virtual annual meetings?

 

 

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Friday’s NCUSIF Fact

From the February 28, 2021 NCUSIF financial statement:

Investments

One T-note purchase for $600 million on February 15 with a fixed yield of  .90% for seven years.

This investment extended the NCUSIF’s average weighted duration from 1,184  to 1,243 days, or 3.45 years.

Would your CFO make a fixed-rate seven-year investment at this phase of the economic cycle for your credit union?  What would your examiner say?

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Life at 75

In lieu of a personal reunion, my college sends out updates from alumni who wish to share aspects of their life, 55 years after graduation.

One brief observation:

“I’m not traveling much this year nor attending performances of classical music. . .Happy as long as I learn something new each day, talk to someone nice, and cook something tasty.  No longer powered by hormones or ambition.  Very glad to be alive.”

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An Unexpected Surprise From a Competitive Board Election at Frontwave

The response to my request for blog topics was blunt: “Board governance! Perhaps stemming from the frustration I feel on my own board. No relevant questions. No strategic discussions. No pressing in on how we can be better. No self-evaluations. Credit unions won’t survive with boards who simple show up and say aye.”

Then I learned how one election stimulated a complete renewal of the board’s role.

The Story

Frontwave Credit Union CEO Bill Birnie was “stunned” to learn the number of members who applied to compete for three open board seats in the 2021 annual election of directors. “Normally we have to beat the bushes for board and supervisory members.”

This year was different. The nominating committee approved ten applicants for a spot on the ballot. All submitted written statements with their professional background and why they wanted to volunteer.

Contested elections were rare at Frontwave (renamed in 2018) and even in its earlier era as Pacific Marine Credit Union.

The credit union put out its routine “Calling all Leaders” appeal in July of 2020 via email, a web posting and a member mailing on September 15. Headlines included: “Frontwave members make good leaders” “Got Frontwave Values?” “Help Members Financial Dreams Come True,” along with facts on the open positions and terms.

Highly Qualified Applicants

Among the applicants were nine with college degrees including four with MBAs. Their occupations included an active-duty marine, VP of finance, SVP asset-liability manager and budget analyst. Most had experience in an area of finance or management.

In addition, they were active volunteers in the community. Some examples: a college trustee, school district board member, and current board or past officer of nonprofit organizations and educational associations.

Why the Surprising Interest?

Since renaming as Frontwave, the credit union has grown over 40% to $1.1 billion in the highly competitive San Diego market. Bill, the President, had rejoined the credit union 2015 after serving as CEO for Eagle Community Credit Union. Bill believes that the dramatic increase in volunteer interest is a response to the credit union’s innovative spirit shown by its rebranding, and its increased visibility in the community with 14 branches, only five of which are on base.

The credit union’s surveys documented a 35% increase in positive member satisfaction, another factor galvanizing participation. The volunteer surge, Bill believes, reflects a growing respect for the credit union in the community.

Reasons candidates gave for their interest included:

  • “To bring expertise, energy, and intellectual capital to power Frontwave’s success and strengthen our community. To represent the diversity and social culture of my community.”
  • “I would like to help Frontwave reach their objectives and build value for members…lead(ing) to greater financial success of our members.”
  • I want to have a “meaningful personal commitment to serve veterans and specifically Marines; real potential to have a tangible, lasting impact on their quality of life.”

The Vote by Members

The online voting period extended from February 24, 2021 to March 24, 2021. Members could submit ballots at any of the branches from March 8, 2021 to March 19, 2021. The vast majority voted online. The number voting, 583 members, was almost equal with the last election in 2018.

The electronic ballot form provided an opportunity for members to comment on the voting and election process. Their comments were positive, particularly placing the candidates’ information within the ballot:

  • “The (digital) interface is very easy to use…I like being able to open a page with all the bios while viewing the ballot at the same time.”
  • “The bios gave a very personal involvement.”
  • “The voting process is great reading all candidates listed in the process I didn’t know them, but by reading their bio gave me an idea of what they are all about. love it.”
  • “I was so sure that this online voting process would be difficult, but amazingly, it wasn’t and I’m glad I was able to vote. Thanks.”
  • “Very fast way to cast my ballot. I like to vote this way.”
  • “WOW a lot of qualified candidates. This is the first time I have seen so many people run for a voluntary position. Good luck.”
  • “I haven’t met any of these people, so I am voting based on the bios alone; they all seem like strong candidates to me.”

