Well-Intended CU Board Actions Can Backfire

If the primary responsibility of a credit union board of directors had to be boiled down into a single statement, it might read something like this: “To do whatever is in the best interests of the credit union’s membership.” As the policymakers of the credit union, every member of the board must always be guided by that mandate whenever called upon to make a decision. The typical CU board is presented with proposals from senior management at every board meeting that require action on its part. Some decisions can be fairly routine such as approving the minutes of the last meeting, electing officers, giving a nod to a charitable contribution, accepting the financial statements and/or audit report as presented, and approving the funds to renew memberships in various organizations serving credit unions. Others could be considered a notch higher on the pecking order of the decision making scale. Here major decisions might include these: switching data processors, building a new headquarters facility or full-service branch, purchasing ATMs, implementing a new fee schedule, offering a new product (trusts) or service (debit cards), selling the credit union’s credit card portfolio, getting into an indirect lending program, or setting up and/or joining a CUSO. Then there are those board decisions that can best be described as gut wrenching. Like these: expanding the credit union’s long-standing field of membership, changing its name, switching charters, and hiring or firing a CEO. It is this last category of decision making that comes into play when a credit union (presumably the board on a recommendation of the CEO) decides to abandon its traditional credit union charter (either federal or state) and convert to a mutual savings bank charter. One can only assume that before making such a momentous decision to become a bank, the credit union board weighed all the pros and cons and finally decided to make the change because, “it would be in the best interests of the credit union’s membership.” A case in point involves a recent decision by the board of Washington State Employees Credit Union (Olympia) that evolved directly out of the high-profile controversy swirling around its in-state neighbor, Columbia Community Credit Union (Vancouver). Columbia’s status in its attempt to become a bank can at the moment only be described as “uncertain.” At this point, despite a slim approval rate in a membership vote, the jury is still out. It could become a bank. It could remain a credit union. Wanting to make certain that such a state of events would never befall their credit union, the board of $1 billion WSECU decided to pre-empt any possible bank conversion initiatives by taking specific action before the matter would ever even appear on its agenda now or in the future. They amended that portion of the CU’s bylaws that could almost serve as a mission statement. They added this sentence: “It is the board of directors’ intention that the credit union operate as a not-for-profit financial cooperative in perpetuity.” To give that statement teeth, the WSECU board also added to the bylaws a provision that to convert would require that a minimum of 50.1% of the CU’s 120,000-plus members would have to participate in the voting and that a majority of them (approximately 60,000) would need to vote yes for passage. There’s more. Any future board wanting to convert would be required to provide detailed disclosure statements to every member and do so at least 60 days prior to any vote being taken. Obviously these numbers are far more difficult to achieve than those currently required under provisions of H.R. 1151 in which only a majority of those voting (no minimum number) are needed to get an OK. The board of a FCU could not arbitrarily change the ground rules such as state-chartered WESCU has done. It is clear on its face that the board of Washington State Employees Credit Union made decisions that were in their opinion in the best interests of its members. That’s good as far as it goes. Despite all their good intentions, their actions do raise some troubling questions. Like these: Has the WSECU board set a precedent? Will other CU boards of state-charters follow their lead? What if the board vote were not unanimous? What signal would that have sent? Did the membership (any percentage?) have any input before the board acted? Will future WSEC boards be hamstrung by these bylaw changes? Or will they be able to just as easily rescind them and install those of their choosing as soon as they get the needed board majority? In addition to bylaws, don’t credit union boards change other cast-in-concrete things from time to time, like goals, objectives, and mission statements? Especially after planning meetings with a new chairperson and CEO? Might there come a time when switching to a bank charter might in fact be in the best interests of the membership? Besides actions involving charters, should current boards lay down the law preventing future boards from expanding the CU’s FOM, geographic boundaries, or changing its name “in perpetuity?” Should a current board extend an employment agreement to its CEO “in perpetuity?” As well-intentioned as their actions were to assure that no future board or CEO would be able to “steal” the credit union from its members, for perhaps other than stated reasons, it may be that the jury is also still out on this action. On the one hand, future boards may concur with and fully support the actions of the current board. Time will tell. If that becomes a reality, then the bank charter conversion business will be shut down in those credit unions. On the other hand, if future policymakers think the former board overstepped its authority, chances are the entire situation will revert back to square one. A final thought: NCUA’s lame duck Chairman Dennis Dollar said it best: “Regulators should always strive to do what needs to be done so that conversions aren’t necessary to better serve credit union members.” Comments? Call 1-800-345-9936, Ext. 15, or Fax 561-683-8514, or E-mail [email protected].