In 1970, Milton Friedman gave every for-profit company in America a single objective: maximize shareholder value. Whatever else a corporation does, that one number tells management whether it is winning. The clarity is the point; a clean objective function disciplines every decision beneath it.
Credit unions have never had their equivalent. And the absence shows.
Ask a room of credit union leaders what success looks like and you will hear a range of answers. However, the most common answers include a mix of high asset growth, high ROA, and a strong net worth ratio. Two of those three are borrowed from a business that isn’t ours. ROA is the bank’s scorecard, a measure of how much profit a company extracts, where higher is always better because the profit belongs to shareholders. Net worth is a different thing entirely; it is a legitimate marker of a responsible financial institution, the capital that lets you keep serving members through a downturn. But high asset growth and ROA were never meant to be goals for a cooperative. Treat them as the definition of success, and you are keeping score on the bank’s board.
The cooperative’s version of shareholder value
So, what is it? It is member benefit and specifically what we at CUCollaborate call Risk-Based Member Benefit. RBMB measures the financial value a credit union delivers to its members relative to what those same members would receive from a bank: better loan rates, better deposit rates, lower fees, weighted by the actual risk profile of the membership. It answers the only question a member-owned institution should care about: are we generating our member-owners a financial return on their capital?
The “risk-based” part carries more weight than it appears. Measuring loan benefit against the national bank average flatters the credit unions that lend to prime borrowers and punishes the ones doing the hardest, most mission-aligned work. A member with a thin file and a modest income is not competing with the average—she is competing with what a bank would charge her, which is far higher (if it would lend to her at all). Measure benefit in a way that considers the individual member’s context, and the credit unions serving the people the rest of the system won’t touch finally get credit for it.
The floor and why it isn’t the objective
The binary test of whether a credit union is meeting its mission is simply whether it returns more value to its members than its tax exemption costs. This is the floor.
But the floor isn’t the objective. The objective is to maximize member benefit, and how that benefit is distributed is what separates a credit union that merely meets its mission from one that fulfills it. Consider $500 of annual benefit. To a member earning $300,000 it is a rounding error; to a member earning $30,000 it is a car repair absorbed, a month of groceries, a payday loan never taken (we capture this with a companion measure, Member Benefit Impact, benefit set against member income, precisely because the dollars are not interchangeable). Two credit unions can post the identical average benefit and be fulfilling the mission to wildly different degrees, depending on who receives the value. The dollars look alike on a spreadsheet. They are not alike in the world.
There is no single correct way to distribute that benefit. One credit union may rightly pursue deep benefit for a narrow membership; another may pursue meaningful benefit across hundreds of thousands of members. Both are legitimate strategies for the same mission. But you cannot choose a strategy, or defend it to a board, if the only things you measure are the numbers you inherited from banks.
Where ROA actually fits
Which brings us back to ROA: not as a goal, but as a constraint, and a more subtle one than it looks. A credit union builds capital primarily by retaining earnings, so its ROA cannot be set in a vacuum: it is a function of how fast the institution is growing. To hold a net worth ratio steady, earnings must keep pace with asset growth. A credit union growing its assets at 5 percent a year, sitting on an 11 percent net worth ratio, needs a ROA of only about 55 basis points to keep that ratio level—modest by any bank’s standard. Anything beyond what is required to maintain healthy capital is simply benefit withheld from members.
And the growth itself isn’t the goal; it is the byproduct. A credit union that delivers strong benefit and invests to reach more people will grow—better rates pull in deposits, expanded access brings in more members, and the institution gets larger as a consequence of having a bigger impact. The causality runs one way. Maximize member benefit and extend it to more members, and growth follows, which in turn sets the ROA you need to keep your capital sound. Net worth stays healthy not because you targeted it, but because you ran the chain in the right order.
Friedman’s real contribution was never the worship of profit. It was the insight that a clear objective function makes an organization legible to itself—that you manage toward what you measure. For half a century, credit unions have measured the wrong thing, because it was the only thing on offer. It no longer is. The cooperative model deserves a bottom line built for cooperatives: not asset growth, not ROA, not net worth, but member benefit: measured honestly, distributed deliberately, and constrained only by the capital required to sustain it.
The question stops being “how healthy is our institution?” and becomes “how much better off are our members, and which members?” That is a harder question. It is also the only one worth answering.
Are you interested in seeing where your credit union stacks up based on our risk-based member benefit framework? Reach out to us at cucollaborate.com
