What a reaction! When the article "A Different View on What Lies Ahead for Corporate CUs" was printed in the Nov. 8, 2004 issue of The Credit Union Journal, my first thought was I had better prepare myself. I was certain that within days I would receive a call or an e-mail from an executive of a multi-billion-dollar corporate or credit union who was eager to give me the verbal equivalent of a stiff smack upside the head.
It turned out that my debate preparations were for naught. I enthusiastically report that the response received was overwhelmingly positive. Two CEOs of corporate credit unions even chimed in to express their appreciation.
One of those CEOs went so far as to send a spreadsheet with his comments. He had used the 5310 reports to conduct an unofficial study of the top ten corporate credit unions. The data shows that there is no correlation between asset size and net interest margin. He had sent the data to me because he felt that, in my article, I was supporting the theory, as he put it, that by design "larger scale will produce more efficient results." After clarifying my thinking in both an e-mail response, and a friendly phone conversation, we found that our opinions weren't that far apart.
The fact is I do believe in the value of economies of scale when they have been derived in the proper way, i.e. growing a business organically. Companies that grow their business through sound business practices-such as building strong relationships with their customers/members, offering quality products and services at competitive prices, hiring and training professional staff at every level of the organization, and developing new markets by proving to prospects that they offer the best value in the marketplace-achieve economies of scale sometimes slowly but surely. In these cases, size coupled with strong management can be a powerful combination resulting in numerous benefits to all stakeholders.
I also believe that many business people erroneously see mergers, or artificial growth, as a quick fix to achieve the desired level of economies of scale. In reality, however, it is often a quick death to the corporate image, company brand, and the internal culture. These three major issues serve as a cancer to slowly erode that immaculate merged financial snapshot that was used as the primary selling point for the combination. I have experienced this as a consumer, an employee, and a consultant throughout my career. It therefore didn't surprise me that almost all of the corporates listed in the CEO's spreadsheet, that were not performing as well as they should financially based on the "bigger-is-better" mentality, were those that had undergone at least one merger in recent years.
Ironically, an article titled "Why Consumers Hate Mergers" appeared in Business Week shortly after the piece on corporate credit unions ran in The Credit Union Journal. The Business Week article, in the Dec. 6, 2004 issue, discussed the frustration of many customers that ran into problems with their newly merged service providers. Almost predictably, these mistakes were exacerbated by service reps that were unable or unwilling to help. This is a common occurrence since merged institutions usually lack the capacity to properly train their frontlines in the wake of the daunting task of combining internal systems. Meanwhile customer-service professionals are left confused, alienated, and many times upset over the situation. This is very similar to stories I have heard from credit union executives in their dealings with their corporates that recently merged.
The response received from the article "A Different View on What Lies Ahead for Corporate CUs" was very refreshing to say the least. Every respondent expressed the need to examine the big picture and needs of credit unions, and not simply a financial depiction, when discussing the economies of scale issue of corporate credit unions. Those comments, coupled with news in recent times of institutions walking away from mergers after closer inspection, give me great confidence in the corporate credit union system. The best way to sum up the opinions on this issue that I have recently discussed with corporate CU executives is a statement made by a college professor of mine almost two decades ago: "Great companies are built. Not bought."
I'm pleased that most of us are beginning to realize that.
Kenneth C. Bator has recently been named director of investments-national accounts by Corporate Central Credit Union, Hales Corner, Wis., and was previously president of Bator Training & Consulting. Mr. Bator will be among the presenters at The Credit Union Journal's SEG & Business Development Conference.
The petty economies of the rich are just as amazing as the silly extravagances of the poor. -William Feather
