On today’s show is Paul Dionne, chief strategy officer at Quantum Governance, L3C.
What’s an L3C? Good question: It’s a low profit limited liability company and, in the case of Quantum Governance, that means it “help[s] nonprofits, credit unions, associations and foundations realize the full potential of their missions.”
The company’s work with credit unions revolves around governance - especially issues involving the board and organizational leadership - and strategic planning.
That’s why a key focus of this discussion is a credit union board’s fiduciary responsibility especially in the case of a merger. When a merger is on the table, a board member’s responsibility is to make decisions that are in the best interest of the membership, said Dionne.
What’s that mean? How can a board member go off course?
In the show Dionne, who worked at Filene before joining Quantum Governance, tells the good, the bad and the ugly.
Listen up.
Like what you are hearing? Find out how you can help sponsor this podcast here. Very affordable sponsorship packages are available. Email rjmcgarvey@gmail.com
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Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
SPEAKER_02 (00:00):
Welcome to the CU2.0 podcast.
SPEAKER_00 (00:05):
Hi, and welcome to the CU2.0 podcast with big new
ideas about credit unions andconversations about innovative
technology with credit union andfintech leaders.
This podcast is brought to youby Quillo, the real-time loan
syndication network for creditunions, and by your host,
longtime credit union andfinancial technology journalist,
(00:27):
Robert McGarvey.
And now, the CU2.0 podcast withRobert McGarvey.
SPEAKER_02 (00:33):
On today's show is Paul Dion, Chief Strategy
Officer at Quantum GovernanceL3C.
What's in L3C?
That's a very good question.
It's a low-profit, limitedliability company, and in the
case of quantum government, thatmeans it, quote, helps
nonprofits, credit unions,associations, and foundations
(00:53):
realize the full potential oftheir missions, close quote.
Thank you for joining us.
(01:28):
That doesn't mean best interestof the board member, nor does it
mean best interest of theexecutives of the credit union.
It's the best interest of themembership.
What's that really mean?
How can a board member go offcourse?
That's what we talk about inthis show.
And Dion, who worked at Filenebefore joining Quantum
(01:49):
Governance, tells the good, thebad, and the ugly.
Yep, the ugly.
Listen up.
Now, when you talk with creditunions, do most of them have
something that actually lookslike a strategy?
SPEAKER_01 (02:03):
Yes and no.
A lot of credit unions have astrategy.
They think quite hard about itand they have a plan.
There's another group of creditunions that I wouldn't say they
have a strategy.
They call it their strategicplan, but it looks more like a
business plan, which is like,hey, this is what we're gonna do
next year.
And here are the targets thatwe're gonna hit.
(02:23):
And it's more like a businessplan with objectives and
metrics.
SPEAKER_03 (02:27):
When
SPEAKER_01 (02:27):
I work on strategic planning with clients, we do try
to first come up with what Iwould call a strategy, which is
about differentiation, which isabout having a vision for
bringing that to light, forfulfilling your mission, for
really having a long-term planto be successful and
(02:51):
sustainable.
And so...
Yeah, that's a challenge, Iwould say, for credit unions is
some of them are maybe not asstrong at strategic planning as
they could be.
in part because I think one ofthe challenges for credit unions
is actually it's a sectorchallenge, right?
So if you are in anotherbusiness, line of business, you
(03:12):
can really focus ondifferentiation and have a
vision.
So take Apple, for example,right?
They can come up with somethinglike a new product, the iPhone,
and hey, they're so fancy andspecial, and that's what makes
them great.
But for credit unions, it's acommodity market, right?
So A loan is a loan.
I mean, whether you get it froma credit union or a bank or
Rocket Mortgage, it's very easyfor a consumer to just focus on
(03:35):
price, right?
Like, hey, I'm going to go forthe best rate and that's how I'm
going to make my decision.
So if you want to differentiateas a credit union, it's much
more challenging than if you'reApple or if you're Ikea or, you
know, right?
Other sectors have a lot moreopportunities for you to
differentiate and have astrategic plan around that
differentiation.
(03:56):
For financial services providersand consumer finance, it's much
more challenging because theproducts you're providing are
kind of all the same, right?
They're really commodities.
And so I do find a lack ofstrategic thinking and strategic
planning in some of our creditunions, but part of it is the
challenge of the sector thatthey're in.
(04:17):
It can be really hard to find away to differentiate because A
loan is a loan, right?
A deposit is a checking account.
I mean, they're all kind of thesame, right?
So how do you make them-
SPEAKER_02 (04:26):
Well, they're highly regulated, so they have to
SPEAKER_01 (04:28):
be- And
SPEAKER_02 (04:28):
that too.
Right.
Absolutely.
Yeah.
That's the other piece of it.
Yeah.
I can't start a credit union.
This is a way you've never donechecking before.
Yeah.
Yeah.
The NCUA would- get very mad
SPEAKER_01 (04:40):
at me it would shut you right down right it's also
SPEAKER_02 (04:42):
particularly i was actually doing check checking in
a way they'd never seen
SPEAKER_01 (04:48):
before yeah exactly exactly and so that and that's
the other major uh restrictionor inhibitor for credit unions
to be truly strategic in the waythat the strategy professors at
all the fancy business schoolswould want you to be
SPEAKER_02 (05:01):
go back to jobs it's an interesting thing to ponder
when he introduced the iphone Ivividly remember this.
His message was all about whatthis device will do for you.
SPEAKER_03 (05:16):
He
SPEAKER_02 (05:18):
wasn't talking technology.
Microsoft always preferred totalk technology.
This has X RAM, so much memory,blah, blah, blah, blah, blah,
blah.
Jobs never went there.
He always talked about and didthis very clearly with the
iPhone.
This is what this will do foryou.
This app will make sure younever get lost again.
(05:39):
You.
You heard that and you said,wow, I really want this thing.
SPEAKER_01 (05:43):
Absolutely.
Yeah, no, the value propositionwas really well thought out and
it gets you on an emotionallevel.
Do you know what I mean?
I mean, obviously there's somepeople that are gearheads that
care about the bells andwhistles, but most of us, it's
emotional, right?
It's like, oh my gosh, this isthis game-changing device that I
(06:05):
know where my kids are, and Iknow I have a map on here, and I
can take pictures with it.
He spoke to the emotion, and Ithink that was very,
SPEAKER_02 (06:15):
obviously, groundbreaking.
We've become so attached to ourphones.
I was reading an article today,oh, you're going overseas, maybe
you should take a burner phone.
And I am going overseas thissummer.
I think, should I have a burnerphone?
And that struck me as about ascomfortable as going naked
(06:36):
through the airport.
SPEAKER_01 (06:40):
Yeah, yeah.
I don't know if I would do that
SPEAKER_02 (06:43):
either.
Every financial transaction, Iget a text message about, yeah,
I get all this stuff on the
SPEAKER_01 (06:53):
phone.
Yeah, yeah, absolutely.
Absolutely.
SPEAKER_02 (06:55):
Really, it would be like going naked.
And TSA would be a littlepuzzled when I showed up naked.
So we do get involved in thesethings.
I come back to so many creditunions.
And when I talk to them, I ask,so who do you compete with?
And they could tell me answers.
(07:16):
And almost always, I think theanswer is wrong.
It's often the community bankdown the street, blah, blah,
blah.
I say, no, actually, it's ChaseManhattan, a bunch of fintechs.
That's about it, really.
SPEAKER_01 (07:29):
Actually, Robert, I take it a step further.
I say the same thing as you, andthen I take it a step further.
Here's what I do.
Let me know what you think.
I also say you're competing withAmazon.
Yeah.
And what I mean by that is,obviously, Amazon's not
providing financial servicesanymore.
yet.
You're competing with them inthe sense that when people open
(07:50):
up their banking app or theircredit union app, they're
expecting Amazon level qualityand service, right?
They're expecting Apple levelquality and service when they
open the app.
It's got to be functional.
It's got to be easy.
It's got to be fast.
And that's why you're competingwith them because people are
looking for that when they openup your app.
SPEAKER_02 (08:11):
Yeah.
Many credit unions really alterat that.
I'm I remember I was trying toopen up an account with a credit
union in Phoenix when I movedhere.
And I couldn't do it online.
And I called them up and said,they said, oh, just got to come
in and finalize a few things.
Now, some years before that, I'dopened an account with Chase
(08:34):
online.
Never said put in a branch.
SPEAKER_01 (08:37):
And
SPEAKER_02 (08:39):
that
SPEAKER_01 (08:40):
was years before.
But of course, as you know,Chase probably spends more on
their online digital offerings.
They spend more on the firstminute of the new year than
credit unions spend in a year,right?
Most credit unions.
Oh, I
SPEAKER_02 (08:54):
understand that.
Years ago, I talked to the guywho was in charge of the project
to create the first mobile appfor Chase.
And although he didn't put itquite this way, the way I
interpreted it, he had anunlimited budget to go out and
hire app developers, which hedid.
Yeah,
SPEAKER_01 (09:11):
but that's the challenge for credit unions on
the digital front, right, isthey have to keep up with
expectations.
I mean, the Apple card is theone I use as an example, you
know, and I think they'reactually using it in their
marketing now.
You can have your iPhone and bein line at Starbucks or the
coffee shop and apply for thecard and get approved and use it
(09:33):
when you get to the front of theline to pay for your cup of
coffee.
You know, it's that fast to getapproved, right?
SPEAKER_02 (09:39):
Well, that's that fast for years.
So many credit unions don't getit.
So why would I apply for acredit card at a credit union?
It's like it's back to 1960.
We're going to mull on this fora month or so.
Why, man?
You don't have to do it that wayanymore.
SPEAKER_01 (09:56):
That's the challenge.
SPEAKER_02 (09:59):
So let's talk now about mergers.
Now, why are credit unionsmerging?
Number one.
Number two, why?
When do you think it's a goodthing?
Number three, when do you thinkit's an awful idea?
SPEAKER_01 (10:11):
First question, why are credit unions merging?
There's no simple answer.
It depends on the context andwhat's going on.
Some credit unions are mergingto grow.
They call it inorganic growth,right?
So you can grow your creditunion through taking deposits
and making loans in thetraditional way, the sort of
(10:33):
organic way.
if you want to get much larger,much more quickly, you can
merge, right?
You can acquire.
SPEAKER_02 (10:38):
But both state employees and maybe federal do
not have policies of merging togrow.
They both grow organically.
Organically, yeah.
And Pentagon Federal has mergedwith anything that was loose on
the game board.
Right, right.
And it is not kept up at thesame pace
SPEAKER_01 (10:56):
of growth.
Exactly.
And I think that's kind of thepoint that I'm trying to make,
which is, It depends on thecontext, right?
So some credit unions say, Hey,this is the way we're going to
grow.
Others are like, we're going tofocus on organic growth.
Some have a mixed approach.
And so that's one of thepotential reasons why credit
unions are looking to merge,right?
They want to grow.
They want to get scale that youhear that a lot.
(11:18):
I'm a little skeptical aboutthat one, but that's one of the
arguments that people make.
Sometimes it's valid.
Sometimes it's not like thereason I I'm skeptical is
because I work with small creditunions and filing has done
research on this.
There are a lot of small creditunions on there that are beating
the big credit unions on theirperformance, obviously by by
percentage and with theirratios.
(11:39):
But they're being large creditunions on performance and
they're thriving and they don'thave, quote unquote, scale, but
they are able to make it allwork.
And so, you know, that's that'sthe scale argument is is It is
what it is.
Credit unions are looking tomerge and acquire because they
want to grow.
