A Poorly-Run, Underperforming CU Is The Entire Industry's Business
I wish Paul Parrish, retiring CEO of Wings Financial CU, a very happy retirement. He was right when the press and much of the movement was wrong. History has proven that Continental FCU members would have been far better off by merging with Wings. Since the proposed merger date, the $ 5-million in capital that would have gone to the members has been exhausted.
The merger was never a "hostile takeover." The truth is that the Continental board and management was holding its members captive and failing to address serious performance shortfalls. Continental FCU isn't the only credit union with serious mismanagement. The movement has a problem, because there are no owners to hold management and the board accountable. Members are not owners in the true sense of the word. They respond to poor service and mismanagement by moving their accounts. They act like customers.
We need to find a way to restore accountability and encourage members to act like owners. If not, there will be many more Continental FCUs that fail to serve their members and waste their capital and destroy their franchise. These credit unions then become a burden for the share insurance fund or, if we are all lucky, a credit union like Alliant picks up the pieces and absorbs the loss. In either case, the members lose and the CU system loses. It all stems from a lack of accountability.
The lack of accountability is widespread in the movement. The credit union system says that credit unions focus solely on the member, while banks are distracted by having to focus on shareholders and customers. But the reality is otherwise. Shareholders have a reliable indicator of bank performance. It is the share price. The share price rises when the bank's prospects for future earnings are good, and it falls when the bank's prospects for future earnings are negative. What determines future earnings? The future earnings prospects are based on how well the bank is performing and that largely depends on how well it serves its customers.
How Banks Are Held Accountable
The best-performing banks are meeting and exceeding customer needs. When share prices fall, the bank is at risk. Shareholders are owners. They have the option to sell their shares. A low share price puts a bank in play for others who think they can do a better job and increase share prices. So in reality bank shareholders, the owners, hold management accountable for performance that benefits customers. When was the last time that members held management or the board accountable? The answer is they don't. They act like the Continental members and give their business to some other institution while the CU slowly falls apart and wastes its capital.
Poorly run CUs, as Wings discovered, are not in play. They are very resistant to merger. Any good CEO knows the names of poorly run CUs in their area. I would bet that they have been poorly run for years. And they have rebuffed many merger offers. That is a big problem for the credit union system. Poorly run credit unions rarely get better. The members move their accounts to other institutions. The board and management turn down merger offers because they don 't want to lose control and there isn't any accountability to the members.
Continental's members are $5 million poorer today than they would have been had they merged with Wings CU. The movement called it a hostile takeover. What does that say about how the movement treats members?
Maybe a focus on members isn't better than a focus on shareholders. It wasn't better for the Continental members. I hope those who called it a hostile takeover take the time to send their apologies to Paul Parrish.
We need to make sure this doesn't happen again. One way to restore accountability is to force boards to disclose to the members bona fide merger offers. Another way to restore accountability is to publicize examination results so members have a way to judge management and board performance. After all, members don't have a share price to judge performance. We need to do a better job of holding each other accountable.
Any credit union's data is publicly available. The movement should have known that Continental was underperforming. We are all linked through the insurance fund and have a vested interest, I would go so far as calling it an obligation, to know which CUs are underperforming and to demand our regulators hold them to a higher standard.
Henry Wirz, President and CEO
SAFE Credit Union, Sacramento, Calif.