Are Misguided CEOs Holding Back the Industry?

I recently spoke with a CEO of a small credit union about a possible merger. We got to talking about the role of CEO and the demands on this particular CEO specifically. He told me that no one could do his job, suggesting that he was irreplaceable. I was curious, so I asked what he did that made him so unique. He said…

  • I go out and open new accounts as our business development officer;
  • I run a teller drawer on busy days;
  • I sit in the branch and talk with members as they come in;
  • I do things for members that most CEOs don’t do.

He also added that the demands on CEOs brought about by regulatory changes, technology, and competition were taking away from the tasks that were really what a credit union CEO should be doing (see above).  He closed by saying that the members really loved his dedication to helping them find solutions to their financial needs, and that no one (no other CEO) could do what he did.

He was right in a certain respect. No other “CEO” could, or would want to, do what he does. While all of these activities are unquestionably good, the question is really whether they are the domain of a Chief Executive Officer. In my opinion, they are not.

Yes, CEOs must step in at certain points to ensure that the work gets done, however in this case the CEO made “stepping in” a regular routine – to the detriment of the credit union itself.

This post is not really about a particular credit union, but the way in which some credit union leaders are approaching the more complicated environment in which we must operate. Take the constant lament from some in the industry that credit unions must stick together, cooperate, do more to help each other out.

When I hear when some people say “credit unions need to cooperate more,” I hear less a plea for cooperation that a plea to make it easier for some credit unions to maintain the status quo. That is a nice way of saying, “Make the job of credit union leadership easier – like it used to be.”

I believe that some credit union CEOs (the one I referenced earlier included) would very much appreciate it if the credit union community as a whole would cooperate/take on the challenges of marketing, branding, compliance, advocacy, and strategy – but for the purpose of simply making that CEO’s job more like that of a branch manager (no disrespect to branch managers intended).

Great examples of credit union cooperation exist across the industry. From various mortgage CUSOs to the recent efforts of CU Roots – a back-office collaboration between a handful of western credit unions – credit unions are collaborating to address the cost implications of compliance, workflow inefficiency, and more complicated products. Unfortunately, some CEOs, most notably CEOs of a segment of small credit unions, are not looking to cooperate to move forward. They are looking to cooperate to hold back, to keep things as they are (or were). Credit unions should cooperate, but to strengthen competitive and pricing advantages – not to help out CEOs who are not really interested in truly leading their credit unions into a bright future.

I am in compete agreement with those that think of this time as a golden opportunity for the credit union community. Consider this:

  • In member surveys conducted by Glatt consulting, LLC, we find that GenY’ers tend to hold as favorable an opinion of credit unions as those in much older generational demographics. Further developing these relationships is a great opportunity for credit unions.
  • Baby boomers are rediscovering the value of credit union products and services, not to mention finding trustworthy confidants in a caring contingent of credit union staffers. These relationships present a great opportunity for credit unions.
  • Credit unions are coming to a more solid understanding of workflow analysis and efficiency, in effect getting better at delivering products to members in ways that allow for very competitive pricing and service execution. Such well-positioned credit unions present a great opportunity for industry growth.

To those small credit union CEOs (and boards, for that matter) that are looking for cooperation to keep the job simple, I say turn in your keys. The industry is being held back by your reluctance to lead your credit union into the more complicated, yet fertile, future that awaits us.

While I would never encourage one credit union to turn its back on another, I definitely think that it is time for some tough love. The industry as a whole needs to challenge those leaders that want to hold back, that want to keep the credit union community as it was 20 years ago.

That credit union I talked to? They did end up merging. After seeing declining membership in 33 of 38 quarters (even with the business development expertise of the CEO), rising expenses, and no “suitable” candidate to replace the CEO, it made better sense to turn it over to someone else. In the end I suppose this was the right decision, though I have to wonder if a different CEO was at the helm, a CEO that focused more on the strategic success of the credit union than on a daily task list, if that credit union would be here today. Given the field of membership they had, their location, and a host of other factors, strong executive leadership would have made all the difference in the world.


  1. Buddy, can you spare a teller, some expertice, a little help here?

    Instead of predicting the end of small credit unions, wouldn’t it be nice if we actually went out of our way to help preserve them (at least those that want to grow and be vibrant)? There are those that are waiting for the death of the manager and the board so they can put the members out of their misery and then merge off to someone who actually serves the members with relevant services.