Another reason is the sort ofdistressed credit union that
(12:00):
maybe is struggling withleadership succession and
transitions at the board levelor at the C-suite level.
So that's another factor.
It's like, oh my gosh, we can'tdo this anymore.
Or we're struggling financiallyor some sort of distress at the
credit union where they're, hey,it's time for us to find a
partner.
and relieve ourselves of ourburdens, I guess, for lack of a
(12:22):
better word.
So that's another reason we seemergers.
Sometimes it's a differentstrategic play, and we're seeing
this more often, which is creditunions are buying, or sorry,
they're merging or acquiringothers, and this includes banks,
in order to expand their fieldof membership, right?
In order to expand their market.
So you merge with a credit unionacross state lines, and then all
(12:42):
of a sudden, hey, you can dobusiness in that new state,
right?
So that's another thing that wesee.
Those are the big three thatcome to mind.
I don't know if I missed any,Robert.
Are there others that peopletalk about?
I may have missed other reasons.
SPEAKER_02 (12:54):
Well, there's what had been historically the most
common reason, which is, andthis is kind of an elaboration
on your second point, justdrastic.
The most common reason formerger 20 years ago was NCUA
called up a big credit union CEOand said, we're about to
conserve this damn little creditunion.
Would you please merge with itso we don't have to do that
(13:15):
completely?
conservative thing.
SPEAKER_03 (13:16):
Right.
Right.
SPEAKER_02 (13:17):
And the CEO of the big credit union, Navy federal,
I believe has done this.
I know state employees did it afew times.
I'll pay fine.
Right.
No problem.
No problem.
Yep.
Yep.
So that those will continuethose kinds of mergers.
I call them shotgun marriages.
SPEAKER_01 (13:34):
Exactly.
Exactly.
SPEAKER_02 (13:37):
The scale one.
I've never, I, you know, as Isay to people, I hear this
thing, I hear it, but you know,no matter how often you merge,
You're never going to come onthe radar screen of Jamie Dimon
at JPMorgan Chase.
You're not going to get bigenough.
There are not enough creditunions.
If you merged with Bank ofAmerica, then he'd notice you.
Exactly.
SPEAKER_01 (13:58):
Yeah.
And the way things work now withthe ecosystem of partners, you
know, CUSOs and other providersthat partner with credit unions,
all the vendors, right?
So I'm in addition to working atQuantum Governance, I should
share this.
I serve on the board of a smallcredit union in Illinois called
Rock Valley Credit Union, 165million in assets.
(14:20):
I've been on the board for justover a year now.
And we have a lot of vendors whoare partners of the credit union
that allow us to have an appthat allow us to have Lots of
online provisions for members.
And so even at the asset, this,what by most accounts would be,
hey, this is a really tinycredit union, 165 million
(14:41):
assets.
We're doing fine, right?
Financially, we're doing great.
And we're able to provide quitea bit of digital offerings that
you would expect only happens atthe very large asset size credit
unions.
But no, now with the vendorecosystem we have, even small
credit unions can be prettycompetitive.
SPEAKER_02 (14:58):
And once I realized what QZOs were, It occurred to
me, I see CUSOs as really thesecret weapon of
SPEAKER_03 (15:06):
credit
SPEAKER_02 (15:06):
unions.
I see it as dramatically moreimportant than tax exemption
because CUSOs do enable creditunions to get technology that's
much better than they would getif they were just operating on
their own.
SPEAKER_01 (15:18):
No doubt.
No doubt.
Yeah, I agree.
I think they're a fantasticresource for credit unions.
It's part of the cooperativeprinciples, cooperation amongst
cooperatives.
And so it's one of ourstrengths, right?
It's one of our powers.
SPEAKER_02 (15:37):
And now that going public is ever more difficult
for small fintechs, more of themare looking at QZones.
That will not be a permanentfixture.
Going public will come back invogue at some point.
But right now, it's a great timeto be looking at QZones because
all kinds of fintechs want tohave a QZone.
SPEAKER_01 (15:57):
Yeah, I think it makes sense.
It's a smart move for them toget access to capital.
And it's part of the, you know,if you think historically of
that sector, that industry, thefintechs, it's still relatively
young-ish.
And so this is still the momentwhere you have the sort of
Cambrian explosion of lots ofstartups, lots of small new
(16:18):
companies.
And so, you know, this is partof the cycle, right?
At some point, I don't know whenit is, 5, 10, 20 years from now,
they're going to start toconsolidate, right?
And this is what we've seenhistorically in most business
sectors.
You have this early Cambrianexplosion, lots of fintechs,
right?
And then over time,consolidation, consolidation,
consolidation.
So that's when you'll see thepublic come back.
SPEAKER_02 (16:42):
I remember in circa 1983, 85, there were probably a
dozen or more makers of personalcomputers running MS-DOS.
Right, right.
And over time, that number ofmanufacturers really got chipped
down.
And we will see similar, Ithink.
SPEAKER_01 (17:05):
It's part of the history of pretty much every
business sector.
So very likely, we'll see thesame.
SPEAKER_02 (17:13):
One area where I differ from some people,
including the regulators, Butthen again, you know, I've spent
a lot of time talking with JimBlaine, so I'm used to differing
with the regulator.
Yeah, it's a week without adifference with NCUA is
important.
Yeah, NCUA is implementing thisnew, you must file succession
(17:36):
plans.
You're probably doing that withthat small credit union that
we've got in the process.
Yes.
One in Illinois.
Yes.
And I said, I've said, I've goneon the record, if I run the
board of a small credit union,For a succession plan for CEO,
I'd say we're going to mergeout.
That's my succession plan.
Interesting.
(17:58):
I can't get the answer from theregulator.
I've asked experts in thatfield.
Would NCOA disallow that as ananswer?
Their answer seems to be, wedon't know.
Yeah, that's what that would be.
This all is new.
So there's not a lot of trackrecord here.
But I would write, go merge outof existence.
That's the plan.
SPEAKER_01 (18:19):
Yeah, so I don't know either because they
haven't, you know, it goes intoeffect next January.
If it in fact does, it soundslike it might be in question
again.
Yeah, we don't know how they'regoing to enforce it or interpret
it.
So that remains to be seen.
I don't know why.
Who's
SPEAKER_02 (18:38):
opposed to this, really?
It's harmless.
It's a little time consuming.
But it's not binding.
So in other words, you file thisplan and the NCUA doesn't put a
gun to your head saying, hey,wait, wait, wait, wait.
When you filled out this plan,you said your plan for filling
the CIO job was X, Y, Z, and nowyou're not doing that.
So they're not going to do that.
SPEAKER_03 (19:00):
It's
SPEAKER_02 (19:02):
a harmless exercise.
All public companies of any sizedo this.
SPEAKER_01 (19:07):
Yeah.
Yeah, I think that, yeah, theidea from the NCUA is, hey,
let's, you know, they see thedistressed credit unions, they
see the mergers as a result ofnot doing the succession
planning, right, or not reallyhaving an opportunity to either
a board or a C-suite or boththat just are not, are tired and
(19:30):
ready to move on.
And so they're thinking like,hey, let's have this succession
planning sort of requirement asa way to nudge people to go
through the motions, right?
And I think a lot of creditunions might check the box,
right?
They'll just go through theexercise and feel like it's
non-binding.
A number of the clients that wework with who are doing it take
(19:51):
it seriously, right?
And we found it's beenbeneficial for them, which is to
say, hey, let's really give ussome thought.
And sometimes the board kind ofgoes, hey, CEO, you know, maybe
you need to spend more timetraining, you know, developing
the people on your team, right?
Thinking about your C-suite, notjust for what they're doing
today, but what they're going todo in the future for the credit
(20:13):
union or for others.
And so sometimes the exercisecan be productive, right?
It can help you identify somegaps or some opportunities to
really improve the way theteam's being developed and how
people are thinking about theirfutures.
Well,
SPEAKER_02 (20:26):
at a sizable publicly held company, A big
part of the CEO's job issuccession planning.
SPEAKER_03 (20:35):
Yeah.
Oh, yeah.
SPEAKER_02 (20:36):
Yeah.
He or she is supposed to havetwo or four or pick a number.
Right.
Candidates that are beingnurtured, developed, candidates
that the board could look at andmake their own decisions about.
Right.
Because the board will make thatdecision.
The CEO, of course, won't.
Yes.
But it's the CEO's job to dothat nurturing of the successor.
SPEAKER_01 (20:57):
Yeah.
UNKNOWN (20:57):
Yeah.
SPEAKER_01 (20:58):
And if you think about the rule from a certain
way, you can say this is anopportunity for the board to
say, hey, CEO, tell us aboutwhat you're doing to nurture
your team.
Right?
Exactly.
And have that conversation.
And that can be, you know, noteverybody.
I'll just be right.
Some are probably already havingthat conversation and doing it,
but some are not.
And so this is a chance to kindof
SPEAKER_03 (21:19):
go, hmm,
SPEAKER_01 (21:20):
let's talk about that.
Right.
And see where things are.
SPEAKER_02 (21:23):
Well, that Illinois credit union.
might because many institutionsare in this position.
A long time CEO retires or diesand they say, okay, let's put
out a listing for the job.
And no one seems to apply forthis job that pays$75,000 a year
(21:44):
and you can make more managing alocal branch for Chase.
No one wants it.
There's too many hours, too muchresponsibility.
And you got to work Saturdaysoften.
You weren't planning on that.
It's yeah.
So yeah.
And the, you know, they justdidn't do any thinking about
(22:06):
this.
So I see the, the NCUA thing atleast as prompting thinking.
SPEAKER_01 (22:12):
Yeah.
That's, that's the way I see ittoo.
It's a nudge to kind of go, Hey,go through the motions, do the
exercise, have thoseconversations and, Figure out
what you want to do, what'sgoing to happen, because it's
going to happen, right?
Nobody's here forever.
And as you pointed out, thereare real challenges, especially
for smaller credit unions, whichis to say, look, if you're a
(22:34):
billion plus credit union, yougot a CEO opening, you go get a
recruiter and you have a slateof very strong people.
professional candidates who wantto come work for you, right?
But if you're a small creditunion,$50 million in assets, and
the salary's less than$100,000,and the hours are really
onerous, and you have to livein, right, I'll use my hometown,
(22:55):
you have to live in Beloit,Wisconsin, not everybody
necessarily wants to do that.
And so that's a tougher, that'sa tougher road to hoe, right, to
prepare for and to be able to besuccessful.
And, you know, frankly, that'sit doesn't always work out right
for the best.
And that's when we get back tothe merger and acquisition
conversation, right?
And that's...
(23:16):
I think
SPEAKER_02 (23:17):
some credit unions try because they're naive.
They don't realize there'll beno interest.
Yeah, yeah.
And after six months of nobodywith any qualifications to speak
of applying for the job, thenthey say, okay, we got to just
merge out of existence.
This is just not working.
SPEAKER_03 (23:33):
Yeah, yeah.
SPEAKER_02 (23:35):
And again, I could see the NCUA thing I would hope
fewer institutions would findthemselves in that place.
Strangely, it's okay by me ifyou consciously say, our plan is
to merge, period.
I'm more irked by theaccidental, we weren't planning
(23:56):
to merge, but geez, that's ouronly real option now that we see
the game board.
Do you think there should befewer mergers?
More mergers?
What do you think?
It's
SPEAKER_01 (24:06):
an economic market, right?
It's going to do what it's goingto do.
I do think that it's importantfor the credit union movement to
have...
a diverse collection of creditunions.
And what I mean by diverse islike lots of different asset
sizes, lots of different typesof membership bases, lots of,
(24:27):
you know, just I want to see athriving, diverse credit union
movement.