Lessons to Build On

Both management and board see this enhanced member interest as a “wake up” call for the credit union. Members were engaged in the election. The current age and tenure of the board suggests there will be more openings going forward.

The board is embarking on a self-assessment to evaluate their current skills and ascertain what the credit union needs going forward. The directors will provide the nominating committee guidance about the qualities and experiences they seek in candidates. The timeline, candidate qualifications and selection process may require further refinement with this new level of engagement.

While initially surprised, Bill Birnie now views this elevated interest as an opportunity to enhance the board’s contribution and engagement. The election has begun a process of board renewal: “We’re required to hold an annual meeting of the membership and, if needed, conduct an election. If we are going to do this, we are going to do it right.”

My reader above opined: “Credit unions won’t survive with boards who simply show up and say aye.” This example could be the best response to this “board governance” challenge.

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Watermelon Flavored Oreos Offer Insights into Individuals’ Behavior

In June 2013, Nabisco’s Oreo, the best-selling cookie brand in the world, introduced a “refreshing” new product extension.

The new Oreo had a watermelon flavor filling to create an association with its summer market launch. The internal flavor coloring aligned well with its Golden Oreo product. Children were a prime target because of their willingness to try new flavors.

One does not have to be a market research guru or have a sweet tooth addiction to suspect this might not be a great consumer success.

On Twitter, responses ranged from, “These sound heavenly,” to “i looked up ‘abomination against nature’ in the dictionary and there was a picture of watermelon oreos.”

One media outlet asked its Facebook followers for comment and received a deluge containing one word, “Eww.”

An econlife review opined: If you really want that “fun, summer flavor,” stick with the real thing and dive into an organic watermelon. They’re limited edition summer treats too, with much healthier benefits.

Harbingers of Failure

Marketers study failures, not just success stories.

In a 2015 paper, marketing scholars from MIT, Northwestern, and Hong Kong University of Science and Technology looked at consumer demand for new products. After gathering data on 8,809 new supermarket products, 439,546 transactions, and 77,744 customers, they concluded that success didn’t necessarily equate to sales growth. The explanation was that consumers who liked the items most were not representative of the total market.

Analysis identified these buyers as exhibiting what marketers labelled “Flop Affinity.” These are people who buy something that really doesn’t resonate with the majority of the market, such as Crystal Pepsi or Lemonade Doritos. These individuals are also more likely to buy a type of toothpaste or laundry detergent that fails in the broader the market.

Traditionally, companies want increased demand. But demand is about more than the quantities; it involves knowing who likes your product. If sales increase because “harbingers of failure” purchase something that most would avoid, then a firm can have a flop on its hands.

But just as important, an NBC story on the study found these group preference choices work the other way around. The data found those “who tend to purchase a successful product like a Swiffer mop are more likely to buy other ultimately successful products, like Arizona Iced Tea.”

The Watermelon Oreos Phenomena in other Contexts

Researchers are exploring how widely this “harbingers of failure” pattern applies in other areas, from everyday shopping selections to financial markets.

Is the concept applicable to behaviors other than choosing consumer products? Do credit union leaders tend to join with others around similar performance patterns?

Can the Watermelon Oreo research also identify behaviors or mindsets that exist within organizations; that is, micro-cultures that can compromise or promote purpose and performance?

Responding to External Demands for Change

In addition to ongoing market competition, every institution today is confronting external pressures for change. These range from the operational pivots responding to Covid to the social and political demands for accelerating equity and economic inclusion.

Northwestern’s Kellogg School identified a range of leadership responses ranging from the least to most meaningful when an organization reacts to external demands. Least effective were public statements of support. The most consequential was finding champions for the cause within the organization and tasking these internal believers in the change to develop the organization’s response.

The Watermelon Oreos case suggests that people’s choices, even if popular in the moment, are not indicative of long-term success. Winners tend to align with other winners in their behaviors whether within an organization or in the distribution of consumer preferences.

Effective leaders put those who believe in the required change in charge and not let the doubters harm their brand or organization’s reputation.