Archive for February, 2008|Monthly archive page

Citi, fund managers, and the CU difference

There’s a great discussion going on over on the Filene blog that is centered around an article and what it can tell us about the credit union difference. I encourage you to check out the whole writeup and the comments.

I’ve copied my comment because I’d like to go just a little deeper with it here.

* Citi claims some 370,000 employees worldwide, so the reduction we are talking about represents a little over 8% of their workforce. Don’t get me wrong, that is a lot of families, but unfortunately layoffs of this size are not unheard of in our present day economy.

* It looks like Citi wasn’t going on a hiring tear to increase profitability or throwing people at their problems. They were playing the acquisition game that our financial institutions (both banks and CUs) are so in love with. The people were just by-products of the acquisition.

If you’ve got some spare time, look at the Citi 4th Quarter and Full-Year 2007 Earning Review. If I’m reading everything correctly, I read that 50% of Citi’s 2007 Expense Increases and that 75% of the Headcount Increases were due to acquisitions. All this to get a 4% boost in revenue. I know it’s crazy, but that’s the game everyone is playing right now.

What does this article and these comments tell me about the CU difference?

The difference between shareholder and stakeholder value is intrinsic in the bank v. cu debate. While some say the everyday corporate world needs to approach value from more of a stakeholder position, this article makes it clear that this is currently not reality. Credit Unions naturally take this position and it is evident in the way they approach everything they do.

However, I also believe that as banks become focused on stakeholder value, triple bottom lines, and the like, the magnitude of this competitive advantage could shrink significantly.

So here’s the question burning in my brain: At what point is laying off employees good for a credit union? I’m not talking about firing bad employees. I’m talking about letting people go to increase member value.

Presidents, GM, and Board Members: Would you let 1% of your staff go if you wouldn’t lose productivity and could drop rates across the board? What if it allowed you to offer more small business loans? More education loans?

Credit Union Members: How do you handle inefficiency at your cooperative? Would you let 1 employee (and fellow coop member) go if services didn’t take a huge hit and it meant everyone got a bigger dividend check?

You see what I’m getting at? I understand that credit unions are definitely more emotional about these things, but you can’t run a coop on pure emotion. (Even the “triple bottom line” still includes a financial line.)

I’m interested in hearing how real life CU people handle these types of things. Would you ever even consider this? Has anyone had to do this after a consolidation? Was it worth it?

(Anonymous or Pseudonymous comments are welcome. They kind of have to be!)


Principle #1: Voluntary Membership

Here we go with Voluntary Membership:

Credit unions are voluntary, cooperative organizations, offering services to people willing to accept the responsibilities and benefits of membership, without gender, social, racial, political or religious discrimination.

Many cooperatives, such as credit unions, operate as not-for-profit institutions with volunteer board of directors. In the case of credit unions, members are drawn from defined fields of membership.

We can learn a lot of the credit union basics from just these few sentences.

  • What is a credit union? A volunatary, cooperative, not-for-profit organization
  • What does it do? Offer services
  • To whom does it offer services? Anyone willing to accept the responsibilities and benefits of membership that fits within the credit union’s defined field of membership
  • What can the credit union base it’s field of membership on? Definitely not on the basis of gender, social (status), race, politics or religion
  • Who oversees the credit union? A volunteer board of directors

This credit union sounds like a pretty decent place. Volunteerism, responsibility, benefits, and limited discrimination. It sounds nice, but I still have some unanswered questions from the text of principle #1:

  • What kind of services does a credit union offer?
  • What are the “responsibilities” of membership?
  • What are the “benefits” of membership?
  • On what basis can a credit union define it’s field of membership?

I hope to tackle each of these questions with a kind of “wide eyed” naivety in later posts. But first, let’s answer based on where we’re at.

Credit unions offer financial services. Responsibility of membership is usually limited to small financial obligation upon joining. Benefits of membership vary greatly from credit union to credit union. Probably the most consistent is lower rates on loans. Fields of membership are defined by geographical areas in which a person lives, works, or worships.

Does that sound about right? Does this description match the mental image you get when reading principle #1? Not so much for me. The biggest disparities I see between philosophy and practice are in member responsibility and fields of membership.

Member Responsibility

A $20 requirement for deposit is hardly what I have in mind when I read principle #1. I think of an ongoing commitment. I almost think of chores. Would I join a financial institution that had a list of chores for me to do? I don’t know if I would. I do know that if I did, I’d make sure I did them, and I’d make sure the others in my cooperative were doing them as well. (That’s the way momma raised me!)

What would cooperative chores even look like? Maybe general meeting attendance. Maybe community involvement. Maybe completed training sessions. Would I consider the benefits of membership worth taking on these responsibilities? If I didn’t, would you really want me in your coop?

Fields of Membership

Now I can’t say geography is a bad place start with field of membership. It makes sense. It’s easier to coop with people you are geographically close to. But I believe this is rapidly changing. Our world is getting smaller and geography is becoming less and less relevant.

If fields aren’t based solely on geography, what could we base them on? It’s no secret that I am a fan of Tim McAlpine’s affinity model. I think this a great direction and I would love to coop with a group of like minded pseudonyms.

“But we’ve got laws and regulations!” Ok. I get that. Here’s some thoughts.

  • Create an “affinity charter” process. That’s right. CU Skeptic is talking about NCUA and Washington. This would give some oversight to the process, to ensure it does not infringe on discrimination, all while making a huge stride towards making credit unions more relevant.
  • Incorporate affinity into your community charter. Try satisfying NCUA’s “local community” requirement and then go the extra mile by throwing in some affinity. Which is a more community based institution: a cu that serves all of Los Angeles or one that serves the bloggers of that same area?

I have no idea if the above are feasible, but why shouldn’t they be?

Wrapping Up

So there you have it. My not so brief take on Voluntary Membership. What do you think? Feel free to comment, or if you respond on your own blog, leave a link in the comments so we can all keep up.

A fresh look at the 7 principles

I’ve been wanting to do this for a while and it finally looks like I can carve out enough time to give it the attention it deserves. I want to start a discussion about the 7 principles from a 2008 and beyond perspective.

I believe there is plenty out there about the origins of these principals and how each one has played out in the world of credit union “yesterfar” but there’s not a ton of talk about what those principals mean today and how they (should) influence credit union practices.

Now some of you might say that the principles mean the same today as yesterday and that’s why we don’t need to talk about them. We may come to the end of this discussion and find that you, Mr. Timeless, are correct. Never the less, I think the discussion can only help the understanding of the community, and specifically my generation.

I also want to stress that this is a discussion. I am definitely short on answers as I look down this list, so your thoughts, comments, and banter are welcome, appreciated, and needed.

A quick last minute thought and then I’m off to write about Voluntary Membership. Along this journey, let’s not just take the time to determine what these principals do mean in the present day credit union, but lets also be bold enough to talk about what they could mean to the CU of tomorrow. Don’t worry, I’ll still be skeptical (it’s kind of my thing) but that doesn’t mean you have to be. 😉