And so that would make me wantto see maybe fewer mergers.
Part of the reason for that alsois that there's the de novo
challenge, right?
There just aren't a lot of newcredit unions born these days
for various reasons.
And so the mergers and theoccasional closure by the NCUA
(24:49):
means that the overall number ofcredit unions is shrinking.
And so that's a concern thatpeople have.
It ties into advocacy questions,right?
The question of like creditunions being able to maintain
the tax exemption, which is abig topic this year.
It's like if you don't have adiverse group, if you don't have
a lot of small credit unionsthat really are demonstrating
(25:12):
the mission overall, it can bemore challenging to make that
argument that, no, no, this is adifferent type of beast, this
financial beast.
offerings that credit unions dois really very different from
what others are providing, andit's worth maintaining the tax
exemption.
So that's a reason to say, hey,maybe we should pull back.
But at the end of the day, it'sits own beast.
(25:33):
I mean, credit unions are goingto do what they're going to do.
We're kind of on the sidelines.
It doesn't matter so much what Ithink about where the mergers
are going.
It's a market.
It's going to go.
SPEAKER_02 (25:49):
I agree.
I also think a lot of mergersaren't particularly, they don't
get the result people saythey're going to get.
And I think that's pretty welldocumented.
So why are we eliminating thisentire charter?
(26:10):
And most small credit unions,I've said this many times, 90%
of credit unions wouldn't pay apenny in federal income tax if
they only hired a decentaccountant.
They just don't make enoughmoney, period.
They can go walk the hill allthey want.
God love them.
I'm sure Pentagon Federal ishappy to see them out there.
(26:35):
It's wonderful that you're doingthis for, quote, the movement,
but close quote.
But really, you don't have anyskin in this game.
Yeah.
What do you think about creditunions take the name credit
union out of their name?
This is a little minor trendthat's been going on for some
time.
SPEAKER_01 (26:53):
Interesting.
Yeah.
You're right.
I've noticed that.
Those that are changing theirnames seem to be dropping the
credit union.
I'm not sure.
I think I understand wherethey're coming from.
Again, I don't even know that.
I haven't had conversations withfolks about it, but...
my guess would be that the wordunion gets misunderstood.
You know, people think maybethis is some kind of labor union
(27:16):
or that I have to be...
SPEAKER_02 (27:17):
And historically, many of them were.
SPEAKER_01 (27:20):
Yeah.
And so I wonder if that's partof the impulse is to move away
from that misunderstanding.
I think there is a sense,there's been research on this,
that people have a kind of apreconceived notion that credit
unions are like well that'sthey're sort of the first steps
when i you know i'm part of thethe school district and there's
(27:42):
a credit union for our schooldistrict employees and so i'm a
member of them but when i growup i'm gonna i'm gonna join a
real bank you know like thatit's like a it's like a starter
bank and then eventually you'regoing to grow up and become a
bank with a big bank so thatmaybe they're trying to avoid
that piece of it you know ileave that to the marketers
there i think they i'm surethey've done their their market
(28:04):
research on why they're lookingto drop it out.
SPEAKER_02 (28:06):
Historically, credit unions and go back SNLs when we
still had SNLs, had a limitedrepertory of services that they
offered.
Whereas the banks, the ChaseManhattans, the Citibanks, et
cetera, had many more servicesthey could offer legally.
(28:28):
That's changed where$100 millioncredit unions can actually do
international wire transfers ifhe wants to put that into place.
SPEAKER_01 (28:37):
It
SPEAKER_02 (28:37):
can do real-time payments if they want to do
that.
SPEAKER_01 (28:43):
Exactly.
It goes back to our earlierconversation with all the
vendors out there in the QSOs.
You can do wealth management.
You can provide insuranceservices through TrueStage.
There's all kinds of stuff thatyou can do with a small credit
union now that was not the casein the past.
And I think the publicperception hasn't caught up with
that?
SPEAKER_02 (29:04):
I know CUNA has run these projects off and on over
the years, trying to educate thepublic about credit unions with
no apparent success that I cansee.
I don't know why it's that hard,to be honest.
I mean, it is a different kindof banking.
It's banking for the peoplerather than the shareholders.
Right,
SPEAKER_01 (29:23):
right.
Yeah, no, and I think it'scompelling.
I think it's...
actually, you know, this is oneof the challenges I would point
out, which is the youngergenerations and having them
become more aware of the creditunion difference.
And I think it would be reallycompelling for the youngsters,
right, to kind of go, hey, I'mnot going to be part of this
(29:43):
for-profit system.
I can do something that benefitsmy community and benefits me.
And, you know, I think thecooperative model is a
sustainable one and a long-term,really powerful option for the
younger generations.
And we've We still have tofigure out how to do that
because we're not bringing themin yet.
Still a lot of work to be doneon that front.
SPEAKER_02 (30:04):
Well, I'm told that there's some people are seeing
signs that the youngergeneration is moving away from
the money center banks, whichthey had historically flocked to
because the money center bankswere very, very good at
recruiting them as customers.
Yeah.
Blanketing colleges like BeloitCollege with credit card offers.
Boom.
(30:24):
Right.
You want a credit card?
It's a terrible thing to give an18-year-old.
Here's this$5,000 credit limit.
God, I would have caused so muchdamage.
SPEAKER_01 (30:33):
Oh, yeah.
Well, I've seen it.
I worked at Belay College as astaff person, and I saw the
damage.
It's rough.
SPEAKER_02 (30:39):
And I wouldn't have done it thinking criminally.
I just would have been stupid.
Oh, you got to pay this backsomeday?
Oh, jeez.
Oh, and there's this 18% or 22%interest?
Oh, my heavens, what's that?
SPEAKER_01 (30:53):
Yeah, yeah.
I don't even know what thatmeans, but I'll figure it out.
later.
SPEAKER_02 (30:57):
So, but my understanding is the kids are
now gravitating more towardsFinTechs.
SPEAKER_03 (31:03):
Yeah.
SPEAKER_02 (31:03):
But that does offer credit unions an opportunity to
get in there because supposedlya lot of kids are responding to
social messaging.
If you go to any of thedemonstrations, political
demonstrations that arehappening across the country
right now, there's two groupsout there.
There's kids and then there'sold people.
SPEAKER_01 (31:23):
Yeah.
UNKNOWN (31:24):
Yeah.
SPEAKER_01 (31:25):
Yeah.
Some of us working stiffs got tobe in the office.
Right.
So even when it's Saturday, evenwhen it's a Saturday.
Yeah.
Yeah.
SPEAKER_02 (31:32):
Still has two groups.
SPEAKER_01 (31:34):
Well, two things that come to mind from that,
Robert, is like the marketinglooks different.
Right.
You got to you got to talk tothem where they are, which is
it's not even Facebook anymore.
It's tick tock.
And, you know, you've got to bewhere they are, where they are
on their screens.
And it's a different marketingapproach.
So that's one of the challenges.
SPEAKER_02 (31:52):
Yeah, but most credit unions of any size,
probably not the one you workwith in Illinois, but most of
them do have a social mediaexpert on staff.
And it's usually a kid.
Usually, oh, hey, you're theyoungest person in the room.
Hey, you're our social mediaexpert.
Right, that's right.
Yeah, even if the kid majored inthe languages of antiquity in
(32:15):
college.
No, you're the social mediaexpert.
I think too many credit unionsjust don't try hard when it
comes to that young population.
They all talk about doing it,but they don't do it that hard,
I don't think.
So will there be a credit unionmovement 20 years from now?
A theory I've been hearing, andI'm not putting this forth as
(32:37):
the commonly held theory, isthat what we're going to see is
a world where there will besmall credit unions, the
inclusive type of small creditunions, And then they're going
to be monster credit unions andthere ain't going to be much in
the middle.
SPEAKER_01 (32:53):
Interesting.
SPEAKER_02 (32:54):
Yeah.
So middle is like a billion to300 million.
It's where most credit unionsare today.
SPEAKER_01 (33:02):
Yeah.
Yeah.
Yeah.
I suppose.
I think that's
SPEAKER_02 (33:05):
possible.
Yeah.
At first I heard it and I said,that's ridiculous.
That's where most credit unionsare.
And I thought, huh.
The big credit unions willcherry-pick mergers with these
ones in that group.
It'll be Darwinian.
SPEAKER_01 (33:23):
And the small ones that are running a good shop,
that are thriving, are not goingto see the need, and they'll
just keep doing their thing.
SPEAKER_02 (33:34):
You look at the staffing and the payroll, the
small ones don't spend a lot ofmoney that they don't have to
spend.
So they can compete on pricingbetter than you might think.
SPEAKER_01 (33:47):
Oh, yeah.
Oh, yeah.
And the other thing that this isnot, this is very common for
smaller ones.
It does exist for big ones, butless so, is they have less
competitors because they'relending B and C and D paper.
You know what I mean?
They're going deeper down.
They're lending to people whogot turned away by Wells Fargo,
who got turned away maybe by thebigger credit union because they
(34:10):
don't have a great credit score.
And then the small credit unionis like, hey, we'll work with
you.
Tell us what your situation is.
What are you trying to do?
So they have a little niche thatthey're exploiting, that they're
working, not exploiting, that'snot the right word, but they
have their niche that has fewercompetitors so they can do
really well in there.
And then, of course, if you helpsomebody, somebody who doesn't
(34:31):
have a good credit score, andyou're the only one in town
that's going to give them thatauto loan, you have a very loyal
member for a very long time,right?
If you say, hey, we'll work withyou, we'll make this happen,
they're much more likely tostick around with you for a long
time.
So that's where the small onescan, I think, be successful and
continue.
SPEAKER_02 (34:52):
I knew CEO of a small credit union in
California's Central Valley,which is very agricultural.
SPEAKER_03 (34:58):
Mm-hmm.
SPEAKER_02 (34:59):
When he had time, he'd stand in the lobby, talk to
people, often steer theconversation to their car, ask
them where they financed it, howmuch, what their rate was.
They had often gotten it at usedcar lots
SPEAKER_03 (35:13):
and
SPEAKER_02 (35:14):
were paying astronomical rates because the
business plan for those used carlots is making high interest
rate loans.
It's not moving cars.
Cars are just the thing that theloan happens to be attached to.
Right, right.
And he would say, oh, you'repaying 20%.
Come in here.
I think I can get you down to14.
(35:35):
And that'll save you 60 bucks amonth.
Does that sound good to you?
For many of these people, 60bucks a month was worth spending
a half hour going over thispaperwork.
SPEAKER_01 (35:46):
Yep, exactly.
SPEAKER_02 (35:49):
But that guy was also living, in my mind, the
credit union mission.
That's right.
UNKNOWN (35:54):
Okay.
SPEAKER_02 (35:54):
you're getting screwed on this auto loan for
that used car dealer.
Let me see if I can help youout.
Exactly.
SPEAKER_01 (36:01):
Yeah.
And I'll remind you of theexample you gave earlier from
Navy Fed, right?
So it's not only small creditunions that can do that, right?
Right.
Any credit union can do that.
Well,
SPEAKER_02 (36:13):
I don't see the CEO of Navy Federal standing in
front of me.
And if he or she is doing that,I hope they get in touch with
me.
I want video.
SPEAKER_03 (36:21):
That's fair.
SPEAKER_02 (36:24):
Yeah, true.
But I'm not sure I really seethat as a terribly great use of
their time either.
Yeah, yeah.
It's, you know, when you'rerunning$100 million cutting, you
got some time you can killtalking to people in the lobby.
