Staying Focused

Is the CU vision retiring with its leaders?

January 27, 2011


  • Today's retiring leaders urge tomorrow’s leaders to 'keep purpose constant' and stay focused.
  • CUs' foundation principles still make sense in today’s financial-services world.
  • Board focus: Consider CU mission, vision, and philosophy in succession planning.

Many of the credit union movement’s most dynamic leaders have recently retired or soon will. As they do, there’s a growing concern that some of the movement’s vision and values will retire with them. There’s a concern that the credit union flame might not burn as bright. These concerns give rise to a number of troubling questions:

• Will the next generation of credit union leaders share the same passion for, and commitment to, credit union principles?

• Are credit union values still relevant to future leaders, considering the serious distractions and challenges that exist today?

• Will new leaders focus too much on the financials and not enough on members?

• Do former bankers hired as credit union leaders bring a for-profit mentality into the for-service world?

Credit union leaders who “have been around the block a few times” offer some valuable insights and words of caution as they contemplate these questions.

Stressful times

“This is one of the most stressful times in the history of credit unions,” says Dianne Addington, currently interim CEO at $9 billion asset Southwest Corporate Federal Credit Union in Plano, Texas. She spent nearly four decades at Genisys Credit Union in Auburn Hills, Mich., the last 22 as its president/CEO. “Even those who’ve historically been recognized as icons in the industry are struggling.”

“Prior to 1970, there were a lot fewer regulations, the competitive playing field was a lot different, and it was easier to be philosophical,” agrees Carroll Beach, president/chief operating officer of CO-OP Shared Branching. “Each of these things has had a huge impact on our industry that can’t be ignored.” His credit union career spans nearly four decades and includes 30 years as president/CEO of the Colorado Credit Union System.

“Credit unions feel they’re under siege,” adds Wendell “Bucky” Sebastian, executive director of the National Credit Union Foundation. Sebastian spent 20 years as CEO of GTE Federal Credit Union, Tampa, Fla., and was general counsel of the National Credit Union Administration (NCUA) from 1981 to 1985. In most places, he says, credit union loan portfolios are under severe stress and they’re not generating the income they did in the past.

In the face of these challenges, it’s critical to “keep purpose constant,” says Ed Baranowski, president of Topics Unlimited, an education, seminar, and consulting company. He says the credit union philosophy was “drilled into” him during the early days of his credit union career.

Baranowski is a Credit Union Retired Executives (CURE) adviser whose 50-year career included
serving as president at both the University of Wisconsin Credit Union, Madison, and the Navy Orlando (Fla.) Federal Credit Union (now Fairwinds Credit Union). “Sure, we have the ‘fires’ of competition and regulatory issues to worry about, but we need to remember our jobs go beyond that.”

“I’m afraid too many people get caught up in the mechanics of running a financial institution without remembering credit unions’ unique ability to provide desirable services that benefit members,” agrees Sebastian. “The genius of the credit union movement is that it’s an alignment of the best interests of the member and the organization.”

“Don’t take the easy way out,” adds Frank Berrish, who’s been president/CEO at $2.5 billion asset Visions Federal Credit Union, Endicott, N.Y., since 1977. “When you need to generate more income, don’t just lower dividend rates and bump loan rates—this is the type of thinking that could cost us our tax-exempt status. Grow your income by better serving your members.”

Next: A 'philosophy auditor'

A ‘philosophy auditor’

“As an industry, we’ve gotten all caught up in CAMEL [capital adequacy, asset quality, management, earnings, and asset/liability management] ratings, but I’ve always thought we should add an ‘s’ for ‘service,’?” says Baranowski. “What gets measured is what gets done, and if we incorporate service into our metrics, we’ll do a better job of providing it.”

Baranowski was so committed to the credit union philosophy he designated a staff member to serve as Navy Orlando Federal’s “philosophy auditor” during his tenure. “Whenever we considered adding a new service, this employee’s task was to subject it to the philosophy test. Did it help our members? Did it align with the credit union philosophy? Did it keep our purpose constant? This was an excellent way to go beyond the numbers.”

