Why your Board Doesn’t Need to Look “Just Like” Your Members

A common thread weaving its way through credit union governance discussions of late is the suggestion that a board must look like its membership. The premise is that a board must reflect the diversity of its membership (a mix of races, age ranges, ethnic backgrounds, professional experience, etc.) in order to properly represent unique member-owner interests. This is a false assumption that has caused many boards a great deal of anxiety not to mention pursuit of a misguided end.

The idea behind FOM-based board diversity is that board members can only make effective governance decisions if board members themselves share the same background as the unique segments that exist within the membership. To make policy decisions that drive better engagement with young people, for example, requires a young person on the board of directors – or so the assumption goes.

On the surface, such representation sounds beneficial, but the reality is that pursuit of representation of specific demographics drives less to beneficial board diversity and more to isolation and special interest decision-making. Hardly the impact suggested by advocates of representative diversity.

So what is the solution? What strategy should boards adopt to make themselves “representative” of the great diversity within their fields of membership? To find the answer requires a better understanding of what representation, in a governance context, actually means.

In 1999, a set of six governance principles drafted by the Organisation for Economic Cooperation and Development were endorsed by participating OECD countries. These principles have since become an international governance benchmark for policy makers, investors, corporations and other stakeholders worldwide, and it is in these principles that we find that representation is a broad board behavior rather than a diversity-based ideal.

Space does not permit a more detailed description of the background of each of the six principles, but in summary the principles combine to suggest that rather than a board of disconnected individuals representing distinct demographic groups, a board is to be a body representing the interests and rights of owners and other important key stakeholders. All owners and key stakeholders.

The burden on boards as a whole, as well as on individual members, is to make decisions that speak to the interests of all owners and key stakeholders – a responsibility that requires knowledge of the interests of all owners and key stakeholders. To that end, board members are not to sit back and let their connection to a particular demographic define their policy perspectives and decisions. Rather, they are to lean forward and engage with owners and stakeholders – regardless of any owner’s demographic background – and let the knowledge gained through this engagement guide policy decisions.

In a credit union context, then, a board must know and understand the interests and rights of the institution’s owners and key stakeholders, which commonly include member-owners, employees, regulators, vendors, creditors, volunteers…to name a few.

If a board is to represent the institution’s ownership and key stakeholders, why does so much industry commentary regarding representation devolve to a discussion of board demographic segmentation? I believe that one of the reasons so many argue for the inclusion of specific demographic groups on boards is from a misperception of board responsibilities. Those making the suggestion for demographic representation possess a desire to incorporate marketing-based discussions at the board level. Having some perspective of how credit union messages are received, and processed, by unique demographic groups is certainly useful, but in a marketing context. Marketing, however, is a management discipline. It is not a governance discipline and therefore not a direct board responsibility.

In summary of this last point, the challenge to any board member is to understand the motivations of owners and stakeholders as owners and stakeholders (not marketing subjects) to a level sufficient enough to make truly representative policy decisions. The challenge is not to segment policy decision-making along a variety of demographic-based market niches.

Yet another reason for the suggestion of making boards more demographically diverse may be related to another unique credit union governance problem. At many credit unions, some long-serving board members have indeed lost touch with the needs of the ownership as a whole, and have begun making niche-based policy decisions that tend to favor net savers (their representative demographic).

The solution to this particular problem, according to some, is that boards “get younger” by recruiting a new class of younger board members. Those making the suggestion, however, are prescribing a solution based on a poor diagnosis. In this situation, there isn’t an age problem per se, but a governance problem. The correct diagnosis is a board violating key governance principles by underperforming in the role of owner/stakeholder representative. A younger board member may be a solution, but only if the younger board member is truly a representative of owners and not solely an advocate for a particular generation.   

For boards grappling with the challenges of getting older, thinking through succession issues, or feeling pressures to bring in a new demographic, I say that none of these things need lead to new board members if the board is and continues to be capable of fulfilling the basic principles of governance. If, however, the board has lost touch with its governance responsibilities, and finds itself drafting or defending policies focused solely on a particular segment within the membership, then new blood is in order.

In contemplating representation at your credit union, consider this: Credit union “owners” are established when real people (and/or their businesses) come together in a cooperative fashion to borrow and lend to one another. The most basic ownership expectation, then, is simply access to these two services. What is nice about this simple expectation is that it is multi-racial, multi-ethnic, spans generations, and knows no gender bias. Though credit union memberships are most certainly diverse, representing members is not based on that diversity, but on the diverse group’s simple shared “ownership” interests in a cooperative financial institution.