SPEAKER_01 (36:40):
I have more to add on the mergers.
One of the things that we had,that I prepared for that we had
as a topic was the sort of whenit comes to considering a merger
and acquisition from theperspective of the board, like
the fiduciary obligations of theboard members.
And I think that's worth notingjust because sometimes board
members need to be reminded,right?
(37:03):
when it comes down to making aany decision frankly that a
board makes they have to beacting and this is written in
the statute right they have tobe acting in the best interest
of the membership right so thatit's not the shareholders right
it's a member-owned cooperativeand so board members have a
fiduciary obligation to makedecisions in the best interest
of the members not in their ownself-interest not in the
(37:24):
interest of the the CEO oranybody else.
It needs to be what's going tobe best for the members.
And so it is important for themto do their due diligence and
ask important questions and makesure that they're voting in the
interest of the members.
And so that kind of addressesone of those challenges with
mergers and acquisitions wherewe see sometimes so-called bad
(37:45):
mergers where people are kind oflike, wait a minute, was that
really good for your membershipto do that?
And sometimes we see theoutcomes are not positive.
So I think it's important toremind board members of that
obligation.
The other thing I wanted to talkabout that folks don't often
consider when they're thinkingabout mergers and acquisitions
is having a plan for continuityof governance, right?
(38:07):
So oftentimes when you're doinga merger and acquisition,
there's an exchange that takesplace, right?
There's a new board that getscomposed for the new credit
union, and sometimes it's amixture of folks from the two
previous entities, right?
People usually take that forgranted and they take it as a,
oh, well, you know, send us, youknow, it's part of the
(38:28):
negotiation.
We'll take two of your boardmembers and we'll add them on.
And it's not something that getscarefully thought through.
It's kind of like the successionplanning conversation we had
earlier, right?
And so I like to remind peoplethat you want to be intentional
about your board composition.
You want to be intentional aboutwho you're going to bring on
from the other side and why andand make sure that you're
(38:51):
aligned when it comes tomission, when it comes to
strategy.
when it comes to your approachto governance.
And so there is a merging of thecultures of a sort, and people
don't always consider that.
A lot of times they're justfocused on the numbers and
focused on what's on the otherside in terms of the new credit
union.
But the governance piece isimportant, and I would want to
(39:13):
remind people to pay attentionto that as well.
SPEAKER_02 (39:18):
I know more about mergers in the publicly held
company sector for variousreasons.
And in the publicly held companysector, I learned this years and
years ago, everybody says thisis a merger of equals.
It never is.
Never.
Never.
(39:39):
There's always one companydriving the bus, and the other
company gets a few seats on thebus, and that's about it.
Don't ask for more, because youain't going to get them anyway.
SPEAKER_01 (39:49):
I agree.
I agree.
And the counterfactual is...
if it was a true merger, wouldyou ever have any chance of
being successful, right?
I mean, you got to have onedriver.
You got to have one vision, onestrategic plan, one culture.
And so it's got to be more of anacquisition than a merger, let's
be honest.
SPEAKER_02 (40:09):
And I think to some extent, we see that with credit
unions too, where they talk agood game of merger of equals.
But if Rarely is.
SPEAKER_01 (40:20):
At the end of the day, it's an acquisition.
I think merger sounds nice, andit's a good game.
I agree with you.
But you're not going to have twoCEOs.
You're going to have one CEO.
You're going to have one board,right?
And so, of course, most of thetime, there's some level of
blending, right, of the groups.
But there's going to be onecredit union on the back end.
SPEAKER_02 (40:44):
Oh, I know Fortune 500 mergers that occurred.
because it was a talentacquisition where the big
company looked and said, man,there's some really talented
people.
We want to get them working forus.
And they would get signedemployment contracts before they
signed the merger papers.
SPEAKER_01 (41:01):
Yeah,
SPEAKER_02 (41:02):
sure.
And so it happens.
It definitely does happen.
Now, go back to your firstpoint, fiduciary responsibility
board member.
I'm a board member.
Now, I have a show I'm postingwith Frank Diekmann.
Well, he was founder of CUToday.
(41:23):
He's been covering, as ajournalist, credit unions for, I
don't know, 30 years, 40 years,a long time.
And he told me there were manycases, documented cases, where
there had been essentiallypayoffs to credit union board
members.
SPEAKER_03 (41:39):
Yeah.
SPEAKER_02 (41:40):
Is that a violation of my fiduciary responsibility?
And in many cases, I don't thinktechnically it's a legal
violation.
We could argue that it's a moralviolation, but if it's done
right, i.e.
correctly, I don't know thatthere are particular legal
problems with it.
So I'm not going to be on theboard, but you're going to give
(42:02):
me this nice little consultingcontract for 12 grand for the
next three years, 12 grand ayear.
And also guarantee me a Q's triponce a year to Hawaii.
Okay, I'm on board.
I don't need to have my boardseat.
I'll vote for this merger.
SPEAKER_01 (42:20):
So it's shaky ground, and I'm not an attorney,
but I think there are ways inwhich it can be illegal.
It can be legal and above board,but there's...
It's shaky.
There's smoke, right?
And it makes people wonder.
And there's an optics questionthere.
Deakman
SPEAKER_02 (42:40):
says it has to be in a disclosure document filed with
the NCUA if it's legal.
But as he said, and he's right,no one reads disclosure
documents.
Right.
Yeah, yeah.
He made the claim that he's surehe's read more disclosure
documents than anybody else onthis planet.
And I think he has.
SPEAKER_01 (43:01):
Very likely.
I think very likely.
And I think the implied, youknow, the implication is that
like, well, the regulator needsto really be reading these
carefully and asking difficultquestions because there's smoke.
And the last thing you want is aboard member saying, voting in
favor of a merger because of anincentive, some financial or
(43:26):
other type of incentive that'spersonal, that's not about
what's best for the membership.
And so that would be veryconcerning, right?
And yeah, I think he's got apoint, right?
I mean, sometimes you see thetypes of deals that go down and
there's smoke there.
It makes me concerned for sure.
(43:48):
He
SPEAKER_02 (43:49):
wasn't necessarily arguing that they were illegal,
but there's something stinkyabout them nonetheless.
SPEAKER_01 (43:58):
Maybe it's more of a moral question than a legal
question.
SPEAKER_02 (44:06):
Now, last topic.
When the membership votes down amerger, what's happened?
SPEAKER_01 (44:15):
Again, my understanding is that it varies,
right?
It depends on the case.
It very much depends on thecase.
It can come down to marketing.
And the reason I say that isbecause, again, Frank is the
only one who's read all of thosedisclosures in the same way that
(44:36):
members, by and large, creditunion members, are not going to
sit down and spend 30 minutesreading financial statements and
projections, and they're notgoing to make an informed
business decision on whether ornot to merge.
Most members are not going tovote at all or pay any
attention.
Those that will vote, they'reswayed by the messaging and the
(44:57):
story that they're hearing fromthe credit union, whether or not
this is a good idea.
And obviously, they're usuallysaying, this is a good idea and
here's why.
But the marketing can be aquestion.
There are credit union memberswho are maybe like you and me,
who don't want to change, wholike their credit union the way
it is and don't necessarily wantto merge with this large
(45:18):
multi-state credit union wherethey think they're going to get
lost in the system and not getthe same type of customer
service that they're used to atthe branch, right?
So there's those types ofreasons.
But yeah, it's rarely, I think,one where they're sitting down
digging into financialstatements and saying, well,
this isn't necessarily going tobe good.
It's more about What's themessaging they're receiving?
(45:39):
Where are they in terms of theirunderstanding of what they like
about their credit union?
What do they want to preserve?
I think that's where the votecomes from.
SPEAKER_02 (45:49):
Yeah, I have this curiosity.
I wonder as we see more mergers,if we'll see more memberships
voting down the merger.
SPEAKER_01 (46:00):
It's possible.
Yeah, if they start to catchwind...
of, look, you and I are insidersin the sense that we're paying
attention to mergers all overthe country.
The typical credit union memberis not, right?
They're not aware of that.
But if at some point it becomespart of the general awareness,
that may become an issue, right?
Where people are like, wait aminute, I don't want this to
(46:22):
happen.
I don't want to lose my I go tomy branch every Saturday morning
and I have a wonderful chat withJoanne, who knows me, has known
me for years, and that kind ofstuff.
So people will resist that forsure.
SPEAKER_02 (46:36):
One more thought.
I said that would be the lastone, but one more.
This is a conversation I've hadwith Jim Blaine many times.
I think the specter of creditunion democracy is nonsensical.
I have never voted in a creditunion board election.
(46:58):
I don't even know when they are.
I don't know who the candidatesare.
That said, every year fromFortune 500 companies that I own
some stock in, I get theselittle board voting packets
every year with completebiographical information about
the candidates, et cetera, etcetera, enough to make an
(47:21):
informed choice in many cases.
And all I have to do is check afew boxes, sign my signature.
It's a self-addressed stampedenvelope.
So I don't even have to just putit in the envelope.
Off it goes.
Right.
Yeah.
I've never voted in it.
And yet you tell me I'm a memberowner.
SPEAKER_03 (47:40):
Yeah.
SPEAKER_02 (47:41):
That's interesting.
SPEAKER_01 (47:42):
Yeah.
I think that's a big challenge.
I think it's, again, let's goback to the history, right?
There was a time when the annualmeeting was...
On the shop floor, right?
You were there and you cared.
And it was more of an easilyperceived democracy, right?
(48:03):
Because people were in the roomand everybody knew who was
running for the board and whothey wanted.
And so as credit unions havegotten larger and more diffuse
and multi-state, right?
It just gets more complicated.
And I think good governance,good democracy would push for
credit unions to communicatewhen the annual meeting is.
(48:24):
Here's how you vote online.
Here's the slate of candidatesfor you to select from.
Here's their biographies, right?
And really have an opportunityto bring members in to take part
in the process.
And again, with the online worldwe live in, people can get all
this stuff on their phone.
They can vote on their phones,right?
There's ways to do it as youdescribed with the publicly
traded companies.
(48:45):
And so I think that's anopportunity for credit unions to
kind of get back to theirdemocratic roots and do better.
It's
SPEAKER_02 (48:51):
a way to differentiate from
SPEAKER_01 (48:52):
banks.
Yes, exactly.
And if you're smart about it,you can use it to grow your
brand, grow the awareness ofwhat people are actually a part
of.
SPEAKER_02 (49:03):
One thing Blaine is kind of proud of is that in the
most recent state employeeselection, something like 100,000
people voted.
SPEAKER_03 (49:14):
Yeah.
SPEAKER_02 (49:14):
And it's because he stirred up this controversy
about the board's compositionand policies.
And he's actually kind of happy.
I don't think his side succeededor won in this most recent vote.
But he's happy that 100,000people voted.
(49:35):
That's terrific.
SPEAKER_03 (49:36):
Yeah.
UNKNOWN (49:37):
Yeah.
SPEAKER_02 (49:38):
And it is terrific.
I just wish more credit unionswould have that level of
democracy where you say, wow,this is different than belonging
to a bank.
SPEAKER_01 (49:48):
Right.
Yeah, I agree.
I agree.
I think it's a great opportunityto level up and to get better as
a movement and to really makesure that that democratic
principle is alive and well.
SPEAKER_02 (50:05):
Before we go, think hard.
about how you can help supportthis podcast so we can do more
interviews with more thoughtfulleaders in the credit union
world.
What we're trying to figure outhere in these podcasts is what's
next for credit unions.
What can they do to really,really, really make a difference
in the financial scene?