Visions Federal uses the Carver Policy Governance® Model, says Berrish. “This allows us to look at all our actions and strategic plans through the prism of member benefit. We certainly have to meet our regulatory requirements, but at the end of the day, we’re also trying to run our credit union in a way that benefits the blue-collar guy who’s out there driving his used truck and wondering how to put his kids through college.”

The reality is that all credit unions have to worry about income. But Holly Herman says income growth shouldn’t come at the expense of members. Herman is principal of Total Coaching & Consulting and co-founder of CURE. She has been CEO of two large credit unions, and was chief of staff to NCUA Chairman JoAnn Johnson.

“A true sales culture shouldn’t be about selling,” she says. “It should be about meeting members’ needs with products that are superior to, and more affordable than, what they’ll find elsewhere.

“Training can give your staff the language and the tools they need to do this effectively,” adds Herman. “As an industry, I don’t think we’ve done a good job of this.”

Berrish thinks of profitability in terms of priorities. “In my 35 years with credit unions, my philosophy has been that your first priority is to your members, your second priority is to be fair to your employees, and if you do these things, profitability will follow,” he says. “If you’re offering services merely to generate income without factoring in service quality, you’re going to be in trouble.”

Meet market demand

Historically, credit unions have had a reputation for offering a small range of services. Many consumers don’t look to credit unions for much beyond car loans. But it’s not necessary to keep such a narrow focus to maintain a commitment to core credit union values, says Herman.

To stay relevant, a credit union has to offer what its own market demands, she says. “I don’t think it confuses members if their credit union offers the same services as the local bank. It’s simply the cost of doing business. If you don’t offer the expected services, consumers see little reason to become members.”

On the other hand, says Berrish, “If you’re really connecting with your members and they need only a narrow range of services, you might be able to be a niche player. But your services have to be driven by market needs. In our area, we had a local employer lay off more than 90% of its work force. If we hadn’t branched into a wide range of services, we would have been in a tough spot.”

Next: Education takes time

Education takes time

Industry leaders agree the average consumer isn’t aware of how and why credit unions are different than banks.

“Members understand that credit unions deliver great service and have lower rates, but they don’t necessarily understand how credit unions work,” says Herman. “That comes with education—how we teach kids about finance, having credit unions on college campuses and actively recruiting there, using job fairs, and advertising that we’re a different type of employer.”

“Bergengren [a credit union pioneer and the first managing director of the Credit Union National Association (CUNA) and CUNA Mutual] talked about the practicality of man,” says Beach, “and the fact that credit unions survive because they’re inherently practical institutions. Cooperative financial institutions make sense, but it takes time to educate people. It’s easier to advertise that we offer better rates—and maybe that’s what it takes to get them in the door. But once they’re there, we have to talk to them about our philosophy, too.”

Many of the dynamic leaders who made credit unions what they are today are still working behind the scenes to shape the credit unions of the future. One way is through CURE, founded in 2008 by Herman and former CUNA Chairman Juri Valdov, who saw these leaders as a “treasure trove of advice and experience. They want to stay engaged and give back to the industry, and this is a perfect way for them to do so.”

CURE is completely volunteer-run and all services are free. Queries and replies are sent via confidential e-mail.

Many young leaders 'get it'

It’s a mistake to assume the credit union flame will die out as today’s leaders retire. Many senior leaders are being intentional about passing the passion on to their successors.

In many ways, younger credit union employees understand the importance of cooperative financial institutions better than many older employees, says Rick Rice, president/CEO at $2 billion asset Teachers Credit Union, South Bend, Ind.

“Too many current leaders have come to measure success in financial terms,” he says. “The person who will be taking my place at our credit union is in his 40s, and he has a real feel for member satisfaction. I have no doubt he’ll do a great job.”

“We’ve spent the past decade talking about how we’re on the verge of losing the people who understand what credit unions are all about,” says Holly Herman, co-founder of Credit Union Retired Executives (CURE). But new leaders, she adds, have had ample opportunity to learn what makes credit unions unique, and they’re putting it into practice.