Incidentally, we help credit unions with these kinds of governance challenges. Learn more!

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Photo by Sharon McCutcheon from Pexels

Disregarding Cooperative Values

As a frequent facilitator of strategic planning sessions, it’s my job to stay on top of credit union trends and issues. One of the more effective strategies to do so is of course to read, which means I frequently scour online articles and blog posts. In reading online commentary I have come across many schools of thought on credit union strategy, focus, branding, marketing, and the like. A disappointing theme I see more and more is the idea that cooperative values don’t matter and therefore should cease to be a concern to credit union leaders. 

Where this most often comes up is in articles “informing” credit union leaders of the best way to connect with consumers in today’s competitive markets. The premise is that consumers could not care less about cooperative principles, therefore these principles should have no influence over marketing and branding. Some authors have even gone so far as to say that cooperative principles should have no bearing over any kind of strategic decision-making. 

This perspective suggests a grave misunderstanding of the purpose of cooperative principles and values. It seems that some have incorrectly interpreted them as some sort of traditional or old-school credit union “marketing message” that needs to change because it won’t resonate with, or matter to, members and potential members.

Consumer messaging, branding, etc. must of course change with the times, but cooperative principles are not necessarily marketing and messaging prompts. Rather, they are to be what guides institution-wide behavior and decision-making for all credit union functions. While branding, messaging, and marketing should change with the times, the decision-making behind the effort must be properly grounded in appropriate credit union principles – otherwise there is no reason to be a credit union.

Though many of the articles I’ve come across disparage the futility of “clinging” to credit union principles, few have actually referenced any of them. In the interest of informing those marginally aware “experts,” here they are:

  1. Voluntary and Open Membership – Cooperatives are voluntary organizations, open to all persons able to use their services and willing to accept the responsibilities of membership, without gender, social, racial, political or religious discrimination.
  2. Democratic Member Control – Cooperatives are democratic organizations controlled by their members, who actively participate in setting policies and making decisions. The elected representatives are accountable to the membership.
  3. Members’ Economic Participation – Members contribute equitably to, and democratically control, the capital of their cooperative. Members allocate surpluses for any or all of the following purposes: developing the cooperative, benefiting members in proportion to their transactions with the cooperative; and supporting other activities approved by the membership.
  4. Autonomy and Independence – Cooperatives are autonomous, self-help organizations controlled by their members. If they enter into agreements with other organizations, they do so on terms that ensure democratic control by their members and maintain their cooperative autonomy.
  5. Education, Training and Information – Cooperatives provide education and training for their members, elected representatives, managers and employees so they can contribute effectively to the development of their cooperatives. They inform the general public, particularly young people and opinion leaders, about the nature and benefits of cooperation.
  6. Cooperation Among Cooperatives – Cooperatives serve their members most effectively and strengthen the cooperative movement by working together through local, national, regional, and international structures.
  7. Concern for Community – While focusing on member needs, cooperatives work for the sustainable development of their communities through policies accepted by their members.

There is much value in this time-tested list of seven cooperative principles, and contrary to the opinion of some, a relevant framework for effective and successful contemporary decision-making exists. At a minimum, credit union leaders can use the list above to either:

  • Validate the “correctness” of existing strategy;
  • Serve as a starting point for identifying supportive strategic initiatives.

This is true for the marketing team, as well. In fact, by tweaking the two points above, we can find unique guidance suited for marketing and branding pros as follows:

  • Validate the “correctness” of a marketing message/brand campaign, etc;
  • Serve as a starting point for identifying supportive marketing initiatives.

In the context of marketing, member communication, branding, etc., these principles don’t have to be the “marketing message.” You are free to go forth and market as you see fit – just remember to take a moment to make sure your messaging (and your assumptions about those pesky consumers…) doesn’t conflict with the principles.

Of course, these principles can be used to define specific messaging strategy as noted in the second bullet point. Each principle has embedded in it very interesting and effective campaign possibilities. Those who believe otherwise–that cooperative principles aren’t noteworthy or effective points of communication–are simply not as good at the creative aspects of their jobs as they think they are.

Let’s be clear. Consumers couldn’t care less about a LOT of things, such as what documentation is needed to support a loan application, the true cost of credit, the impact of late payments on credit risk, the cost of using foreign ATMs, that a social security number as a password is risky. Regardless of a consumers level of care for a subject, the message on important subjects is still worth sharing.