Can't all be mega banks, can it?
(50:27):
It's my hope it won't all bemedical banks.
It'll always be a place forcredit unions.
That's what we're discussinghere.
So figure out how you can help.
Get in touch with me.
This is rjmcgarvey at gmail.com.
Robert McGarvey again.
That's rjmcgarvey at gmail.com.
Get in touch.
We'll figure out a way that youcan help.
We need your support.
(50:48):
We want your support.
We thank you for your support.
The CU 2.0 Podcast.
Welcome to the CU2.0 podcast.
SPEAKER_00 (00:05):
Hi, and welcome to the CU2.0 podcast with big new
ideas about credit unions andconversations about innovative
technology with credit union andfintech leaders.
This podcast is brought to youby Quillo, the real-time loan
syndication network for creditunions, and by your host,
longtime credit union andfinancial technology journalist,
(00:27):
Robert McGarvey.
And now, the CU2.0 podcast withRobert McGarvey.
SPEAKER_02 (00:33):
On today's show is Paul Dion, Chief Strategy
Officer at Quantum GovernanceL3C.
What's in L3C?
That's a very good question.
It's a low-profit, limitedliability company, and in the
case of quantum government, thatmeans it, quote, helps
nonprofits, credit unions,associations, and foundations
(00:53):
realize the full potential oftheir missions, close quote.
Thank you for joining us.
(01:28):
That doesn't mean best interestof the board member, nor does it
mean best interest of theexecutives of the credit union.
It's the best interest of themembership.
What's that really mean?
How can a board member go offcourse?
That's what we talk about inthis show.
And Dion, who worked at Filenebefore joining Quantum
(01:49):
Governance, tells the good, thebad, and the ugly.
Yep, the ugly.
Listen up.
Now, when you talk with creditunions, do most of them have
something that actually lookslike a strategy?
SPEAKER_01 (02:03):
Yes and no.
A lot of credit unions have astrategy.
They think quite hard about itand they have a plan.
There's another group of creditunions that I wouldn't say they
have a strategy.
They call it their strategicplan, but it looks more like a
business plan, which is like,hey, this is what we're gonna do
next year.
And here are the targets thatwe're gonna hit.
(02:23):
And it's more like a businessplan with objectives and
metrics.
SPEAKER_03 (02:27):
When
SPEAKER_01 (02:27):
I work on strategic planning with clients, we do try
to first come up with what Iwould call a strategy, which is
about differentiation, which isabout having a vision for
bringing that to light, forfulfilling your mission, for
really having a long-term planto be successful and
(02:51):
sustainable.
And so...
Yeah, that's a challenge, Iwould say, for credit unions is
some of them are maybe not asstrong at strategic planning as
they could be.
in part because I think one ofthe challenges for credit unions
is actually it's a sectorchallenge, right?
So if you are in anotherbusiness, line of business, you
(03:12):
can really focus ondifferentiation and have a
vision.
So take Apple, for example,right?
They can come up with somethinglike a new product, the iPhone,
and hey, they're so fancy andspecial, and that's what makes
them great.
But for credit unions, it's acommodity market, right?
So A loan is a loan.
I mean, whether you get it froma credit union or a bank or
Rocket Mortgage, it's very easyfor a consumer to just focus on
(03:35):
price, right?
Like, hey, I'm going to go forthe best rate and that's how I'm
going to make my decision.
So if you want to differentiateas a credit union, it's much
more challenging than if you'reApple or if you're Ikea or, you
know, right?
Other sectors have a lot moreopportunities for you to
differentiate and have astrategic plan around that
differentiation.
(03:56):
For financial services providersand consumer finance, it's much
more challenging because theproducts you're providing are
kind of all the same, right?
They're really commodities.
And so I do find a lack ofstrategic thinking and strategic
planning in some of our creditunions, but part of it is the
challenge of the sector thatthey're in.
(04:17):
It can be really hard to find away to differentiate because A
loan is a loan, right?
A deposit is a checking account.
I mean, they're all kind of thesame, right?
So how do you make them-
SPEAKER_02 (04:26):
Well, they're highly regulated, so they have to
SPEAKER_01 (04:28):
be- And
SPEAKER_02 (04:28):
that too.
Right.
Absolutely.
Yeah.
That's the other piece of it.
Yeah.
I can't start a credit union.
This is a way you've never donechecking before.
Yeah.
Yeah.
The NCUA would- get very mad
SPEAKER_01 (04:40):
at me it would shut you right down right it's also
SPEAKER_02 (04:42):
particularly i was actually doing check checking in
a way they'd never seen
SPEAKER_01 (04:48):
before yeah exactly exactly and so that and that's
the other major uh restrictionor inhibitor for credit unions
to be truly strategic in the waythat the strategy professors at
all the fancy business schoolswould want you to be
SPEAKER_02 (05:01):
go back to jobs it's an interesting thing to ponder
when he introduced the iphone Ivividly remember this.
His message was all about whatthis device will do for you.
SPEAKER_03 (05:16):
He
SPEAKER_02 (05:18):
wasn't talking technology.
Microsoft always preferred totalk technology.
This has X RAM, so much memory,blah, blah, blah, blah, blah,
blah.
Jobs never went there.
He always talked about and didthis very clearly with the
iPhone.
This is what this will do foryou.
This app will make sure younever get lost again.
(05:39):
You.
You heard that and you said,wow, I really want this thing.
SPEAKER_01 (05:43):
Absolutely.
Yeah, no, the value propositionwas really well thought out and
it gets you on an emotionallevel.
Do you know what I mean?
I mean, obviously there's somepeople that are gearheads that
care about the bells andwhistles, but most of us, it's
emotional, right?
It's like, oh my gosh, this isthis game-changing device that I
(06:05):
know where my kids are, and Iknow I have a map on here, and I
can take pictures with it.
He spoke to the emotion, and Ithink that was very,
SPEAKER_02 (06:15):
obviously, groundbreaking.
We've become so attached to ourphones.
I was reading an article today,oh, you're going overseas, maybe
you should take a burner phone.
And I am going overseas thissummer.
I think, should I have a burnerphone?
And that struck me as about ascomfortable as going naked
(06:36):
through the airport.
SPEAKER_01 (06:40):
Yeah, yeah.
I don't know if I would do that
SPEAKER_02 (06:43):
either.
Every financial transaction, Iget a text message about, yeah,
I get all this stuff on the
SPEAKER_01 (06:53):
phone.
Yeah, yeah, absolutely.
Absolutely.
SPEAKER_02 (06:55):
Really, it would be like going naked.
And TSA would be a littlepuzzled when I showed up naked.
So we do get involved in thesethings.
I come back to so many creditunions.
And when I talk to them, I ask,so who do you compete with?
And they could tell me answers.
(07:16):
And almost always, I think theanswer is wrong.
It's often the community bankdown the street, blah, blah,
blah.
I say, no, actually, it's ChaseManhattan, a bunch of fintechs.
That's about it, really.
SPEAKER_01 (07:29):
Actually, Robert, I take it a step further.
I say the same thing as you, andthen I take it a step further.
Here's what I do.
Let me know what you think.
I also say you're competing withAmazon.
Yeah.
And what I mean by that is,obviously, Amazon's not
providing financial servicesanymore.
yet.
You're competing with them inthe sense that when people open
(07:50):
up their banking app or theircredit union app, they're
expecting Amazon level qualityand service, right?
They're expecting Apple levelquality and service when they
open the app.
It's got to be functional.
It's got to be easy.
It's got to be fast.
And that's why you're competingwith them because people are
looking for that when they openup your app.
SPEAKER_02 (08:11):
Yeah.
Many credit unions really alterat that.
I'm I remember I was trying toopen up an account with a credit
union in Phoenix when I movedhere.
And I couldn't do it online.
And I called them up and said,they said, oh, just got to come
in and finalize a few things.
Now, some years before that, I'dopened an account with Chase
(08:34):
online.
Never said put in a branch.
SPEAKER_01 (08:37):
And
SPEAKER_02 (08:39):
that
SPEAKER_01 (08:40):
was years before.
But of course, as you know,Chase probably spends more on
their online digital offerings.
They spend more on the firstminute of the new year than
credit unions spend in a year,right?
Most credit unions.
Oh, I
SPEAKER_02 (08:54):
understand that.
Years ago, I talked to the guywho was in charge of the project
to create the first mobile appfor Chase.
And although he didn't put itquite this way, the way I
interpreted it, he had anunlimited budget to go out and
hire app developers, which hedid.
Yeah,
SPEAKER_01 (09:11):
but that's the challenge for credit unions on
the digital front, right, isthey have to keep up with
expectations.
I mean, the Apple card is theone I use as an example, you
know, and I think they'reactually using it in their
marketing now.
You can have your iPhone and bein line at Starbucks or the
coffee shop and apply for thecard and get approved and use it
(09:33):
when you get to the front of theline to pay for your cup of
coffee.
You know, it's that fast to getapproved, right?
SPEAKER_02 (09:39):
Well, that's that fast for years.
So many credit unions don't getit.
So why would I apply for acredit card at a credit union?
It's like it's back to 1960.
We're going to mull on this fora month or so.
Why, man?
You don't have to do it that wayanymore.
SPEAKER_01 (09:56):
That's the challenge.
SPEAKER_02 (09:59):
So let's talk now about mergers.
Now, why are credit unionsmerging?
Number one.
Number two, why?
When do you think it's a goodthing?
Number three, when do you thinkit's an awful idea?
SPEAKER_01 (10:11):
First question, why are credit unions merging?
There's no simple answer.
It depends on the context andwhat's going on.
Some credit unions are mergingto grow.
They call it inorganic growth,right?
So you can grow your creditunion through taking deposits
and making loans in thetraditional way, the sort of
(10:33):
organic way.
if you want to get much larger,much more quickly, you can
merge, right?
You can acquire.
SPEAKER_02 (10:38):
But both state employees and maybe federal do
not have policies of merging togrow.
They both grow organically.
Organically, yeah.
And Pentagon Federal has mergedwith anything that was loose on
the game board.
Right, right.
And it is not kept up at thesame pace
SPEAKER_01 (10:56):
of growth.
Exactly.
And I think that's kind of thepoint that I'm trying to make,
which is, It depends on thecontext, right?
So some credit unions say, Hey,this is the way we're going to
grow.
Others are like, we're going tofocus on organic growth.
Some have a mixed approach.
And so that's one of thepotential reasons why credit
unions are looking to merge,right?
They want to grow.
They want to get scale that youhear that a lot.
(11:18):
I'm a little skeptical aboutthat one, but that's one of the
arguments that people make.
Sometimes it's valid.
Sometimes it's not like thereason I I'm skeptical is
because I work with small creditunions and filing has done
research on this.
There are a lot of small creditunions on there that are beating
the big credit unions on theirperformance, obviously by by
percentage and with theirratios.
(11:39):
But they're being large creditunions on performance and
they're thriving and they don'thave, quote unquote, scale, but
they are able to make it allwork.
And so, you know, that's that'sthe scale argument is is It is
what it is.
Credit unions are looking tomerge and acquire because they
want to grow.
Another reason is the sort ofdistressed credit union that
(12:00):
maybe is struggling withleadership succession and
transitions at the board levelor at the C-suite level.
So that's another factor.
It's like, oh my gosh, we can'tdo this anymore.
Or we're struggling financiallyor some sort of distress at the
credit union where they're, hey,it's time for us to find a
partner.
and relieve ourselves of ourburdens, I guess, for lack of a
(12:22):
better word.
So that's another reason we seemergers.
