Can the value of demonstrating social responsibility be shown on the bottom line?
The answer is a definitive yes, according to one of the world's largest (US$6.75 billion) and socially responsible credit unions.
During the World Council of Credit Unions (WOCCU) International Leadership Institute here, David Mowat, CEO of Vancouver City Savings (VanCity), and Bruce Ralston, immediate past chairman of VanCity, said Canada's largest credit union can see quantative results from its progressive efforts to reinvest in its British Columbia hometown.
The duo answered questions posed by session moderator Liam O'Dwyer, CEO of the Irish League of Credit Unions.
O'Dwyer: What is corporate social responsibility?
Mowat: It has evolved an awful lot for us. It's using the capacity of VanCity to return something back to the community. We have about 12% marketshare (of retail financial services in Vancouver, B.C.). So it's clear to us that when our area is economically prosperous, so will be VanCity. We have patronage refunds on the amount of business members do with us, but probably most importantly, last year we returned about $4 million to the community in direct participation grants. We think growing that capacity grows our business.
O'Dwyer: What does this mean to VanCity's members?
Mowat: It can mean anything from sponsoring a music festival to taking an extra bit of risk with some people who don't have good credit, or simply helping others. There is an awful lot of leverage that can be had with other organizations that do so many things. We look to other organizations and try to support them.
O'Dwyer: Are you serving the members' interests or the community interests?
Mowat: This is a community development approach. With 307,000 members it's almost impossible for us to separate what we do directly for our members from what we do for the community. We don't require when we do grants that they be members of the credit union. Ultimately, it becomes a business development strategy. As a credit union grows the risk is that you lose your differentiation, that you just become just another regional bank.
We spend a lot of time on how we treat our people and our community, and ultimately that becomes a point of differentiation.
Ralston: There was a thought among the board that [the CU should go] beyond just growing the business and doing traditional philanthropy. We wanted to harvest the power of credit and all the financial instruments the credit union has to benefit the community we serve. The goal was to transform the entire way we do business.
O'Dwyer: How did this begin with the board?
Ralston: There were certainly leaders on the board, but there has also been a change in society in terms of how people look at business. As Henry Ford said, "An enterprise that seeks only to make profit is a very modest enterprise indeed." A business has some social obligations, and how those are translated into the business of the credit union is what we set out to answer as a board. It was a battle very much with management, as well. It wasn't the board hammering on management, it was a very collaborative effort. This doesn't come about overnight.
O'Dwyer: What about social gain and financial gain? When you make decisions related to loans, in particular, what is the rationale? Is this about social gain, or equally about financial return?
Ralston: We would never jeopardize the financial soundness of the credit union. By undertaking some of the projects we've done, we think we've increased the financial soundness of the communities in which we work and ultimately our own financial soundness.
Mowat: By giving someone a loan they can't repay you're not doing them any favors. We don't make any loans we don't think can't be repaid. Some of the more detailed programs we have, such as our Self Reliance Program, we find that if you ask enough questions you will discover the same risk.
O'Dwyer: What infrastructure or support must be in place to do this in the first place? Many credit unions would look to a government agency or others to assess a business plan.
Mowat: One thing any credit union has is a capacity in the financial end of the business. We take the people who do the mainstream lending in the credit union and we train them in looking at those types of credits-the ones with a new business plan. The (employees) who do the best and stay the longest are the ones who have an altruistic stripe in them. They take pleasure in reading that new business plan and uncovering the kernels. We have harnessed both the capacity to do great banking in a mainstream sense and take those same people and do the non-mainstream things. One of our people has become an expert in understanding 'green' energy proposals, such as windfarms.
O'Dwyer: Do you get government support?
Mowat: We don't think governments have much of a role in lending money. They don't do a very good job of it in Canada, anyway. What we've done is create some unique partnerships with some great people in government. What we've said is we're prepared to take the risks, but we want to use our own criteria. We don't want government criteria. If you take government criteria you'll make loans to people who can't pay the money back. We've said to government, "Take your money and help them write a business plan or help in monitoring." And that seems to work quite well. With our own staff if they know the loan rests on their decision, they tend to do a better job.
O'Dwyer: For a credit union of your size, which does grants of $4 to $5 million in a year, why not just return that in the form of lower-rate loans for poorer people?
Ralston: Our view is we're trying to build self reliance, so we use criteria that maybe other institutions would not. Our goal may be the same, but we feel the way we do it is more effective.
O'Dwyer: What flak do you take from your members?
Mowat: We don't kid ourselves that the people who get a mortgage or savings account want great value for that product. We are absolutely competitive for the market. We have to be there in order to generate the business from our membership. What our members are proud of is we harness their business; we try to make the message clear you can get the mortgage at this bank or the exact same mortgage at VanCity. But at this bank that's where it ends, but at VanCity we harness the ability to build the community.
O'Dwyer: Why do you have products like socially responsible mutual funds?
