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Will Differentiation Save CUs?

The Filene Research Institute just issued a Research Brief, "What People Pay: Deposit Account Fees at Banks and Credit Unions." [http://filene.org/publications/detail/whatpeoplepay] This was my comment:

The brief is encouraging and surprising. Given that most consumers know little of and care little for the difference between credit unions and banks, pricing often becomes the consumer's primary decision tool. Forget for a moment that my former credit union's free share draft account was not enough to convince many eligible consumers to switch from a regional bank their parents had done business with forever. A dose of reality hit me when another regional bank, Barnett, mocked by CU employees for its long list of fees, was able for a time to beat many local CUs on car loan and CD rates. It became apparent that their fee income enabled them to beat us on core business. (Barnett became Nations, then Bank of America.)

The challenge for today's credit union leaders is to develop strategies to remain competitive on pricing while establishing the kind of differentiation that resonates with and captures the hearts and wallets of qualifying consumers. Simultaneously, CUs need to continue the tax exemption to ensure a small amount of price difference. A single regulator will further erode if not obliterate CU and bank differences. There may be a chance to shine under the proposed national consumer protection agency.

U.S. consumers' lives will be adversely affected by a lack of credit unions. Becoming indistinguishable from banks or going out of business entirely will be the same for consumers. Filene followers and other leaders need to see beyond the economics and issues of 2009 and 2010 to ensure that future generations will know and appreciate the credit union difference. The continued presence of a viable credit union choice is necessary to keep down and reasonable the costs of consumer and small business banking, and to assure the presence of a nonprofit commitment.

Don’t Obfuscate Policies

I read a call to develop a cell phone policy: if a company provides cell phones, there's personal use to consider, and there's potential liability if the employee has an auto accident attributable to being on the cell phone at the time.

I read recently that companies ought to have a social media policy. Management concerns range from worker efficiency to "tweeting" something that will embarrass the company, or expose its new strategy.

To avoid company policies becoming a patchwork of individual provisions to meet the latest specific concerns, take the time to see if existing policies may cover the issues.

For example, here are a few statements you could already have in your code of ethics:

• To do one's job to the best one's ability, efficiently and effectively, such that one contributes to the moral and financial success of this company.
  
• To promote and protect the best interests and reputations of this company and the industry and avoid and resist influences and practices detrimental to it.
  
• To display the highest standards of personal conduct at all times.
  
• To uphold and comply with the laws, rules, regulations pertaining to our operations.
  

(Those are excerpts from my Board Governance Policies model manual for boards of credit unions, adaptable to nonprofits.) You can see that many of the concerns over the use of company cell phones are covered in the code. Your Personnel or H.R. Policies are also likely to address acceptable and unacceptable behaviors.

A company providing cell phones may also provide long distance lines accessible from every desk, company cars, cameras and other company equipment that can be used personally. A company will already have addressed personal use of company property including tax implications.

If you find that in this case, cell phones are adequately covered, rather than write a new policy, leadership can choose another means to ensure that employees know how their use and not use their company-provided cell phones. When legal risks are significant, have the employees sign the interpretation sheet evidencing their understanding.

A signed interpretation could be a single sheet. On the other hand, a full-blown policy addressing cell phones might be several pages and contain many of the same provisions as for the other things previously mentioned; the only difference being the name of the object.

That duplication presents a couple of problems. A greater number of pages increase the chance for non-compliance when employees fail to read or remember policies. Repeated policies need to be worded the same to remove the potential for different interpretations.

When policies are the same for cell phones and other stuff, it's better to have overriding policies addressing the concerns, and include a list of example objects that are covered by it.

Whether you add a whole new policy or take my approach, have your attorney review policies periodically to be sure of your legal footing.

Strategic What?

There's another offer in my in box to attend a "Strategic Collections" seminar. Now having received several of them, I can't stand it anymore. It is one more misuse of the term "strategic." I can find nothing strategic about responding to increases in slow payments, existing customers missing payments, or existing customers entering into bankruptcy.

What then is strategic?

Being strategic is finding a borrowing niche less likely to have payment issues.

Being strategic means choosing a particular underwriting or collections process, over others, because you see a unique position, or to reinforce your brand.

Being strategic is about positioning your company to take advantage of trends that will result in a new market place.

Being strategic is not about current commitments (like the loans you're trying now to collect) but seeking a new set of commitments that will make you more competitive, make you more money, or satisfy a craving for success.

Being strategic is about finding needs no one else is filling and planning to fill those (a Blue Ocean Strategy).

While improving one's ability to conduct operations effectively is important, being strategic is more about reinventing operations because the outside world has changed.

The Emergence of Governance in Credit Unions

There are fads on one end of a continuum, cool ideas tried by many and abandoned because the results are not consistently positive. On the other end of the continuum we find sea changes. The move to governance is more a sea change that alters the nature of the Board/Executive relationship.

In the beginning, there was a board to take care of everything because the members would not or could not. Everything. Treasurers are known to have carried a notebook with members' loans and payment in it; there was a cigar box locked in an office drawer with cash for the next loan, typically under four-figures.

The Treasurer/Manager, having a full-time job in a vocation, needed help with the credit union avocation. Staff was hired to help. As memberships grew the board hired more people to help. Eventually, the Treasurer/Manager could no longer manage the day-job and credit6 union office staff so the Board hired an office manager. As the institution progressed, the position became General Manger, President, and now most commonly, CEO.

