During my tenure as chairman, one of the most difficult and contentious issues facing NCUA has been the rights of credit union members to decide on the structure of the member-owned financial cooperative. This issue has received attention on Capitol Hill and in the media through credit union conversions.
When I testified before the House Financial Services Committee in May 2006, I was faced with a potentially skeptical Congress that had been led to believe NCUA was being an overly bureaucratic and obstructionist regulator. I firmly believed at the time, and continue to believe, that the right way to view the conversion issue is to look at what it means to the member, pure and simple. Credit union members should have every opportunity to make an informed decision, and credit union boards have both a legal and, I would add, moral responsibility to ensure that clear and understandable information is in the member’s hands. Transparent and open decisions are the essential first ingredient of this process, without which meaningful member involvement is impossible.
NCUA has taken steps to make the voting process surrounding conversions more “user-friendly” for the member. These include: notice to the members before a board votes to adopt a plan for conversion; a structure for member to member communication during the voting; and having the ballot included in only the last notice.
Because of my continuing concerns about the rights of members to seek redress when by-laws are not followed properly, I also initiated a review that has resulted in the reincorporation of credit union by-laws into NCUA regulation. Was this an easy or uncomplicated decision for me? No. On its face, it runs counter to my philosophy of minimal regulation, preferring to remove burdens and enable credit unions to maximize service as long as a strong safety and soundness regime is maintained.
But in the case of the by-laws, when it became apparent that a two-decades old assumption (by both NCUA and the industry) that courts would enforce their prescriptions was not correct, I felt it necessary to reincorporate the by-laws into our regulations so that consumers would have a fair shot at reasonable protections, particularly relating to credit union board decisions. NCUA is not interested in turning the by-laws into an intrusive arm seeking to run a credit union’s day-to-day affairs, but we are interested in the kind of transparency that leads to informed decision-making by members.
The Issue Of CU Executive Compensation
Executive compensation in merger situations is another facet of the discussion that benefits from greater transparency for members. In April 2007, the agency issued a proposed rule that would require disclosure of any arrangements that provide a material increase in compensation or benefits to senior management officials in connection with a merger transaction. This information would be included in the merger plan submitted to NCUA Further, under this proposal, federal credit unions would also be required to disclose the existence of these compensation arrangements in the materials provided to the members eligible to vote on the proposed merger. I welcome your input as the NCUA Board continues its deliberations.
In September the NCUA Board approved final rules and regulations for member inspection of credit union books, records and minutes. However, member access to information about senior executive compensation and benefits is still being considered. Issues of privacy, petition requirements, and “nuisance” requests are still being evaluated in the context of executive compensation. Hopefully, this issue can be resolved and the owners of federal credit unions can further participate in deciding what is in the best interest of their credit union.
NCUA has not sought to invent new rights for credit union members or impair a credit union’s ability to manage its affairs in a reasonable and efficient manner. Instead, we are striving to better ensure that the rights members already have are meaningful. In this spirit, I am hopeful that credit union boards view transparency as a fulfillment of the contract on behalf of the members who elected them and who cooperatively own the institution.
Last month, the NCUA put out an ANPR regarding mergers, conversions from credit union charters, and insurance termination transactions to ask stakeholders for their thoughts and opinions. The importance of the accuracy of communications to members, the integrity of member’s voting, and the fiduciary obligations of senior executives are all matters on which we now seek comment. Enough time has passed to reflect on what should be done and what lessons should be learned after the so-called “hostile takeover” issue of last year.
The transparency issue itself is complex to be sure, but the member-centric answer is deceptively simple, and one the credit union industry should be eager to embrace.
JoAnn Johnson is chairman of the NCUA Board.
