Friday, April 19, 2013

The Credit Union Difference—One of Principles, Not Profits

Back in mid-March, the Credit Union Times carried a front page story on Chip Filson and his petition for NCUA board members to be motivated by the unique contributions and needs of a cooperative business.

The article included comments from several credit union executives, two of which struck a chord with me. One was Randy Karnes, CEO of CU Answers, who said Congress didn’t create the credit union charter because the nation needed “nice banks.” He pointed to the cooperative principles as the defining element which makes the structure of credit unions different from banks.

Henry Meier, associate general counsel for the Credit Union Association of New York was the second. Henry suggested that those advocating for the cooperative structure to play a larger role in the credit union industry seem to be promoting it for its own sake.

Hearing the comments of both executives took me back down memory lane into the corporate credit union environment. There, as I rubbed elbows with right-brainers and left brainers alike, I began to realize more and more how important it was to find a course of harmony between the cooperative principles and the principles of asset/liability management, if a credit union was to be truly faithful to its “soul” purpose.

Lean too far to the right and the organization can become akin to a social service agency lacking in ability to manage its fiduciary responsibility; too far to the left and the organization is no different than a bank or investment firm.

The experience taught me that in a credit union, the cooperative principles and the principles governing balance sheet management must work together, hand-in-hand. I also came to realize that the cooperative principles exist not as some kind of superfluous guidelines that are up for interpretation and debate at each and every shop. No, they exist in the DNA code of every credit union. They make the credit union, a credit union.

This is why I content that they should never be viewed distinct and apart from the credit union balance sheet. Their role must be one of harmony with balance sheet management and every other aspect governing the fiduciary responsibility credit unions have to their member/owners. In the very same way, they must also be in harmony with any efforts at cooperation with other co-ops, social responsibility or reaching out to the underserved.

Yet, even though they are what defines the very heart and soul of the credit union business model, there are many throughout the entire credit union system today who may be dismissing these principles too quickly. Just bring up a conversation about the role of the cooperative principles with your own staff or board members and judge for yourself. Measure their knowledge and interest in, what is essentially, the value proposition of any credit union.

Perhaps this explains why so many of us feel a deep conviction to constantly draw attention to the role of these principles in credit union operations. Lose the heart and soul that defines who you are, and you not only lose touch with your roots but also with your very identity as well; and many of us believe that credit unions are flirting with the loss of their heart and soul. Just look around. Where’s all the cooperation between credit unions today? With community charters, it’s more a game of competition than cooperation. Come on, let’s be real. We can either continue on the current path (and we can see where that’s leading as the number of credit unions becomes less and less each year) or as Bill Cheney and CUNA have advocated, Unite for Good.

I see it this way for anyone of influence at a credit union—either embrace the cooperative principles as that which fundamentally defines your business model and see that they are actualized throughout your operation, or ask yourself if the for-profit banking model might be more suited to your tastes.

After all, the “soul” purpose of a credit union is not determined by opinion or an executive’s perspective on balance sheet management. Credit unions don’t need bankers to ensure the success of their balance sheets and cooperative business model, just as much as bankers don’t want credit union folks to tell them how to distribute their profits.

For credit unions, the focus should always be more than price and yield. Yes, while price and yield are important, there’s a whole lot more. Credit unions should not see themselves simply as commodity providers but rather as organizations that abide by a vastly different set of ethics and values from others in the financial services industry.

Just look at the success associated with The Cooperative Bank in the U.K. and its member-led ethical policy. So, don’t tell me customers are concerned only about price! If so, The Ritz-Carlton and The Four Seasons would have succumbed a long time ago to the likes of the Red Roof Inn.

Look at it this way. There are different religions, each with its own code of beliefs, yet all are similar in their ability to unite the believer to the divine.

For instance, if you happen to espouse, let’s say, a Lutheran tradition, you would accept and live by the principles of that tradition. On the other hand, if you find that living as a Baptist more accurately defines your core beliefs, you wouldn’t remain a Lutheran and continue to live your Baptist principles within a Lutheran congregation, right?

While both the Lutheran and Baptist spiritualities are reverent pathways to the Divine, there are differences in approach that define each code of belief. It’s not about changing those codes but rather recognizing which one resonates most closely with your set of beliefs and then living that code to the fullest within the congregation it represents.

If you want to adhere to a banking model, one that is for-profit in nature and shareholder-driven, then fine; work in a bank. They do CRA. They help people. It can be an honorable profession.

On the other hand, if you lead a credit union, then for God’s sake, live and abide by an approach to financial services that’s defined by the set of principles associated with cooperative values (open and voluntary membership, democratic control, non-discrimination, service to members, distribution to members, building financial stability, ongoing education, cooperation, and social responsibility). Don’t sweep those principles under the rug, belittle their importance or divorce them from your management style because you feel they have no bearing on the balance sheet and the price of your services.

The credit union difference is one of principles—to be embraced; to be lived; and to be celebrated. Wouldn’t you agree?

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