    So, let’s see what we have to work with: At year-end 2010 there were 7491 federally insured cu’s in existence according to Callahan’s… and that’s counting the zombie shops waiting for NCUA to get around to pulling the plug on them. Of those, there are 1826 cu’s between $2 MM and $10 MM. Even those are on the smaller size of small. The average cu is now $123,700 in assets nation-wide, and the median is $20,900. We even have 169 cu’s above the $1Billion mark. We are slowly becoming the very large and the very small, with everyone in the middle looking like today’s bait!

    Of those 1826, 1066 have shared draft accounts. That’s about 800 cu’s that are missing out on the economic engine that runs / ran credit unions for the last 20+ years.

    Only 445 offer credit cards… With returns about 2x that of autos, wouldn’t they benefit from more services?

    How about even having a home page? You can’t Google a cu if there is no home page to look up!

    The average ROA for the group for all of 2010 is <0.29%>. Do you think adding a share draft program and getting a home page and credit cards would help the bottom line?

    From what I’ve seen over the years… there are two types of cu’s in that category… those that don’t know how to get started and those that don’t want to grow (for a variety of reasons). There is also the real threat that the “helper” cu just wants the smaller cu to merge with them. BAD large cu! Shame on you! Especially as those that merge in usually end up being merged.. (Live like a shark, die like a shark… there’s always a bigger shark in the water just waiting to eat you up).

    For the first category: Why can’t the larger cu’s with the capacity take on the business operations for the smaller cu until their bottom line improves and they can take care of the programs themselves? Those lucky enough to be on the CU* “Gold” system can actually process the set-up / back office/ and monitor the program for other cu’s on the same system. Collaboration is actually built into the system… you just have to use it!

    Or, why not help them determine if they qualify as a Low Income Credit Union or assist them in becoming a CDCU so they can obtain a grant? Are you good at writing grants? I know a lot of small cu’s that could use some financial grants to improve their operations.

    And, it’s not like they are without resources… the average capital for this group is 15.27%. They have on average about $2.6 million in investments (remember, we’re looking at averages here) that have increased by 7% over last year.

    If we look at the $10 to $20 Million size… we see much the same capital @ 13.95% . Investments are $6.5 Million and growing at 8% over 2009. Both groups have paltry returns of 1.57% and 1.77%, so a good laddering strategy would greatly assist them… There are sufficient excess funds for a cd or step-up bond ladder to at least move those rate up in the 2.5% or higher range.

    With 1,107 cu’s in the $10 to $20 MM range, we do see more share draft accounts as a percentage of cu’s. There are 989 with SD accounts, 609 with credit cards, and 1093 have non-interest income. This explains the drop in the efficiency ratio from 104.47% for the 2-10 to 99.93 for the 10-20 group. Nationwide the 2010 average was 86.83% by comparison.

    As a group, both have excess capacity to lend, capital to invest in programs and products, and a deep need to grow. What most are short on is man-power. The manager is usually so busy rowing with the other employees, that they have no time to steer the ship. There is no commander on board in some of these shops. Just a more experienced worker to keep the regulators as bay. By the time they are done rowing for the day, they have no energy to direct, lead, or set a course of action.

    We all need to quit viewing these cu’s as fodder for merger and get busy assisting them to become viable and thriving credit unions. For those digging in their heels and holding the course set 40 or 50 years ago (services and programs, not philosophy), they will meet their end soon enough.

    Know a credit union that could use a hand? Why not give them a call and then a hand up? Some of our credit union fellow workers could use a little hope and see a light at the end of the tunnel that’s not signaling an on-coming train!

    Gregg Stockdale – I got out of the rowing game a while ago, but my cu is still “small”.

  2. I love Gregg’s comments. My question would be, why isn’t that extra capital being deployed to hire another rower or contract out website development or even professional/leadership development for that CEO. Doesn’t sound like good stewardship of member capital to me.

  3. Tom,
    Great post. You make some excellent points which hopefully will not fall on deaf ears. The future is promising for credit unions as long as we dare to dream new ideas and remain open to the possibilities.

    With such a keen insight, I look forward to reading more from you and hope one day to see you among the ranks of credit union development educator.

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