Credit Unions Pioneer Innovative Operational And Governance Strategies

Sharing resources and leadership among separate credit unions and brand-aware merger partners creates scale without isolating a localized membership base.

 
 

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The law of diminishing returns doesn’t just affect companies. Many consumers have their own tales of a favorite business that, in the pursuit of scale and profits, lost its brand values and the quality of service that made it distinct in the first place.

A balance between the growth many credit unions feel they need to operate successfully in the financial space, and the personalized appeal of a small neighborhood cooperative is difficult to strike.

For most institutions, there are numerous ways to stay small but act big in their local markets. Conversely, credit unions can also merge and get big on the balance sheet, yet think small in terms of localized brands and markets. All these opportunities rely on the credit union’s capability to pull in resources and maintain the leadership needed to use them effectively.

Mergers Aren’t For Everyone

Consolidation of resources through mergers or acquisitions is an effective growth strategy, but also complex one. Just 2.5% of credit unions merged into other institutions in 2011, according to Callahan & Associates’ Peer-to-Peer data, though the assets of those merged institutions increased to $4.87 billion from $4.04 billion.

Recent merger rates remain lower than levels seen in the mid-2000s. As credit union performance continues to improve and immediate balance sheet concerns lessen, mergers may become a more prolific option for some, but others will need to proceed along a different route.

Traditional mergers and acquisitions also typically mean the end of one brand in favor of continuation of another, which can create a difficult transition for members. So what other options are on the table?

Share And Share Alike

Many times small to mid-size credit unions find themselves at a disadvantage when competing against the resources and branch footprint of larger peers, and may even find themselves more likely candidates for acquisition.

As an alternative, several national groups and leagues exist to provide a unique environment for the sharing of pooled resources like equipment and technology, training and HR resources, compliance, legal, or regulatory expertise and other assets in a cost effective way.  

Other institutions seeking efficiency and market share may choose to participate in shared branching or partner together to operate out of one physical brick and mortar facility, like Virginia’s Credit Union Mall, a facility that houses three separate institutions.

Growing credit unions may also seek out equipment, branches, or loans that can be acquired or traded among participants in the cooperative system, particularly when they do not fit the needs of one institution but are the a perfect fit at another. There is an added benefit in that when members are affected by these type of swaps, they are typically given the option to remain at their previous institutions or move to another that is more convenient or more tailored to their needs ─ this is a choice that full mergers do not necessarily offer.

Good Governance

One of the most valuable resources for a cooperative institution is sound leadership. Whether that involves a CEO, a team of executives, or a board, credit unions are sharing talent across merged and unrelated brands alike.

The CUES 2011 Executive Compensation Survey indicated a 5.07% annual increase in total CEO compensation, up from 3.62% the year before. For small to mid-sized credit unions, it is increasingly difficult challenge to attract top-notch talent, but sharing the compensation for that talent could be one way to mitigate some costs.  

Merge On The Books, Stay Distinct In The Brand

Those credit unions that do pursue mergers and acquisitions have the ability to create a far different type scenario than the corporate takeover many consumers imagine and fear. For one, both institutions and regulators typically vet the compatibility of service, values, product lines, and other features, as well as the merger’s impact on members, rather than just the balance sheet implications.

Examples such as $1.4B Anheuser – Busch Employee’s Federal Credit Union (also known as American Eagle Federal Credit Union) and the $649M 66 Federal Credit Union (also known as 66 Federal Credit Union Northwest Arkansas, KU Credit Union, and ConocoPhillips Credit Union), demonstrate how a credit union can operate as a whole, but still brand and think locally in order to resonate with members.

Many institutions follow the practice of incorporating local leaders from acquired institutions into their centralized leadership team. But some, like United Federal Credit Union ($1.5B, St. Joseph, MI) also set up semi-autonomous vice presidents in each market to asses, protect, and communicate the values of members in that locale, ensuring their voices are not lost in the shuffle.

Whether your institution chooses one of these methods for operation and governance, or grows along its own unique route, there are opportunities for cooperation waiting to push you forward.