Are Credit Unions Too Big To Be Cooperatives?

Tom Glatt, Jr., Strategy Consultant, Glatt Consultingby: Tom Glatt, Jr., Strategy Consultant, Glatt Consulting

A recent article published by The Guardian highlighted the lifestyle of Brazilian villagers living on an island known as Liha das Cinzas (The Island of Cinders). The gist of the article is how this small group of villagers came together to improve the yields of their main food source and the volume of harvest for their main cash crops. While the article has nothing to do with credit unions, it did spark a thought related to the credit union community, making we wonder: have credit unions become too big to truly operate like cooperatives.

The backstory is that the villagers had made poor decisions with regard to how they fished for white prawns, their primary source of food. Their practices contributed to smaller and smaller yields. Furthermore, the way they fished provided less time to harvest acai berries and palm hearts, main sources of village income. The villagers were faced with a serious problem – a food and income shortage – and needed to determine a workable solution. The article detailed how villagers overcame this substantial challenge to their existence through cooperative decision-making and a willingness to make changes to longstanding practices.

It was at the very end of the article, when the the author points to a comparable situation on a neighboring island and describes how the villagers on that island have so far failed to make similar cohesive decisions, that I found inspiration for my thoughts on credit unions as cooperatives. Here is what the author wrote:

The families live further apart and group decisions carry less weight.

As with many things I read, I can’t help but apply the story and lessons to credit unions. I thought about the differences between these villages, how one makes cooperative decisions to improve the lot of all villagers while the other tries to make similar group decisions but without the benefit of a well-connected group. What struck me is that credit unions seem to fall on one side or the other of these two types of villages.

On the one hand, we have credit unions that actively seek broad member-owner input and feedback and put that information to work at the board level during policy discussions and decision-making. On the other hand, we have credit unions that actively seek broad member-customer input and put that information to work at the board level during policy discussions and decision-making.

The difference? The perspective on what a “member” is to the credit union – owner or customer.

The cooperative business model involving pooled resources, profits redistributed to cooperative owners in the form of higher dividends, lower loan rates, better services, etc. is a good one. I am not advocating a change to credit unions as cooperatives. I do think, however, that some credit unions do not make their decisions as cooperative businesses – and perhaps the reason is that their memberships are too far flung, diverse, or large to do so. These credit unions are like the second village, with the “village” connected to its citizens in mostly superficial ways. Members (villagers?) believe they have no stake in the success of the credit union as a whole, and only consider their own personal standing when relating to the credit union. In short, they are simply consumers of financial services. Leaders of these credit unions make decisions accordingly, without regard to member-ownership but with full consideration of the member as a consumer.

There are, of course, examples of credit unions large and small that do well in keeping members-as-owners in mind as they make decisions. State Employees Credit Union of North Carolina and Local Government Federal Credit Union both come to mind (I have worked with each on past projects). These two billion+ credit unions go to great lengths to bring members into the decision-making process through the use of well-supported advisory boards comprised of hundreds of credit union members. The owner-based feedback provided by advisory board members most definitely finds its way to the board of directors, and is considered when making policy decisions. This makes them, and many other credit unions with similar owner-oriented feedback loops, more like the first village. They seek ways to ensure member-owners have a greater voice in, and a degree of accountability to, institutional decisions.

Back to my original comment about whether credit unions have become too big to truly operate like cooperatives. In some cases that statement is absolutely true. Credit unions that have broad fields of membership and/or diverse membership bonds (vs a tight common bond) have found it nearly impossible to operate like cooperatives – not in the sense of the business model, but in cooperative owner engagement. Proof? Minimal participation in elections, little-to-no participation in governance opportunities, and never a member question regarding financial performance or stability.

The question is whether this is a bad thing, for those credit unions and for the industry as a whole. As I type this, I am not sure of an answer. Some credit unions do well in delivering a highly-competitive financial value to their member-customers – even as they fail at engaging members on an ownership level. Should that be considered a success in the context of a member-owned, cooperative institution? Is it okay that members receive a great financial value yet fail to appreciate, exercise, or perhaps even know of their ownership rights?

Furthermore, is this really an issue related to size and diversity, or is it more an issue of those responsible for governance failing to strengthen credit union ownership connections as they make decisions for the whole?

It seems to me that these questions frame an important industry discussion in which we should all engage. Let’s start it here and now. What do you think?

If you are interested in reading the article, you will find it at:

Tom Glatt, Jr. is founder of Glatt Consulting, a credit union consulting firm specializing in strategy consulting for credit union leaders. Tom applies his 19 years’ experience in the credit union community to his role as lead strategy consultant. Tom also developed the Credit Union Industry HealthScore, a highly-regard financial performance score reflecting the financial health of US-based credit unions. Tom can be found on Twitter and LinkedIn.

Tom Glatt Jr

Tom Glatt Jr

Tom Glatt, Jr. is founder of Glatt Consulting, a credit union consulting firm specializing in strategy consulting for credit union leaders. Tom applies his 19 years’ experience in the credit ... Web: Details