Let’s embrace the fact that credit unions ARE cooperatives. Let’s use the cooperative principles above for guidance in daily decision-making. And, most importantly, let’s not be shy about sharing the details behind the very foundation of the credit union community!

Tom

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Image by rawpixel from Pixabay 

The Next CU Generation: A New Series

The next generation of credit union members. Who are they? Carefree and unattached, never to own homes or drive their own cars? Hardly. They need. They want. In a series of posts we’ll share over the coming weeks we’ll explore a few of the unique trends shaping the next generation of credit union members. Our series will wrap up near the end of April with an analysis of the BLS’s release of the latest Consumer Expenditures Survey data. What’s that? Don’t worry. We’ll get to it.

In the meantime here is some food for thought… apparently the “exurbs” are back!

Oh, the exurbs! The magical lands that lay just beyond the edges of the suburbs and that offer hope, and peace, and community, and affordable housing. Or, perhaps put slightly differently:

Exurbs are where people can live in big, crappily built houses on the cheap, pretend to be rich yet shop at Walmart, while they spend 2 hours a day commuting to and from their highly mortgaged cribs. 

Thanks Urban Dictionary!

Well, regardless of how you want to define the edges of suburbia, the exurbs are apparently back and for good reason: those “never in a million years will they get a mortgage or own their own home” millennials (and apparently a good number of retirees), are looking for affordable places to purchase a home. And the exurbs are “where it’s at.”

The Wall Street Journal had a very good article in their March 26, 2019 edition trying to prove this point. Their analysis focused heavily on real estate development and mortgage activity on the outskirts of Phoenix. You’ll find the article here (subscription required): https://www.wsj.com/articles/a-decade-after-the-housing-bust-the-exurbs-are-back-11553610771    

A telling quote from the article, which both defines where we are headed in this article series and should also help you to stop your hyperventilating as you sit and relive the Great Recession, is offered by Jordan Rose, an attorney working in the real estate field in Phoenix. Ms. Rose says this:   

It feels like 2006 without the fake high at the end of the rainbow. There’s the same exuberance, but the buyer is real.

And as noted earlier, the buyers are quite often millennials. Another quote from the article:

In recent years, millennials have driven demand for rental apartments in downtown areas. Some in the industry thought this could be a permanent phenomenon. And yet, as they begin to marry and have children, millennials are proving like generations before them that they are willing to move to more affordable outlying areas. 

Honesty, this phenomenon should not be a surprise to anyone. Data, such as that offered up in resources like the Consumer Expenditure Survey, have shown younger generations to be in the market for home ownership, car ownership, etc. in ever-increasing numbers. The difference between them and earlier generations is simply one of timing. Recent generations were delayed in achieving certain life milestones (first job, marriage, family, etc.) because of the long-lasting effects of the recession. If we concede that point then we have to know that once life kicks in the demand for traditional lifecycle-oriented products will increase. It seems that is where we are now.

So, what is the Consumer Expenditure Survey (CES)? The CES provides data on expenditures, income, and demographic characteristics of consumers in the United States. Stay tuned for the next post where we’ll get into the CES data structures and explore a few of the spending trends that show up in CES data – and that paint a clearer picture of exactly what next-generation members are doing in the marketplace.

Until then,
Tom

PS: I won’t be the only one writing. GC’s new partner, Matt Griffiths, will be chiming in on this series and others. Matt has actually been around since late fall but we’ve been nose-to-the-grindstone since then and have not had a chance to do a proper introduction. We’ll take care of that shortly.

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Image by Devolk from Pixabay 

Is Your Credit Union Too Complex?

Ray Ozzie, formerly Microsoft’s chief software architect, once famously said:

Complexity kills. Complexity sucks the life out of users, developers and IT. Complexity makes products difficult to plan, build, test and use. Complexity introduces security challenges. Complexity causes administrator frustration.

And how about this statement, one I have frequently shared with credit union clients:

The more complicated the infrastructure, the greater the opportunity for failure.

Then there is a concept called The Paradox of Choice, a dilemma outlined by psychologist Barry Schwartz and which suggests that an abundance of choice has “made Americans not freer but more paralyzed, not happier but more dissatisfied.”

In each of these three observations we find that the possibility exists for excess complexity in areas such as product/service choice, organizational structures, and delivery systems to conspire to make organizations less effective and perhaps even prone to institutional failure. I think credit unions are not immune to this threat.