Sometimes it's a differentstrategic play, and we're seeing
this more often, which is creditunions are buying, or sorry,
they're merging or acquiringothers, and this includes banks,
in order to expand their fieldof membership, right?
In order to expand their market.
So you merge with a credit unionacross state lines, and then all
(12:42):
of a sudden, hey, you can dobusiness in that new state,
right?
So that's another thing that wesee.
Those are the big three thatcome to mind.
I don't know if I missed any,Robert.
Are there others that peopletalk about?
I may have missed other reasons.
SPEAKER_02 (12:54):
Well, there's what had been historically the most
common reason, which is, andthis is kind of an elaboration
on your second point, justdrastic.
The most common reason formerger 20 years ago was NCUA
called up a big credit union CEOand said, we're about to
conserve this damn little creditunion.
Would you please merge with itso we don't have to do that
(13:15):
completely?
conservative thing.
SPEAKER_03 (13:16):
Right.
Right.
SPEAKER_02 (13:17):
And the CEO of the big credit union, Navy federal,
I believe has done this.
I know state employees did it afew times.
I'll pay fine.
Right.
No problem.
No problem.
Yep.
Yep.
So that those will continuethose kinds of mergers.
I call them shotgun marriages.
SPEAKER_01 (13:34):
Exactly.
Exactly.
SPEAKER_02 (13:37):
The scale one.
I've never, I, you know, as Isay to people, I hear this
thing, I hear it, but you know,no matter how often you merge,
You're never going to come onthe radar screen of Jamie Dimon
at JPMorgan Chase.
You're not going to get bigenough.
There are not enough creditunions.
If you merged with Bank ofAmerica, then he'd notice you.
Exactly.
SPEAKER_01 (13:58):
Yeah.
And the way things work now withthe ecosystem of partners, you
know, CUSOs and other providersthat partner with credit unions,
all the vendors, right?
So I'm in addition to working atQuantum Governance, I should
share this.
I serve on the board of a smallcredit union in Illinois called
Rock Valley Credit Union, 165million in assets.
(14:20):
I've been on the board for justover a year now.
And we have a lot of vendors whoare partners of the credit union
that allow us to have an appthat allow us to have Lots of
online provisions for members.
And so even at the asset, this,what by most accounts would be,
hey, this is a really tinycredit union, 165 million
(14:41):
assets.
We're doing fine, right?
Financially, we're doing great.
And we're able to provide quitea bit of digital offerings that
you would expect only happens atthe very large asset size credit
unions.
But no, now with the vendorecosystem we have, even small
credit unions can be prettycompetitive.
SPEAKER_02 (14:58):
And once I realized what QZOs were, It occurred to
me, I see CUSOs as really thesecret weapon of
SPEAKER_03 (15:06):
credit
SPEAKER_02 (15:06):
unions.
I see it as dramatically moreimportant than tax exemption
because CUSOs do enable creditunions to get technology that's
much better than they would getif they were just operating on
their own.
SPEAKER_01 (15:18):
No doubt.
No doubt.
Yeah, I agree.
I think they're a fantasticresource for credit unions.
It's part of the cooperativeprinciples, cooperation amongst
cooperatives.
And so it's one of ourstrengths, right?
It's one of our powers.
SPEAKER_02 (15:37):
And now that going public is ever more difficult
for small fintechs, more of themare looking at QZones.
That will not be a permanentfixture.
Going public will come back invogue at some point.
But right now, it's a great timeto be looking at QZones because
all kinds of fintechs want tohave a QZone.
SPEAKER_01 (15:57):
Yeah, I think it makes sense.
It's a smart move for them toget access to capital.
And it's part of the, you know,if you think historically of
that sector, that industry, thefintechs, it's still relatively
young-ish.
And so this is still the momentwhere you have the sort of
Cambrian explosion of lots ofstartups, lots of small new
(16:18):
companies.
And so, you know, this is partof the cycle, right?
At some point, I don't know whenit is, 5, 10, 20 years from now,
they're going to start toconsolidate, right?
And this is what we've seenhistorically in most business
sectors.
You have this early Cambrianexplosion, lots of fintechs,
right?
And then over time,consolidation, consolidation,
consolidation.
So that's when you'll see thepublic come back.
SPEAKER_02 (16:42):
I remember in circa 1983, 85, there were probably a
dozen or more makers of personalcomputers running MS-DOS.
Right, right.
And over time, that number ofmanufacturers really got chipped
down.
And we will see similar, Ithink.
SPEAKER_01 (17:05):
It's part of the history of pretty much every
business sector.
So very likely, we'll see thesame.
SPEAKER_02 (17:13):
One area where I differ from some people,
including the regulators, Butthen again, you know, I've spent
a lot of time talking with JimBlaine, so I'm used to differing
with the regulator.
Yeah, it's a week without adifference with NCUA is
important.
Yeah, NCUA is implementing thisnew, you must file succession
(17:36):
plans.
You're probably doing that withthat small credit union that
we've got in the process.
Yes.
One in Illinois.
Yes.
And I said, I've said, I've goneon the record, if I run the
board of a small credit union,For a succession plan for CEO,
I'd say we're going to mergeout.
That's my succession plan.
Interesting.
(17:58):
I can't get the answer from theregulator.
I've asked experts in thatfield.
Would NCOA disallow that as ananswer?
Their answer seems to be, wedon't know.
Yeah, that's what that would be.
This all is new.
So there's not a lot of trackrecord here.
But I would write, go merge outof existence.
That's the plan.
SPEAKER_01 (18:19):
Yeah, so I don't know either because they
haven't, you know, it goes intoeffect next January.
If it in fact does, it soundslike it might be in question
again.
Yeah, we don't know how they'regoing to enforce it or interpret
it.
So that remains to be seen.
I don't know why.
Who's
SPEAKER_02 (18:38):
opposed to this, really?
It's harmless.
It's a little time consuming.
But it's not binding.
So in other words, you file thisplan and the NCUA doesn't put a
gun to your head saying, hey,wait, wait, wait, wait.
When you filled out this plan,you said your plan for filling
the CIO job was X, Y, Z, and nowyou're not doing that.
So they're not going to do that.
SPEAKER_03 (19:00):
It's
SPEAKER_02 (19:02):
a harmless exercise.
All public companies of any sizedo this.
SPEAKER_01 (19:07):
Yeah.
Yeah, I think that, yeah, theidea from the NCUA is, hey,
let's, you know, they see thedistressed credit unions, they
see the mergers as a result ofnot doing the succession
planning, right, or not reallyhaving an opportunity to either
a board or a C-suite or boththat just are not, are tired and
(19:30):
ready to move on.
And so they're thinking like,hey, let's have this succession
planning sort of requirement asa way to nudge people to go
through the motions, right?
And I think a lot of creditunions might check the box,
right?
They'll just go through theexercise and feel like it's
non-binding.
A number of the clients that wework with who are doing it take
(19:51):
it seriously, right?
And we found it's beenbeneficial for them, which is to
say, hey, let's really give ussome thought.
And sometimes the board kind ofgoes, hey, CEO, you know, maybe
you need to spend more timetraining, you know, developing
the people on your team, right?
Thinking about your C-suite, notjust for what they're doing
today, but what they're going todo in the future for the credit
(20:13):
union or for others.
And so sometimes the exercisecan be productive, right?
It can help you identify somegaps or some opportunities to
really improve the way theteam's being developed and how
people are thinking about theirfutures.
Well,
SPEAKER_02 (20:26):
at a sizable publicly held company, A big
part of the CEO's job issuccession planning.
SPEAKER_03 (20:35):
Yeah.
Oh, yeah.
SPEAKER_02 (20:36):
Yeah.
He or she is supposed to havetwo or four or pick a number.
Right.
Candidates that are beingnurtured, developed, candidates
that the board could look at andmake their own decisions about.
Right.
Because the board will make thatdecision.
The CEO, of course, won't.
Yes.
But it's the CEO's job to dothat nurturing of the successor.
SPEAKER_01 (20:57):
Yeah.
UNKNOWN (20:57):
Yeah.
SPEAKER_01 (20:58):
And if you think about the rule from a certain
way, you can say this is anopportunity for the board to
say, hey, CEO, tell us aboutwhat you're doing to nurture
your team.
Right?
Exactly.
And have that conversation.
And that can be, you know, noteverybody.
I'll just be right.
Some are probably already havingthat conversation and doing it,
but some are not.
And so this is a chance to kindof
SPEAKER_03 (21:19):
go, hmm,
SPEAKER_01 (21:20):
let's talk about that.
Right.
And see where things are.
SPEAKER_02 (21:23):
Well, that Illinois credit union.
might because many institutionsare in this position.
A long time CEO retires or diesand they say, okay, let's put
out a listing for the job.
And no one seems to apply forthis job that pays$75,000 a year
(21:44):
and you can make more managing alocal branch for Chase.
No one wants it.
There's too many hours, too muchresponsibility.
And you got to work Saturdaysoften.
You weren't planning on that.
It's yeah.
So yeah.
And the, you know, they justdidn't do any thinking about
(22:06):
this.
So I see the, the NCUA thing atleast as prompting thinking.
SPEAKER_01 (22:12):
Yeah.
That's, that's the way I see ittoo.
It's a nudge to kind of go, Hey,go through the motions, do the
exercise, have thoseconversations and, Figure out
what you want to do, what'sgoing to happen, because it's
going to happen, right?
Nobody's here forever.
And as you pointed out, thereare real challenges, especially
for smaller credit unions, whichis to say, look, if you're a
(22:34):
billion plus credit union, yougot a CEO opening, you go get a
recruiter and you have a slateof very strong people.
professional candidates who wantto come work for you, right?
But if you're a small creditunion,$50 million in assets, and
the salary's less than$100,000,and the hours are really
onerous, and you have to livein, right, I'll use my hometown,
(22:55):
you have to live in Beloit,Wisconsin, not everybody
necessarily wants to do that.
And so that's a tougher, that'sa tougher road to hoe, right, to
prepare for and to be able to besuccessful.
And, you know, frankly, that'sit doesn't always work out right
for the best.
And that's when we get back tothe merger and acquisition
conversation, right?
And that's...
(23:16):
I think
SPEAKER_02 (23:17):
some credit unions try because they're naive.
They don't realize there'll beno interest.
Yeah, yeah.
And after six months of nobodywith any qualifications to speak
of applying for the job, thenthey say, okay, we got to just
merge out of existence.
This is just not working.
SPEAKER_03 (23:33):
Yeah, yeah.
SPEAKER_02 (23:35):
And again, I could see the NCUA thing I would hope
fewer institutions would findthemselves in that place.
Strangely, it's okay by me ifyou consciously say, our plan is
to merge, period.
I'm more irked by theaccidental, we weren't planning
(23:56):
to merge, but geez, that's ouronly real option now that we see
the game board.
Do you think there should befewer mergers?
More mergers?
What do you think?
It's
SPEAKER_01 (24:06):
an economic market, right?
It's going to do what it's goingto do.
I do think that it's importantfor the credit union movement to
have...
a diverse collection of creditunions.
And what I mean by diverse islike lots of different asset
sizes, lots of different typesof membership bases, lots of,
(24:27):
you know, just I want to see athriving, diverse credit union
movement.
And so that would make me wantto see maybe fewer mergers.
Part of the reason for that alsois that there's the de novo
challenge, right?
There just aren't a lot of newcredit unions born these days
for various reasons.
And so the mergers and theoccasional closure by the NCUA
(24:49):
means that the overall number ofcredit unions is shrinking.
And so that's a concern thatpeople have.
It ties into advocacy questions,right?
