Three Nations, Three Views:Insights Into CUs & Co-ops
GLASGOW, Scotland-Trust in credit unions is great, but it's not enough to be successful. Being a big credit union is great, as long the CU avoids becoming a small bank. Talk of collaboration is great, but for one group of co-ops it didn't work.
Those three viewpoints, along with numerous other insights, were part of an intriguing hour-long Q&A here that featured the perspectives of three people from three different countries and types of institution.
Sharing their views were Tamara Vrooman, CEO of VanCity Credit Union in Canada; Jeff Post, CEO of CUNA Mutual Group, and Peter Marks, group chief executive with The Co-operative Growth in Great Britain. The trio appeared as part of the World Council of Credit Unions' World Credit Union Conference here. Moderating the panel was Louise Petschler from Australia. Below is a look at what was said:
Petschler: In follow up to (previous speaker) Gordon Brown's observation that banks would pay billions for the trust credit unions have, is that enough to be successful as a cooperative in the 21st century?
Vrooman: I agree we have a tremendous advantage as financial cooperatives. He called it responsibility, I would call it integrity in putting people first. I personally think we've always had that, and what we now need to do is execute that with confidence. Are we satisfied with being a small part of the communities we serve and the global economy? Are we proud to put 'credit union' on our sign and on our business cards? Trust and integrity are great, but it's confidence in our credit union system that is key to our credit union system.
Marks: Post financial crisis, there's no doubt that trust is a major factor. When you think about it you can't trust anyone. You can't trust government. You can't trust the media. People are looking around for anyone they can trust. But just a healthy warning: I do detect there is a bit of complacency creeping in here, that trust in our values and principles will make everything all right. It's not good enough on its own. It's about product and price, as well.
Post: Values and trust are critical stepping stones, without which most businesses cannot survive. However, continuing to look at where your membership is going and the products they need, and without aligning all of that with the values of your organization and the members you serve, is critical. It's the whole value proposition. From a CUNA Mutual standpoint, you can have trust for a period of time, but if you don't deliver on your commitments that trust goes away. And that can go away whether you are a publicly traded company or a cooperative.
Petschler: How have co-op businesses in the U.K. been able to respond to the challenge of providing products and services in an affordable way?
Marks: When I started in 1967 there were more than 1,000 cooperative businesses in the U.K. In the food businesses, for instance, we were the [giant provider] Tesco. Unfortunately, things moved on and our competitors got bigger. We had to change, and it was a tough choice for our members. You may not want to hear this, but size is important. Scale is important.
The only way to be competitive on price is to drive costs out of your organization, and in the cooperative movement we had all these different cooperatives with boards of directors, and chief executives and offices, and it was expensive, and the result was our market share went from 25% to 4%. We had to consolidate or go bust. We're not quite one national cooperative society yet, but in my vision we are going there.
Petschler: What about collaboration among cooperatives? What is your perspective about collaboration as a way of taking costs out?
Vrooman: I think sometimes we put the issue of scale too much in an either/or. We must be competitive, absolutely. As we say in our organization: no margin, no mission-and no mission-no margin. That is the challenge we face as a credit union of $18 billion that serves 400,000 members, which is one in four people in our market. We have remembered that we serve our members first and we take that responsibility very, very seriously. We seek to innovate and be ahead of our competitors; we were first to lend to women without a male co-signer, in part because that's our mission, but also because there was demand.
Our challenge now is how to become a large credit union and not a small bank. The minute we become a small bank we will lose to a big bank. The real challenge is how can we use our cooperative infrastructure in order to leverage economies. We trust our members, and our members trust us, but as credit unions we don't trust one another. We don't collaborate. I do believe financial sustainability is important, but if we pursue financial sustainability and growth, and if you don't stay true to your mission, we put our entire mission and our movement in peril.
Post: Clearly, the great recession as it's been called in the U.S. has opened everyone's eyes to the need to be more efficient and to replenish the capital that credit unions lost. There is the start of a greater realization of the need for collaboration. From a CUNA Mutual standpoint, on the question of scale, we've taken a fairly interesting approach to it. It's not either/or, we like to think of it as both. Where we don't have the scale to compete, for instance in personal auto and personal homeowners in the U.S., we can still deliver value to credit unions and members by partnering with our cooperatives. We try to be the manufacturer where we can add a difference and where we can add unique value.
Petschler: As CUs struggle with how to work together to attain scale without losing the connection to what makes us different, governance becomes an issue. How do you manage democratic control and participation?
Marks: I wish you well in collaborating. For us, it didn't work. We found cooperative societies competing with each other. We were competing in the market of acquisitions for food stores, and individual organizations were forcing the price up by bidding against each other. Collaboration among cooperatives was fine in principal, but it didn't work for us. There is a trade-off in terms of becoming bigger and keeping in touch with your communities. We think we have a successful answer. We have local committees and regional organizations and they are connected to our board.
Post: I think the economics will ultimately drive it. As the world continues to be more and more competitive, I think that what good governance models suggest is that the board will look at where they drive differentiation and what their members want, and will invest there, and will look for other areas to save costs where the individual members are not directly affected. Different groups demand different things from their financial institutions.
Petschler: How does VanCity deal with the growth it has had, and maintain its community?
Vrooman: Our directors, nine in total, continue to be elected to three-year terms. As we have grown, our issue has been less around connection to community and more around the balance of running what is now an $18-billion organization, and getting directors who can represent the community at the same time. We have had a lot of debates about whether you can get someone who is qualified and confident to run an $18-billion organization from the community. But our conclusion has been it's not an either/or. We have an obligation to look for directors who have a connection to community. We have found a diverse board, and other research supports this, outperforms a non-diverse board. I think as a society we have a job to do in terms of educating people in terms of cooperative institutions and how to bring the cooperative model to life, and how to get youth to understand. They have an expectation we will deliver services this way.
Petschler: What about regulation?
Marks: I think there is a tsunami coming for regulation. I don't think we've seen the full impact of regulation yet. Governments around the world are going to come to grips with what has happened in the last few years and there is going to be a massive impact. The default position is, all banks are bad, and we're going to make you behave. And the fact we're a cooperative and we're one of the good guys doesn't make any difference.
Post: Clearly we have a lot of credit unions in the United States that serve very important purposes but are not large in terms of assets, and the regulatory burden on those CUs is crushing. The sooner we can get to some sort of model where those CUs somehow share in the response to the regulatory burden needs to happen sooner rather than later.
Vrooman: I agree with my colleagues' assessments that regulation will be non-discriminatory. But I also think there is a tremendous opportunity. Our governor of our Bank of Canada, recently said that for all financial institutions, but particularly the large banks, their solvency was actually a public good. It's as vital as a hospital and I think that view is here to stay. Ten to 15 years ago the utility sector faced similar challenge with new environmental rules. One group embraced the new rules and realized in doing so they would have the most flexibility in terms of their future.