Are you managing by facial expressions?
What do I mean? Let me give you a simple example.
I was meeting with a credit union board before a planning session I was about to facilitate. The board was reviewing their delinquency report and the numbers had gotten worse. One board member expressed a litany of desires with a thousand facial expressions. As soon as the delinquency number was announced, and confirmed by the CEO that it had gotten worse, this board member rolled his head back, let it bounce back and forth on his shoulders, and rolled it around some more. His eyes spun into half-moons, and he slapped his hands upon his face with a huge SPLAT! Vigorously rubbing his face, he bellowed a huge sigh and you could hear the AuggggggggggggggggHHHHHHHHHHH everywhere in the room. He said nothing but announced everything.
Wow, the moment of truth. This board member didn't like the delinquency report numbers. But he said nothing. I watched amazed, knowing what he felt but wondering what he wanted done. I am sure the management team had the same sense of confusion. Nothing was said, but boatloads of expectations were expressed. He communicated his feelings in a dramatic moment punctuated with a sigh and vivid facial expressions.
Then it hit me, we often lead by facial expressions, but how precise are they? I had seen these faces before, but "managing by face" is not a very effective means of ongoing communication.
Immediately after the meeting I talked to the VP of lending and asked how that behavior had affected his decisions and his outlook on recent numbers. He reported that the credit union was now accepting less risk, and that the loan-to-share ratio was declining because of it. I asked, "Do you have an acceptable delinquency range? Do you have a desired loan- to-share ratio? Has the board outlined what they would like lending to look like?" He responded by saying "no."
From that, as a consultant, I had an important issue to talk about in the planning session. We were going to define success, and put limits on unacceptable performance.
The Four Keys To Measuring Success In Your Credit Union
* Define and measure success.
* Define and measure what is not acceptable.
* Build board consensus around the accepted number.
* Have a simple tool to help the board measure success.
How do we measure success? Do you have a measure for unacceptable performance, and do you have a failure limit?
In working with credit unions all over the U.S. over the last 10 years I have found that the vast majority of credit unions do not have specific measures for success, nor do they have specific limits of failure tolerance. They may have some goals, but they have not set limits of what is acceptable and unacceptable.
What do I mean by that? Many credit unions have not stated to the CEO the three, four or five areas they want to be successful in over the next one to five years. Nor have they defined what level of performance will not be tolerated.
Let me give you a recent example. When we went into the planning session we had important numbers to define. In conducting that session we discovered that the board had never established what they would like as a L/S ratio. Without that number, the CEO had no idea how much effort or budget to expend on generating loans. Nor had the board ever defined an acceptable delinquency ratio or charge-off ratio. If these parameters and limits had never been defined, how do you measure success and failure? It requires more than facial expressions-it demands goals with specific numbers.
Here is the simple exercise I did with the board (see graphic).
On a flip chart I drew a line across the flip chart sheet. Then I drew a mark where the credit union is currently with its loan-to-share. Then I gave each member of the board adhesive stickers they could use to mark their choice on the flip chart.
In this case, the credit union's L/S ratio was 55%, while the peer average was 78%. The circles shown in the graphic represent where the stickers were placed by members of the board. You can see that four of the nine board members said we would like to be at 75% loan to shares. Now we have some clarity. Instead of facial expressions, we have definition and focus. Then the board had some discussion about what this meant, and what would be the goal for the CU over the next year.
Loan-to-Share Ratio (L/S)
CU
-------------------------------
55% 75% 78%
Target Peer
How to Pick a CAMEL Rating?
The sticker exercise is a fast, easy and visual way to select your goals, and to reach consensus quickly. Below, in the second chart, this credit union had never defined where it would like to be with its overall CAMEL rating. The CEO had always aimed for a camel rating of 1 (or better!) but this constant aim for perfection with a limited field of membership had put a strain on some of the CU's resources. With the sticker exercise below you can see how the board decided it wanted to be between 2 and 3. The board is telling the CEO that with our membership base it is OK to be between 2 to 3. Now they don't have to manage by smiling or wincing (or something in between). The CEO knows the target, and no longer is the pressure on to be a consistent Camel 1.
Now the CEO can more effectively work to hit the target and manage the credit union towards the board's true desires. And all that with just a five-minute exercise.
This exercise doesn't make the CEO's job easier, but it makes it much clearer. And clarity of goals and goal setting is the key to success.
CAMEL
--- 5 --- 4 --- 3 --- 2 --- 1
With this simple, fast and easy exercise you can set goals much more quickly and with much greater clarity. You can define success, and get away from the angst that goes with managing by facial expressions. And you can save the sighs and rolling eyes for a bad joke by your next planning session facilitator.
Rory Rowland is a former CEO of two credit unions and the founder of Rowland Consulting and top100cu.com. He facilitates planning sessions for credit unions all over U.S.