The question of like creditunions being able to maintain
the tax exemption, which is abig topic this year.
It's like if you don't have adiverse group, if you don't have
a lot of small credit unionsthat really are demonstrating
(25:12):
the mission overall, it can bemore challenging to make that
argument that, no, no, this is adifferent type of beast, this
financial beast.
offerings that credit unions dois really very different from
what others are providing, andit's worth maintaining the tax
exemption.
So that's a reason to say, hey,maybe we should pull back.
But at the end of the day, it'sits own beast.
(25:33):
I mean, credit unions are goingto do what they're going to do.
We're kind of on the sidelines.
It doesn't matter so much what Ithink about where the mergers
are going.
It's a market.
It's going to go.
SPEAKER_02 (25:49):
I agree.
I also think a lot of mergersaren't particularly, they don't
get the result people saythey're going to get.
And I think that's pretty welldocumented.
So why are we eliminating thisentire charter?
(26:10):
And most small credit unions,I've said this many times, 90%
of credit unions wouldn't pay apenny in federal income tax if
they only hired a decentaccountant.
They just don't make enoughmoney, period.
They can go walk the hill allthey want.
God love them.
I'm sure Pentagon Federal ishappy to see them out there.
(26:35):
It's wonderful that you're doingthis for, quote, the movement,
but close quote.
But really, you don't have anyskin in this game.
Yeah.
What do you think about creditunions take the name credit
union out of their name?
This is a little minor trendthat's been going on for some
time.
SPEAKER_01 (26:53):
Interesting.
Yeah.
You're right.
I've noticed that.
Those that are changing theirnames seem to be dropping the
credit union.
I'm not sure.
I think I understand wherethey're coming from.
Again, I don't even know that.
I haven't had conversations withfolks about it, but...
my guess would be that the wordunion gets misunderstood.
You know, people think maybethis is some kind of labor union
(27:16):
or that I have to be...
SPEAKER_02 (27:17):
And historically, many of them were.
SPEAKER_01 (27:20):
Yeah.
And so I wonder if that's partof the impulse is to move away
from that misunderstanding.
I think there is a sense,there's been research on this,
that people have a kind of apreconceived notion that credit
unions are like well that'sthey're sort of the first steps
when i you know i'm part of thethe school district and there's
(27:42):
a credit union for our schooldistrict employees and so i'm a
member of them but when i growup i'm gonna i'm gonna join a
real bank you know like thatit's like a it's like a starter
bank and then eventually you'regoing to grow up and become a
bank with a big bank so thatmaybe they're trying to avoid
that piece of it you know ileave that to the marketers
there i think they i'm surethey've done their their market
(28:04):
research on why they're lookingto drop it out.
SPEAKER_02 (28:06):
Historically, credit unions and go back SNLs when we
still had SNLs, had a limitedrepertory of services that they
offered.
Whereas the banks, the ChaseManhattans, the Citibanks, et
cetera, had many more servicesthey could offer legally.
(28:28):
That's changed where$100 millioncredit unions can actually do
international wire transfers ifhe wants to put that into place.
SPEAKER_01 (28:37):
It
SPEAKER_02 (28:37):
can do real-time payments if they want to do
that.
SPEAKER_01 (28:43):
Exactly.
It goes back to our earlierconversation with all the
vendors out there in the QSOs.
You can do wealth management.
You can provide insuranceservices through TrueStage.
There's all kinds of stuff thatyou can do with a small credit
union now that was not the casein the past.
And I think the publicperception hasn't caught up with
that?
SPEAKER_02 (29:04):
I know CUNA has run these projects off and on over
the years, trying to educate thepublic about credit unions with
no apparent success that I cansee.
I don't know why it's that hard,to be honest.
I mean, it is a different kindof banking.
It's banking for the peoplerather than the shareholders.
Right,
SPEAKER_01 (29:23):
right.
Yeah, no, and I think it'scompelling.
I think it's...
actually, you know, this is oneof the challenges I would point
out, which is the youngergenerations and having them
become more aware of the creditunion difference.
And I think it would be reallycompelling for the youngsters,
right, to kind of go, hey, I'mnot going to be part of this
(29:43):
for-profit system.
I can do something that benefitsmy community and benefits me.
And, you know, I think thecooperative model is a
sustainable one and a long-term,really powerful option for the
younger generations.
And we've We still have tofigure out how to do that
because we're not bringing themin yet.
Still a lot of work to be doneon that front.
SPEAKER_02 (30:04):
Well, I'm told that there's some people are seeing
signs that the youngergeneration is moving away from
the money center banks, whichthey had historically flocked to
because the money center bankswere very, very good at
recruiting them as customers.
Yeah.
Blanketing colleges like BeloitCollege with credit card offers.
Boom.
(30:24):
Right.
You want a credit card?
It's a terrible thing to give an18-year-old.
Here's this$5,000 credit limit.
God, I would have caused so muchdamage.
SPEAKER_01 (30:33):
Oh, yeah.
Well, I've seen it.
I worked at Belay College as astaff person, and I saw the
damage.
It's rough.
SPEAKER_02 (30:39):
And I wouldn't have done it thinking criminally.
I just would have been stupid.
Oh, you got to pay this backsomeday?
Oh, jeez.
Oh, and there's this 18% or 22%interest?
Oh, my heavens, what's that?
SPEAKER_01 (30:53):
Yeah, yeah.
I don't even know what thatmeans, but I'll figure it out.
later.
SPEAKER_02 (30:57):
So, but my understanding is the kids are
now gravitating more towardsFinTechs.
SPEAKER_03 (31:03):
Yeah.
SPEAKER_02 (31:03):
But that does offer credit unions an opportunity to
get in there because supposedlya lot of kids are responding to
social messaging.
If you go to any of thedemonstrations, political
demonstrations that arehappening across the country
right now, there's two groupsout there.
There's kids and then there'sold people.
SPEAKER_01 (31:23):
Yeah.
UNKNOWN (31:24):
Yeah.
SPEAKER_01 (31:25):
Yeah.
Some of us working stiffs got tobe in the office.
Right.
So even when it's Saturday, evenwhen it's a Saturday.
Yeah.
Yeah.
SPEAKER_02 (31:32):
Still has two groups.
SPEAKER_01 (31:34):
Well, two things that come to mind from that,
Robert, is like the marketinglooks different.
Right.
You got to you got to talk tothem where they are, which is
it's not even Facebook anymore.
It's tick tock.
And, you know, you've got to bewhere they are, where they are
on their screens.
And it's a different marketingapproach.
So that's one of the challenges.
SPEAKER_02 (31:52):
Yeah, but most credit unions of any size,
probably not the one you workwith in Illinois, but most of
them do have a social mediaexpert on staff.
And it's usually a kid.
Usually, oh, hey, you're theyoungest person in the room.
Hey, you're our social mediaexpert.
Right, that's right.
Yeah, even if the kid majored inthe languages of antiquity in
(32:15):
college.
No, you're the social mediaexpert.
I think too many credit unionsjust don't try hard when it
comes to that young population.
They all talk about doing it,but they don't do it that hard,
I don't think.
So will there be a credit unionmovement 20 years from now?
A theory I've been hearing, andI'm not putting this forth as
(32:37):
the commonly held theory, isthat what we're going to see is
a world where there will besmall credit unions, the
inclusive type of small creditunions, And then they're going
to be monster credit unions andthere ain't going to be much in
the middle.
SPEAKER_01 (32:53):
Interesting.
SPEAKER_02 (32:54):
Yeah.
So middle is like a billion to300 million.
It's where most credit unionsare today.
SPEAKER_01 (33:02):
Yeah.
Yeah.
Yeah.
I suppose.
I think that's
SPEAKER_02 (33:05):
possible.
Yeah.
At first I heard it and I said,that's ridiculous.
That's where most credit unionsare.
And I thought, huh.
The big credit unions willcherry-pick mergers with these
ones in that group.
It'll be Darwinian.
SPEAKER_01 (33:23):
And the small ones that are running a good shop,
that are thriving, are not goingto see the need, and they'll
just keep doing their thing.
SPEAKER_02 (33:34):
You look at the staffing and the payroll, the
small ones don't spend a lot ofmoney that they don't have to
spend.
So they can compete on pricingbetter than you might think.
SPEAKER_01 (33:47):
Oh, yeah.
Oh, yeah.
And the other thing that this isnot, this is very common for
smaller ones.
It does exist for big ones, butless so, is they have less
competitors because they'relending B and C and D paper.
You know what I mean?
They're going deeper down.
They're lending to people whogot turned away by Wells Fargo,
who got turned away maybe by thebigger credit union because they
(34:10):
don't have a great credit score.
And then the small credit unionis like, hey, we'll work with
you.
Tell us what your situation is.
What are you trying to do?
So they have a little niche thatthey're exploiting, that they're
working, not exploiting, that'snot the right word, but they
have their niche that has fewercompetitors so they can do
really well in there.
And then, of course, if you helpsomebody, somebody who doesn't
(34:31):
have a good credit score, andyou're the only one in town
that's going to give them thatauto loan, you have a very loyal
member for a very long time,right?
If you say, hey, we'll work withyou, we'll make this happen,
they're much more likely tostick around with you for a long
time.
So that's where the small onescan, I think, be successful and
continue.
SPEAKER_02 (34:52):
I knew CEO of a small credit union in
California's Central Valley,which is very agricultural.
SPEAKER_03 (34:58):
Mm-hmm.
SPEAKER_02 (34:59):
When he had time, he'd stand in the lobby, talk to
people, often steer theconversation to their car, ask
them where they financed it, howmuch, what their rate was.
They had often gotten it at usedcar lots
SPEAKER_03 (35:13):
and
SPEAKER_02 (35:14):
were paying astronomical rates because the
business plan for those used carlots is making high interest
rate loans.
It's not moving cars.
Cars are just the thing that theloan happens to be attached to.
Right, right.
And he would say, oh, you'repaying 20%.
Come in here.
I think I can get you down to14.
(35:35):
And that'll save you 60 bucks amonth.
Does that sound good to you?
For many of these people, 60bucks a month was worth spending
a half hour going over thispaperwork.
SPEAKER_01 (35:46):
Yep, exactly.
SPEAKER_02 (35:49):
But that guy was also living, in my mind, the
credit union mission.
That's right.
UNKNOWN (35:54):
Okay.
SPEAKER_02 (35:54):
you're getting screwed on this auto loan for
that used car dealer.
Let me see if I can help youout.
Exactly.
SPEAKER_01 (36:01):
Yeah.
And I'll remind you of theexample you gave earlier from
Navy Fed, right?
So it's not only small creditunions that can do that, right?
Right.
Any credit union can do that.
Well,
SPEAKER_02 (36:13):
I don't see the CEO of Navy Federal standing in
front of me.
And if he or she is doing that,I hope they get in touch with
me.
I want video.
SPEAKER_03 (36:21):
That's fair.
SPEAKER_02 (36:24):
Yeah, true.
But I'm not sure I really seethat as a terribly great use of
their time either.
Yeah, yeah.
It's, you know, when you'rerunning$100 million cutting, you
got some time you can killtalking to people in the lobby.
SPEAKER_01 (36:40):
I have more to add on the mergers.
One of the things that we had,that I prepared for that we had
as a topic was the sort of whenit comes to considering a merger
and acquisition from theperspective of the board, like
the fiduciary obligations of theboard members.
And I think that's worth notingjust because sometimes board
members need to be reminded,right?
