ALEXANDRIA, Va. - NCUA, which has been slow to embrace the move to more corporate transparency embodied in the Sarbanes-Oxley Act, moved last week to pry open the internal records of credit unions to their members.
Two rules proposed last week would require credit unions to disclose the compensation paid to management in mergers, and give members greater access to credit union books, records and minutes to board and committee meetings.
The proposals come as the internal proceedings of credit unions are coming under increasing fire during conversions to mutual savings banks and the current hostile takeover battle between two airline credit unions. Congress has also raised the issue of transparency among credit unions. And a study issued last year by the General Accountability Office recommended that CUs make more information generally available on executive compensation, just as publicly owned corporations are being required to do.
Until now, NCUA has been slow to respond, saying that increased corporate disclosures required by Sarbanes-Oxley are generally aimed at curbing management abuses seldom seen at credit unions.
But recent cases where credit union boards and management have expended significant resources-sometimes hundreds of thousands of dollars paid by the credit union-to fight off member challenges, such as at Columbia CU, DFCU Financial CU and Lafayette FCU, have spurred NCUA to act.
In each of theses cases management has paid huge legal fees-more than $1 million in the Columbia CU cases-to thwart member scrutiny.
In proposing the new disclosures, NCUA referenced theses cases and suggested a uniform standard could avoid future fights like these.
In the member access rule, all federally chartered credit unions would be required to make all non-confidential records, books and minutes available to members for legitimate purposes, such as reviewing a charter conversion or merger. In order to gain access the members must collect at least 1% of names on a petition asking for the information. The NCUA Regional Director will serve as a referee to determine if the purpose of the access is legitimate and not just for harassment purposes or whether it should be restricted in scope. The proposal was issued for a 60-day public comment period.
The second proposal would require all credit unions during a merger to submit information to NCUA as part of the merger application detailing any compensation to be earned by top management as a result of the combination.
State-chartered credit unions would be required to make that information available-probably at the nearest branch-to members, as well as to NCUA. That's because in most cases the members must vote on a merger of their state-chartered CU.
In many merger cases, the retirement of the acquired credit union is part of the deal and it often includes lucrative financial inducements, like deferred compensation, a bonus, health or other fringe benefits. Reports in recent years have detailed several million-dollar severance agreements-known in corporate parlance as golden parachutes.
NCUA said, among other things, it wants to make sure that the promise of financial gain is not driving a merger.
The rule was also issued for a 60-day comment period. NCUA Chairman JoAnn Johnson, who has touted the transparency issue over the past year, said she is looking forward to hearing comments form CUs and their representatives.
Board member Gigi Hyland said, while targeted at specific incidents: mergers or conversions, both proposals are aimed at a much broader concept. "I think it's crucial to stress that this is a general access rule. It more broadly addresses the transparency rights of members and the membership rights of members," said Hyland.
(c) 2007