As I study credit unions through the lens of our Credit Union Industry HealthScore, I routinely find that those credit unions with a clearly-articulated value proposition and simplicity in product, service and delivery channel options are much healthier presently, were much healthier throughout our last recession, and are positioned to have a much healthier existence going forward than their industry peers.

Unfortunately, this describes a rather limited number of credit unions relative to the total number of credit unions making up the industry. The greater majority are looking at runaway complexity which is causing great frustration and underwhelming performance. 

So what are credit union leaders to do about this? Jettison products? Slow the adoption of new delivery channels? Eliminate positions? Return to paper ledgers?

If the challenge were to be simplistic, then perhaps we could say “yes” to each of these options above, but the real answer to most of these questions is, of course, “no.” The solution is not to be simplistic, but simple.

To illustrate, I’ll reflect on a conversation I had years ago (1994!) when I was working as a mortgage officer at a credit union. We had just launched our new in-house solution and I was a newly-minted graduate of CUNA’s week-long mortgage training school. A member called to inquire about our mortgage offering, and I hardly waited for the question to come out before I began to dazzle him with our new options and my command of quoting mortgage rates in 8ths. I said, “well, on our 30 year fixed rate option you can get nine percent for no points, but we can get you down to eight and seven-eights for 2 points, of course there is the option of taking a higher rate, nine and one-eighth, which allows you to gain a little cash back to cover closing costs but those options only work for a 30-day lock. If we’re talking 60-day lock then….”

At some point during the conversation I was talking to a beeping phone – a beep that was telling me that the member had hung up. He was no doubt bewildered by my “intelligence.” The funny thing, however, is that you see variations of this way of communicating to members today, not only on mortgage loans but on all products. Check out most any credit union website and you will find unnecessary product complexity which overwhelms the ability of a member to answer their most basic questions about products – not to mention overwhelms the ability of our personnel (in this case our Internet staff) to explain our products.

So back to the notion of simplicity. Simplicity is often defined as, “the quality or condition of being easy to understand or do.” If operational simplicity becomes a credit union objective, then it is the objective of the credit union to ensure that its moving parts are easy to understand and easy to use and/or support – for members and employees alike. The best way to get to this point is to start by asking a very basic question:

How do we bring simplicity to our operations?

In seeking answers to this question you begin to understand what causes complexity in the first place. Understanding the root cause of complexity makes it much easier to bring simplicity to an organization because you will know without a doubt what factors contribute to unmitigated/unnecessary complexity. As they say in so may self-help programs, admitting a problem is the first step to recovery.

As an aside, I would hazard a guess that most credit union leaders would chiefly blame compliance requirements for driving unhealthy complexity, but consider this situation. A few years ago at a planning session I was facilitating we began to discuss improvements in lending operations. The perception was that it was taking too long for members to route through the loan process which, it was believed, contributed to application fallout and declining volume. I can’t recall exactly how the issue came to light, but it turned out that one problem was that the credit union required members to come in and place their original signature on four copies of the same document. Why did they do this? Because they thought it was a compliance requirement. Yes, compliance adds steps to many processes, but the complexity in this case was not driven by compliance but by an uninformed staff.

In any case, I believe that every credit union can attain operational simplicity, a simplicity which enables more effective communication to members about products and services, more effective and focused staff training, more relevant products and services, and easier-to-use delivery channels. To get there, however, requires a commitment to being simple in the first place.

If simplicity is something you want to bring to your credit union, here are a few questions to get you started on the path of discovery. The answers will at least get you thinking about the problems you face, if not uncover the solutions that will drive the simplicity you desire. 

How do we bring simplicity to our operations?
What are our most complicated products?
What are our most complicated procedures?
What is the most complicated thing our members must do to do business with us? 

Use these questions or create your own, but in all cases drive for simplicity. The alternative, to paraphrase Ray Ozzie’s comments, is death by complexity.

For additional background, I recommend:

Barry Schwart’s TED Talk, which you will find here: http://www.ted.com/talks/barry_schwartz_on_the_paradox_of_choice.html

Ray Ozzie’s Dawn of a New Day memo, which you will find here: https://www.businessinsider.com/ray-ozzie-its-the-dawn-of-a-new-day-2010-10

A Lesson from the USPS: Context & Strategic Direction

Bald Head Island Post Office, North Carolina

I was browsing the website for the United States Postal Service recently and came across this statement: “The Postal Service is the only organization in the country that has the resources, network infrastructure and logistical capability to deliver to every residential and business address in the nation.” Continue reading “A Lesson from the USPS: Context & Strategic Direction”