(37:03):
when it comes down to making aany decision frankly that a
board makes they have to beacting and this is written in
the statute right they have tobe acting in the best interest
of the membership right so thatit's not the shareholders right
it's a member-owned cooperativeand so board members have a
fiduciary obligation to makedecisions in the best interest
of the members not in their ownself-interest not in the
(37:24):
interest of the the CEO oranybody else.
It needs to be what's going tobe best for the members.
And so it is important for themto do their due diligence and
ask important questions and makesure that they're voting in the
interest of the members.
And so that kind of addressesone of those challenges with
mergers and acquisitions wherewe see sometimes so-called bad
(37:45):
mergers where people are kind oflike, wait a minute, was that
really good for your membershipto do that?
And sometimes we see theoutcomes are not positive.
So I think it's important toremind board members of that
obligation.
The other thing I wanted to talkabout that folks don't often
consider when they're thinkingabout mergers and acquisitions
is having a plan for continuityof governance, right?
(38:07):
So oftentimes when you're doinga merger and acquisition,
there's an exchange that takesplace, right?
There's a new board that getscomposed for the new credit
union, and sometimes it's amixture of folks from the two
previous entities, right?
People usually take that forgranted and they take it as a,
oh, well, you know, send us, youknow, it's part of the
(38:28):
negotiation.
We'll take two of your boardmembers and we'll add them on.
And it's not something that getscarefully thought through.
It's kind of like the successionplanning conversation we had
earlier, right?
And so I like to remind peoplethat you want to be intentional
about your board composition.
You want to be intentional aboutwho you're going to bring on
from the other side and why andand make sure that you're
(38:51):
aligned when it comes tomission, when it comes to
strategy.
when it comes to your approachto governance.
And so there is a merging of thecultures of a sort, and people
don't always consider that.
A lot of times they're justfocused on the numbers and
focused on what's on the otherside in terms of the new credit
union.
But the governance piece isimportant, and I would want to
(39:13):
remind people to pay attentionto that as well.
SPEAKER_02 (39:18):
I know more about mergers in the publicly held
company sector for variousreasons.
And in the publicly held companysector, I learned this years and
years ago, everybody says thisis a merger of equals.
It never is.
Never.
Never.
(39:39):
There's always one companydriving the bus, and the other
company gets a few seats on thebus, and that's about it.
Don't ask for more, because youain't going to get them anyway.
SPEAKER_01 (39:49):
I agree.
I agree.
And the counterfactual is...
if it was a true merger, wouldyou ever have any chance of
being successful, right?
I mean, you got to have onedriver.
You got to have one vision, onestrategic plan, one culture.
And so it's got to be more of anacquisition than a merger, let's
be honest.
SPEAKER_02 (40:09):
And I think to some extent, we see that with credit
unions too, where they talk agood game of merger of equals.
But if Rarely is.
SPEAKER_01 (40:20):
At the end of the day, it's an acquisition.
I think merger sounds nice, andit's a good game.
I agree with you.
But you're not going to have twoCEOs.
You're going to have one CEO.
You're going to have one board,right?
And so, of course, most of thetime, there's some level of
blending, right, of the groups.
But there's going to be onecredit union on the back end.
SPEAKER_02 (40:44):
Oh, I know Fortune 500 mergers that occurred.
because it was a talentacquisition where the big
company looked and said, man,there's some really talented
people.
We want to get them working forus.
And they would get signedemployment contracts before they
signed the merger papers.
SPEAKER_01 (41:01):
Yeah,
SPEAKER_02 (41:02):
sure.
And so it happens.
It definitely does happen.
Now, go back to your firstpoint, fiduciary responsibility
board member.
I'm a board member.
Now, I have a show I'm postingwith Frank Diekmann.
Well, he was founder of CUToday.
(41:23):
He's been covering, as ajournalist, credit unions for, I
don't know, 30 years, 40 years,a long time.
And he told me there were manycases, documented cases, where
there had been essentiallypayoffs to credit union board
members.
SPEAKER_03 (41:39):
Yeah.
SPEAKER_02 (41:40):
Is that a violation of my fiduciary responsibility?
And in many cases, I don't thinktechnically it's a legal
violation.
We could argue that it's a moralviolation, but if it's done
right, i.e.
correctly, I don't know thatthere are particular legal
problems with it.
So I'm not going to be on theboard, but you're going to give
(42:02):
me this nice little consultingcontract for 12 grand for the
next three years, 12 grand ayear.
And also guarantee me a Q's triponce a year to Hawaii.
Okay, I'm on board.
I don't need to have my boardseat.
I'll vote for this merger.
SPEAKER_01 (42:20):
So it's shaky ground, and I'm not an attorney,
but I think there are ways inwhich it can be illegal.
It can be legal and above board,but there's...
It's shaky.
There's smoke, right?
And it makes people wonder.
And there's an optics questionthere.
Deakman
SPEAKER_02 (42:40):
says it has to be in a disclosure document filed with
the NCUA if it's legal.
But as he said, and he's right,no one reads disclosure
documents.
Right.
Yeah, yeah.
He made the claim that he's surehe's read more disclosure
documents than anybody else onthis planet.
And I think he has.
SPEAKER_01 (43:01):
Very likely.
I think very likely.
And I think the implied, youknow, the implication is that
like, well, the regulator needsto really be reading these
carefully and asking difficultquestions because there's smoke.
And the last thing you want is aboard member saying, voting in
favor of a merger because of anincentive, some financial or
(43:26):
other type of incentive that'spersonal, that's not about
what's best for the membership.
And so that would be veryconcerning, right?
And yeah, I think he's got apoint, right?
I mean, sometimes you see thetypes of deals that go down and
there's smoke there.
It makes me concerned for sure.
(43:48):
He
SPEAKER_02 (43:49):
wasn't necessarily arguing that they were illegal,
but there's something stinkyabout them nonetheless.
SPEAKER_01 (43:58):
Maybe it's more of a moral question than a legal
question.
SPEAKER_02 (44:06):
Now, last topic.
When the membership votes down amerger, what's happened?
SPEAKER_01 (44:15):
Again, my understanding is that it varies,
right?
It depends on the case.
It very much depends on thecase.
It can come down to marketing.
And the reason I say that isbecause, again, Frank is the
only one who's read all of thosedisclosures in the same way that
(44:36):
members, by and large, creditunion members, are not going to
sit down and spend 30 minutesreading financial statements and
projections, and they're notgoing to make an informed
business decision on whether ornot to merge.
Most members are not going tovote at all or pay any
attention.
Those that will vote, they'reswayed by the messaging and the
(44:57):
story that they're hearing fromthe credit union, whether or not
this is a good idea.
And obviously, they're usuallysaying, this is a good idea and
here's why.
But the marketing can be aquestion.
There are credit union memberswho are maybe like you and me,
who don't want to change, wholike their credit union the way
it is and don't necessarily wantto merge with this large
(45:18):
multi-state credit union wherethey think they're going to get
lost in the system and not getthe same type of customer
service that they're used to atthe branch, right?
So there's those types ofreasons.
But yeah, it's rarely, I think,one where they're sitting down
digging into financialstatements and saying, well,
this isn't necessarily going tobe good.
It's more about What's themessaging they're receiving?
(45:39):
Where are they in terms of theirunderstanding of what they like
about their credit union?
What do they want to preserve?
I think that's where the votecomes from.
SPEAKER_02 (45:49):
Yeah, I have this curiosity.
I wonder as we see more mergers,if we'll see more memberships
voting down the merger.
SPEAKER_01 (46:00):
It's possible.
Yeah, if they start to catchwind...
of, look, you and I are insidersin the sense that we're paying
attention to mergers all overthe country.
The typical credit union memberis not, right?
They're not aware of that.
But if at some point it becomespart of the general awareness,
that may become an issue, right?
Where people are like, wait aminute, I don't want this to
(46:22):
happen.
I don't want to lose my I go tomy branch every Saturday morning
and I have a wonderful chat withJoanne, who knows me, has known
me for years, and that kind ofstuff.
So people will resist that forsure.
SPEAKER_02 (46:36):
One more thought.
I said that would be the lastone, but one more.
This is a conversation I've hadwith Jim Blaine many times.
I think the specter of creditunion democracy is nonsensical.
I have never voted in a creditunion board election.
(46:58):
I don't even know when they are.
I don't know who the candidatesare.
That said, every year fromFortune 500 companies that I own
some stock in, I get theselittle board voting packets
every year with completebiographical information about
the candidates, et cetera, etcetera, enough to make an
(47:21):
informed choice in many cases.
And all I have to do is check afew boxes, sign my signature.
It's a self-addressed stampedenvelope.
So I don't even have to just putit in the envelope.
Off it goes.
Right.
Yeah.
I've never voted in it.
And yet you tell me I'm a memberowner.
SPEAKER_03 (47:40):
Yeah.
SPEAKER_02 (47:41):
That's interesting.
SPEAKER_01 (47:42):
Yeah.
I think that's a big challenge.
I think it's, again, let's goback to the history, right?
There was a time when the annualmeeting was...
On the shop floor, right?
You were there and you cared.
And it was more of an easilyperceived democracy, right?
(48:03):
Because people were in the roomand everybody knew who was
running for the board and whothey wanted.
And so as credit unions havegotten larger and more diffuse
and multi-state, right?
It just gets more complicated.
And I think good governance,good democracy would push for
credit unions to communicatewhen the annual meeting is.
(48:24):
Here's how you vote online.
Here's the slate of candidatesfor you to select from.
Here's their biographies, right?
And really have an opportunityto bring members in to take part
in the process.
And again, with the online worldwe live in, people can get all
this stuff on their phone.
They can vote on their phones,right?
There's ways to do it as youdescribed with the publicly
traded companies.
(48:45):
And so I think that's anopportunity for credit unions to
kind of get back to theirdemocratic roots and do better.
It's
SPEAKER_02 (48:51):
a way to differentiate from
SPEAKER_01 (48:52):
banks.
Yes, exactly.
And if you're smart about it,you can use it to grow your
brand, grow the awareness ofwhat people are actually a part
of.
SPEAKER_02 (49:03):
One thing Blaine is kind of proud of is that in the
most recent state employeeselection, something like 100,000
people voted.
SPEAKER_03 (49:14):
Yeah.
SPEAKER_02 (49:14):
And it's because he stirred up this controversy
about the board's compositionand policies.
And he's actually kind of happy.
I don't think his side succeededor won in this most recent vote.
But he's happy that 100,000people voted.
(49:35):
That's terrific.
SPEAKER_03 (49:36):
Yeah.
UNKNOWN (49:37):
Yeah.
SPEAKER_02 (49:38):
And it is terrific.
I just wish more credit unionswould have that level of
democracy where you say, wow,this is different than belonging
to a bank.
SPEAKER_01 (49:48):
Right.
Yeah, I agree.
I agree.
I think it's a great opportunityto level up and to get better as
a movement and to really makesure that that democratic
principle is alive and well.
SPEAKER_02 (50:05):
Before we go, think hard.
about how you can help supportthis podcast so we can do more
interviews with more thoughtfulleaders in the credit union
world.
What we're trying to figure outhere in these podcasts is what's
next for credit unions.
What can they do to really,really, really make a difference
in the financial scene?
Can't all be mega banks, can it?
(50:27):
It's my hope it won't all bemedical banks.
It'll always be a place forcredit unions.
That's what we're discussinghere.
So figure out how you can help.
Get in touch with me.
This is rjmcgarvey at gmail.com.
Robert McGarvey again.
That's rjmcgarvey at gmail.com.
Get in touch.
We'll figure out a way that youcan help.
We need your support.
(50:48):
We want your support.
We thank you for your support.
The CU 2.0 Podcast.
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