Strategy execution: Is it you or the regulator that is the problem?

Rochdale works closely with boards and management teams across the country on strategic planning, enterprise risk management and regulatory assistance, and as a result I have come to one unmistakable observation – regulatory pressures of today are impeding credit unions’ abilities to truly serve their members.

In an environment where our only real distinction is built around our ability to develop key relationships with the members and communities we serve, our time and focus has been shifted to regulatory red tape.  Time spent serving members, investing time in our communities, and developing products and staff to serve the members of tomorrow has moved to the bottom of the list. We all talk a good game, but our efforts broadly can be summed up as “just trying to survive.”

Strategic progress has become stagnant at a time when we can ill afford it. However, I’m going to tell you something and you aren’t going to like it. My second observation in conducting strategy and risk appetite sessions is that the credit unions (you) are often at fault for this phenomenon.

While we all like to blame the regulator (and I don’t disagree), we all have a business to run. Our job is not to serve the regulator but rather our members. We have allowed ourselves to replace our number one priority (members) with regulatory preparation, documentation, general tail-chasing and complaining. You won’t find it listed in your strategic plan, but scrutinize your actions. Look at the perspective we have instilled in staff, management and directors and the resulting priorities and actions that take place in making decisions and where they spend their time.

Whether talking sports or business – the winning team always dictates their strategy against their opponent. Successful football coaches don’t focus their game plans on minimizing penalties, first and foremost.  They know that to win, you have to play aggressive, and playing aggressive means you may get an occasional flag.  The surest way to fail is to take your eye off of what is truly important: what drives value to your member and what sets you apart from your competition.

Have you allowed the NCUA to dictate a strategy change?

The argument I typically receive is, “you can’t fight the regulator.”  I’m not asking you to fight a losing battle.  I’m asking you to NOT fight when it comes to your focus and where you place the organization’s efforts. Let me put it this way: does it take the same level of effort to get an A+ as it does a C in school? Why are you striving for an A+ with the regulator? You aren’t likely to appease them regardless of your efforts. Yet we approach credit union life with one main worry, “How do I appease the regulator in order to _________ (you fill in the blank: maintain my job, my credit union)?”

Let me clearly state that I am not advocating breaking the rules or completely thumbing your nose at regulatory authorities. I’m saying take a more considerate and moderate approach to the level of effort you expend to comply with regulations and examiner observations. Determine what is truly necessary and what adds value or diminishes unwanted risk organizationally, and level-set your efforts accordingly. Most organizations at this point have clearly (whether intentional or not) heard that their first priority is to take care of everything regulatory. Boards and management teams have equally created this mindset. What if you talked as much about relationships as you do regulatory issues?

So what should you do?

Put everything on the table. Question your focus, your actions and your priorities. Recognize that unintended consequences can be easily created throughout the organization that drives people’s beliefs and actions. Talk to your people. Establish the organization’s risk appetite when it comes to dealing with the regulator and compliance activities. Level-set on expectations at the organizational and personal level.

Take it off the front burner. There is a time and a place to moan and groan about the regulatory injustices, but they should be rare and held in context of accomplishing the organization’s goals. Redirect those energies to productive pursuits and hold the organization accountable for doing the same.

Set forward a regulatory action plan. Measure the actual implications of your regulatory activity and make decisions in light of the impact they have on your ability to execute strategy. This is often done through your ERM program by weighing the risk vs. return relationship.  Establish a framework for handling exams and regulatory requests by considering actions that are more efficient, such as holding all requests until the end of day or centralizing all responses or questions. Develop collaborative forums with peer credit unions to share information and solutions. Develop a tolerance for asking for clarification, even if that means seeking input from more senior staff within the regulatory body. Finally, if it truly is imposing on your ability to execute, consider a charter change or private insurance.  Basically, do whatever is necessary to serve your members and execute your strategy.

Credit unions always ask, “What are others doing to be successful?  How can those CUs achieve such a high loan to share ratio or effective member engagement level around services?”  I used to answer with specific programs, organizational attitude, market nuances, and staff expertise, but after careful reflection, I think it can be summed up with the simple truth of – they drive THEIR strategy!