Why Every Credit Union Should 'Audit' Its Values
How do you think credit union behavior might change if there was no requirement to prepare annual budgets, publish annual financial reports or to have an annual audit conducted by external auditors?
We probably don't like to admit it, but it would probably make a difference.
Now, how do you think credit union behavior might change if there was a requirement to conduct an external audit of all nonfinancial operations and publish the results in your annual report? If credit unions were required to document what they stood for, their values, their vision and how they exercised their social responsibilities, most could probably easily comply. However, if they were also required to measure and report to members on whether they lived by these standards, did what they said they were going to do and have this verified by an external auditor, most credit unions could not readily comply.
I have just described the concept of social accountability or social auditing, and it is the concept I talked about in my recent article on learning tax lessons from Australia (The Credit Union Journal, Oct. 4), I explained that one of the lessons that could be learned from the Australian experience was the importance of being able to document and independently verify the credit union difference through a social accountability or social audit process.
When most credit union people around the world think about successful social accountability models, the name that immediately springs to mind is VanCity Credit Union in Vancouver, Canada.
Why Is It Important?
While much publicity is given to the fantastic work that VanCity Credit Union does in the community, not as much publicity is given to the social auditing process that underpins the VanCity success. It is this aspect of VanCity's success that I believe is worthy of closer examination.
So what is social auditing and why do I think it is so important? Social auditing is a simple concept where, in a credit union context, you say what you stand for and what you intend to do. You then measure what you did and its impact. Then you allow an external auditor to verify that you did what you said you would do and that you behaved the way you said you would. All credit unions set their financial goals (budgets), measure their financial performance and have external auditors verify the financial reports are accurate. So, why not do the same for your nonfinancial or "social" operations?
How would you do this? A good social audit process begins with the annual strategic planning meeting of the board and senior management. Just as many credit unions already do now, you clarify what you stand for, your vision and your goals. However, you also set in place a number of important steps to measure your performance.
For example, if you say you want to be recognized and respected in the community, you would not only devise a plan to achieve this goal, but you would plan a way to measure whether the community believes you have been successful. If you say you value your staff, you would plan to measure whether the staff feel that they are valued. In essence, you would attempt of find out if your stakeholders believe you have lived by your values and you have done what you said you were going to do.
The next step would be to work hard at establishing and implementing plans to achieve your vision in a way that is in line with your values. At the appropriate time, the impact of your work would be measured in time for this to be verified by your external auditors and the results published in your annual report. You would ensure that all aspects of your "socially responsible" endeavors are documented, measured and reported. The annual report then becomes an even more important document than what it is now. It not only records all your "social" achievements, but it is independently verified. Many credit unions currently participate in "Project Differentiation." These credit unions are well on their way to completing a social audit process.
If we say we are different, because we care about social responsibility, because we care about the welfare of our members, our staff and our community, then why not go to greater lengths to measure, document and verify this difference. More importantly, if we know the results are going to be published we will try harder to make the credit union difference work. Who wants to tell the world that they didn't live up to their promises?
Another Compelling reason
There is an even more compelling reason for introducing social auditing and it, too, comes from the Australian experience. As hard as it may seem, a major Australian Bank with an incredibly poor image and credibility problem introduced this concept several years ago.
Australian credit unions are now competing with a huge bank, which has:
* A statement of commitment that is virtually identical with most credit unions.
* Enormous resources to do what it says in the statement of commitment.
* An independent external auditor to measure and verify their adherence to the commitment.
* A sophisticated reporting system, which ensures widespread favorable publicity for the bank.
In just a few short years since adopting this strategy, this bank has turned around a disastrous public image and increased its productivity, staff morale, customer satisfaction, profitability and share price. It achieved the No. 1 rating for banks globally in the Dow Jones Sustainability Index for 2003-2004, for the second year running, and has been rated the top company in the 2003 Reputex Social Responsibility Ratings, receiving the only AAA rating.
At the moment, American banks are attacking credit unions by seeking to have them taxed. How prepared would U.S. credit unions be if the banks decided to add a social audit strategy to their attack by introducing a similar process to the Australian counterpart? How much harder would it be for credit unions to sustain the current tax defense if banks were able to argue the "difference" gap had been reduced significantly?
Mark Lynch has been an active credit union board member in Australia and the United States for the past 23 years, and has worked as a speaker, trainer and facilitaror in both countries. Prior to moving to the U.S., he was deputy chairman of the Australian National Credit Union, Australia's largest, and was the volunteer and resources manager with the Credit Union Foundation Australia. He can be reached at marklynch