From my point of view, Examiner and state Administrator (Florida), CU Director, Consultant and CEO, titles in the top positions in credit unions have much less to do with the expectations of the job than the status, the sound of the title. The growing complexity of the business environment and the speed of change surrounding credit unions have the most to do with the transference of decision making power out of the boardroom.

The Board holds the power until delegated. While it first delegated personnel hiring, nurturing, managing and firing to its first string of managers, other authorities remained in the boardroom. The power tipping point was 1970, the advent of share insurance, share drafts, economic volatility in the 1980s and increasing complexities associated technology, expanded competition, increased regulations, including some with fines for lack of compliance, and ever-changing investment options.

The fiduciary duty of care means that a board ensures the viability and longevity of the institution. Since it could no longer make an increasing number of decisions fast enough, a board needed to find competent people it trusted and transfer decision-making to them. In 1980, the term "governance" gained the attention of nonprofits in John Carver's seminal book, Board That Make a Difference.

Governance means a Board transfers it powers to its competent and trusted chief executive and provides guidance on how to use that power through its policies. The policies that speak to the CEO we call Governance Policies. A Board's previously written policies: products and services, personnel, and others, now called Operating Policies, become the realm of the chief executive, among other delegations in Governance Policies.

In this sea change, a board recognizes that if it intends to keep the institution safe, sound and vital, it must find a capable person to drive that success (http://www.danclark.com/products ). In addition to the chief executive, it hires audit firms, and allows the CEO to hire other C-Level executives in areas such as finance, marketing, human resources, services, facilities and information technology. Those specialists deal with ever-increasing levels of complexity and can more quickly research alternatives than a group of volunteers have the time or expertise to do.

Governance is the right idea for our times, four decades in the making. Directors who care about the institution entrusted to them will recognize what they cannot adequately do, and find and empower that expertise to work for them. Governance is a big part of fiduciary duties today.

A Question Relating to New Board Members

The purchaser of my model Board Governance Policy Manual for credit unions asked about the legality of the provision that requires a credit union member to be a member two or more years before being eligible to run for the board.

Of course, any user can remove a membership requirement to qualify for nomination or appointment. I put the requirement in there to prevent people from becoming a CU member just to become a committee member or director; what is their purpose and intention?

As a part of the Board's efforts to make the CU successful, it needs to attract the best talent and the most dedicated people it can to lead the CU. If the Bylaws contain sufficient processes and protections, then Governance Policies do not need to address it.

What about the legality? It is not illegal, best I can tell, to introduce reasonable processes to assure the Board is the best it can be. Members can follow the Bylaws to the letter and circumvent Governance Policies that are more restrictive. Therefore, the Board is not mitigating or taking away any membership power. People who have the best motives will not want to circumvent the criteria for doing so may place a cloud over their intentions.

When the Board or the Recruiting/Nominating Committee finds a non-member it desperately wants on the board, the board can adopt a resolution allowing for a one-time waiving of the length-of-membership criteria. The resolution will outline the compelling reasons for its actions, and preserve the integrity of the written policies.

Keep Strategic Planning Pure in Tough Times

I just read some things about strategic planning from McKinsey & Company, and comments from executives to a survey about it. The current environment is causing many firms to alter their planning focus. Some are reshaping their strategic planning processes to generate short-term solutions to fix problems. Others are celebrating their previous strategic planning because the plan prepared them to do better now than many of their competitors are doing.

In your organization, if there are issues such as a negative bottom line, reduced net worth, and other operational things being talked about and worried about, such can stifle visionary thinking and vision creation. One way to stifle the stifle-r, one way to put those concerns to rest, at least for a time, is information.

When you know the concerns, provide a brief report, for example, on the issues and the answers to them: what you are doing to increase cash flow, improve loans, cut costs, delay cash-consuming projects, etc. This information should not be published as a part of the strategic planning process, but published because leaders need to know.

If you are on a long-trip in a motor home, the driver's attention is on the final destination well over the horizon (while also attending to immediate traffic conditions and other dangers). If a fire breaks out in the camper's kitchen, it's difficult to keep driving with an eye on the horizon. Organizational planning can and should be different than strategic planning.

Strategic planning by definition is about the long-term future, understanding what should be in decades ahead (the McKinsey piece talked about century horizons); when you are engaged in planning that is about far horizons, call it "strategic." When, as many executives indicated, they will be focused on near-term issues, then call it what it is, tactical or operational planning; you are skipping strategic planning, for now, to put out the fires.

When you call the annual event, the culmination of a year's worth of research and discussion, "strategic planning," but by necessity conduct shorter-range planning, you risk losing sight of what "strategic" and "strategy" mean. When you name the event based on what you are doing, everyone is tuned in and definitions remain unchanged.

After all, you wouldn't hold a birthday party to celebrate someone's retirement, even though the refreshments and the source for the cake are the same.

While the two planning retreats under discussion are similar, the outcomes are different; the titles we use need to reflect the outcomes.

In times like these, do both levels of planning. Plan to resolve immediate issues. Hold a strategic planning retreat, even if delayed, to collect all that strategic thinking and anticipate all the future issues that could challenge you as you are challenged now.