“There have always been people who were more bottomline oriented than member-oriented,” adds Carroll Beach, president/chief operating officer of CO-OP Shared Branching. “I’m finding that the younger generation is committed, as a group, to helping society. They’ll be very interested in helping credit unions continue to play our traditional role, but they might require more education.”

Mentoring is critical to future leaders’ success in carrying forth the movement’s vision and values, says Dianne Addington, interim CEO at Southwest Corporate Federal Credit Union, Plano, Texas. “Statistically, there are more new CEOs coming from within the movement than from outside it.”

One caution: Don’t just create succession plans—execute them, she says. “I know of some instances where the top person didn’t retire as scheduled— often due to the impact of the recession on his or her 401(k). The person being groomed to step in left in frustration—and not just the individual credit union, but the industry. We can’t afford that.”

Indoctrinating bankers

Credit unions also are adding more former bankers to their ranks. A banking background can be helpful, leaders agree, if it’s combined with a thorough knowledge of credit union philosophy and principles.

As credit unions have added a broader range of services, “there have been times when we had no alternative but to reach out to those in the banking world,” says Rick Rice, president/CEO at $2 billion asset Teachers Credit Union, South Bend, Ind. They had the experience credit unions needed, he says, such as commercial lending or trust services. “But it’s crucial to look beyond those skills.”

“If anything, I think we need leaders who know even more about financials than they did in the past—even a philanthropic organization needs those skills,” says Herman. But you need to make sure that financial knowledge and experience line up well with core credit union values, she adds.

To do that, she recommends careful scrutiny throughout the hiring process. If your credit union decides to hire former bankers, she says, “Look at whether they’ve been involved in volunteer projects. What do they do in their free time? What kind of language do they use to describe their long-term goals? All of those things can help you understand who you’re hiring—not only their skills.”

To put the transfer of leadership into perspective, Baranowski says it’s important to remember that credit unions have made it through other tough times.

“If you look at the history of credit unions, you’ll see we have a history of survival,” he says, adding that U.S. credit unions “were born in 1909 at a time of financial crisis, and we also saw growth in the midst of the Great Depression and after World War II. As long as we stick with our core principles, we’ll survive.”

Credit unions’ fundamental principles still make sense, agrees Sebastian. “We were founded with the belief that cooperation is the ideal way to do business, and I still think there’s value in that philosophy. It’s not necessarily what people are hearing in business school, but the real world has proven it can be a successful model.”

“This tough time too shall pass, and credit unions will regroup,” says Addington. “Our philosophy is well worth the pain of preserving it.”

Impressions From a Young CU Leader

Brian McKay, vice president of member service at SC Telco Federal Credit Union, Greenville, S.C., thinks the credit union movement's vision and mission are alive and well with new generations of leaders.

CUMag: Do you sense that the next generation of credit union leaders will be equipped (and care) to carry the torch of the credit union mission?

McKay: Yes. As the chairman for the South Carolina Credit Union League’s Vision 2020 Task Force, I'm fortunate to be surrounded by some of the next generation of credit union leaders. I can tell you that our generation of leaders is still focused on the No. 1 priority: the members.    

CUMag: Are credit unions becoming too much like banks?

McKay: Yes, but that’s not necessarily a bad thing. We couldn’t compete in today’s marketplace with the old credit union business model. Today’s consumers demand both convenience and a full suite of financial services. If we are to compete, we have to evolve while staying focused on our members.      

CUMag: Is it important to differentiate?

McKay: I think it's important to differentiate politically, but that shouldn’t be our primary focus. In any marketplace, if your efforts to differentiate cause confusion for the average consumer, you've gone too far. Consumers understand how to do their “banking,” but who knows how to do “credit unioning?” If we truly live up to our charge to serve people of modest means, we will be different. 

CUMag: Will we lose the vision/mission when these leaders retire?

McKay: We will lose some of the history, yes. Like me, many of my generation of credit union leaders didn’t grow up in the credit union industry and don’t have a perspective on some of the great political fights of yesterday. That’s why it's incumbent on the leaders in place today to choose successors carefully and spend time developing them for the future.