Mowat: We've talked about how VanCity has grown to a size where we can do certain things. I think we're just scratching the surface with what we can do. We can generate earnings to VanCity, and return those to the community. But what we're moving to is harnessing the philanthropy of 300,000 people. We go to our members and say there are some really interesting things going on in our community. The members put money on deposit with us at a rate that's lower than the market and we take that difference and put it into the socially responsible or environmentally responsible fund. I think our whole job as credit unions is that what we have that we don't know we have is a financial mechanism to distribute wealth and facilitate loans, and we can harness that capacity. Maybe the member is giving up (one or two percentage points of interest), which is tiny amounts of money, but with all those people it can be considerable.
O'Dwyer: It strikes me a substantial infrastructure is needed to deliver these programs? What do you say to smaller credit unions-how do they deliver this type of service in a safe way?
Mowat: I think that if we don't try to save the world in one fell swoop and stick with our circle of influence, we can see the difference that one small loan can make. Sure we're big, but we try to act as small as we can. We try to get the managers of our 41 branches to act independently in their communities and to use the resources we have. Even if its' five people in a credit union and on Saturday they have an open house where they teach financial literacy even to two people, I think that's a very significant impact. VanCity is all about thousands of little stories.
O'Dwyer: Is there a difference between a credit union delivering this or a bank?
Ralston: Obviously, we have the cooperative structure and the democratic element, people are looking for ethical providers in a way they probably weren't before. I think the credit union is an idea people can trust.
O'Dwyer: Do you market yourselves as a socially responsible credit union or as a credit union at which this is a byproduct?
Ralston: Yes, we do market our credit union that way. I think the credit union movement has been a bit shy about talking about that and have emulated banks because they think that's what people want. But I think people want the democratic participation that a credit union is able to deliver.
O'Dwyer: What have been the positives and negatives?
Mowat: Nobody ever comes up to me and says, "Gee Dave, I hope you make it to $9 billion (in assets) this year." What they do talk to me about is an employee who helped them to do something they wanted to do. It sounds a little touchy feely, but we're working with a company that specializes in telling people's stories.
We're largely misunderstood; the eight out of 10 who don't belong to credit unions don't understand what we do. So somehow engaging them not in how big we are or where our branches are but instead with what we do and have done is more engaging. We have deep roots in all the ethnic communities in Vancouver. Ultimately, the accessibility piece has been very strong for us.
We ran some advertising with a same-sex couple that created a firestorm of controversy. It wasn't advocating or criticizing same-sex couples. We had been running some junior credit unions in Catholic schools, and the Catholic Church asked us not to. What surprised us the most was we got an amazing amount of comment from people who had no interest in this issue, but said it's refreshing to see you support people without conditions. The fact is we took the high road and didn't get caught up in the debate, and we have set records for growth in the 10 months since that happened.
Running a credit union is not an easy job; it's incredibly competitive. We have some disadvantages, we don't have access to capital markets, for instance. So it's difficult to operate effectively. But that's just one side of your brain. On the other side of your brain you have to realize there isn't a single reason for us to exist other than to serve our members. You can be the most efficient credit union in the world, if you've forgotten you're a credit union, you're not going to exist. So we've spent a lot of time discussing how we can achieve efficiencies, but not forget that we are a credit union. Ultimately, our goal is to provide value and service to our members, and I think being corporately responsible comes naturally. We're not so na?ve to think that people awake every morning thinking 'Thank God I belong to a credit union.' But there have to be enough times during the year when people are glad they belong to a credit union and see a credit union in the community, and I think there is that vicarious pride people have that their credit union is doing good in the community.
O'Dwyer: How do you stay in touch?
Mowat: Employees give us the pulse of the members. Even in our grant programs we slice off a piece of that and put it in the hands of the branch managers, whether it's a little festival or a fledgling little group getting started, our managers are right on that. We in management don't try to figure out the whole thing; we put that in their hands.
O'Dwyer: Where do you find these types of employees?
Mowat: We get 800 resumes a month from people wanting to work at VanCity. For the most part, most of the employees are friends of other employees, or are related. One of the things we're trying to do is instead of service awards, we want to add up families. We have one that has five people. Friends and family don't recommend bad places to work; at the same time, if you're a family referral you try to do a good job. VanCity is a bit of a wacky place to work. We welcome any visitors, but it's almost like the Moonies. People enjoy doing what they do. I think in a microcosm the reason they work at VanCity is they are damn good bankers, and proud of that, but also proud they can figure out that little micro-project.
O'Dwyer: Is there a business case to be made for a social audit?
Mowat: Definitely. In complete honesty, (management) probably started our social auditing process off on the corner of the desk. But with the board's persistence the penny has dropped for us. We audit all our financial figures, but we're not so good about measuring our human resources, what our employees think of us, what our community thinks of us, what our members think of us. When you think about it, all the financial reports tell you is what you did in the past; they are lagging indicators. But if you ask your employees, "Do you think management at VanCity knows what they're doing? Is your voice listened to? Are you free to express your opinion?" And you ask similar questions of your members, "Do they practice social responsibility or is it all a bunch of brochures?" What we found is those are the leading indicators.
What your members think of you today has an awful lot to do with how much business people are going to do with you tomorrow. We've now worked our social audit right into our business plan, and where we come up short they become accountability issues for us to do this to accomplish that. We think that, ultimately, the social audit is developing into a much more powerful tool for managing our business.
