Board Adopts Conversion 'Poison Pill'

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Washington State Employees CU has adopted a measure that would make it nearly impossible for the credit union to convert to a bank charter of any kind by requiring a 50.1% majority of the entire membership favoring such a move.

"That would mean that today, as we have nearly 122,000 members, 61,122 would have to vote, and all 61,122 would have to vote in favor of converting to a bank charter," said Meredith Rafferty, vice chair of WSECU's board who spearheaded the effort to change the credit union's bylaws to make it more difficult for a future board to implement a charter conversion (CU Journal, Dec. 15).

"We spelled out in our mission statement that we intend for the credit union to remain a not-for-profit financial cooperative in perpetuity," she told The Credit Union Journal. "We've set a very high standard, but we feel strongly that a financial cooperative structure is best for our fellow members."

In addition to the higher voting requirements, WSECU also adopted new disclosure requirements, including a detailed comparison of existing member rights under the credit union charter and how those rights would be changed if the CU were to convert.

Moreover, WSECU would also have to disclose its existing financial condition and any changes to it that might occur if WSECU decided to convert. And any board member or member of senior management who might enjoy some sort of personal financial gain as the result of a conversion would have to disclose that, too, even if any such windfall wouldn't occur immediately but the potential for it in the future exists.

These disclosures would have to be made a full 60 days before any special meeting of shareholders could be called to vote on a conversion. "This change in our bylaws reflects the belief that being a financial cooperative organization is important to us and our members," Rafferty commented.

Now the question is: how binding is such an amendment. CU conversion attorney Richard Garabedian noted that any such change to the credit union's bylaws by a simple vote of the board could just as easily be eliminated by a future board that wished to see the institution convert. "But adopting this change does send a powerful message," he noted.

Whatcom Educational CU, Bellingham, Wash., has also considered such a "poison pill" amendment to ensure no future boards should choose to scratch the CU charter in favor of a mutual bank charter. But Whatcom CEO Wayne Langei noted that such a move could tie the board's hands in the future, with unintended consequences. "My concern is that you end up hampering yourself on something else."

Still, the bylaw amendment sends a powerful message to future boards about the level of commitment the current board has to the credit union structure, Rafferty noted. "We have made it abundantly clear that it is important that we are a credit union and a co-op," she said. "That message cannot be misconstrued."

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