The Worship of Golden Calves or Temptations in Times of Adversity

This Golden Calf metaphor is a theme in literature and art. Consultants even use it to diagnose organizational performance. Is it possible in this time of economic stress, especially among troubled credit unions, that some are worshipping a false god, and that we have taken attention away from the true way out of our difficulties?

 
 

The Old Testament story of the migrating Hebrews turning away from the God of Moses, to worship false idol, is widely known to readers of the Bible.

The wandering tribes were frustrated in their efforts to reach the Promised Land.  So when Moses took a brief leave to talk privately with God, the people under Aaron’s temporary leadership, decided to hedge their bets and try a new god.  Thus the construction of an idol, the fabled Golden Calf.

This Golden Calf metaphor is a theme in literature and art. Consultants even use it to diagnose organizational performance.  Is it possible in this time of economic stress, especially among troubled credit unions, that some are worshipping a false god, and that we have taken attention away from the true way out of our difficulties?

Bad News Drives out Good

My thoughts were triggered by the increasing of some reporters’ jingoism in describing third quarter results.  The focus is entirely on losses, often “record losses” followed by additional data about how dire these results are. 

The facts are accurate. But no context is given nor is there any effort to portray this as anything but a ticking time bomb that could result in a merger or worse.  But what causes the “time bomb” is a false idol, or the credit union Golden Calf. 

But I am not picking on reporters alone. Their interest in the Golden Calf is just much more visible. At a recent CEO meeting earlier this year, the facilitator asked the group if they knew what percent of credit unions reported losses for the six months ending June 30, 2008. 

Nobody guessed the right number, which, according to the leader, was higher than anyone had estimated.  The conclusion, we are an industry heading for trouble.  Again, a fact with no context or meaning.

Credit Unions’ Golden Calf

I believe that the credit union industry has created its own Golden Calf and, more importantly, lost sight of what Moses called the One True God.

Our Calf is capital, and specifically the capital ratio.  Capital is king.  Credit unions that have higher capital ratios are often viewed as “better performers.”   These results are often caused by outsized ROAs even in today’s troubled circumstances.

I do not want to deny the role of capital, only to put it in its rightful place.  For example, would it be better in today’s economic climate that no credit union reported a loss?  Is that even realistic?  What kind of institution would even think it could promise continuous earnings?  Warren Buffet testified that he decided not to invest in Freddie Mac stock when he heard the company’s senior management promise continuous growth and earnings improvements that he did not believe were achievable.

What Should be the Focus of our Attention?

So if Capital is not King, what should we pay attention to?  To paraphrase a point the political advisor James Carville made to Governor Clinton in the 1992 Presidential election:  “It’s the member, Stupid.”

Here are two examples of how we should rethink our capital worship in view of our higher purpose of serving members.

1.  Credit unions will have losses this year.  But the most important question is, are they still serving members or have they been so neutered by boards, regulators and their own circumstances that they have just battened down the hatches?

An example: a West Coast credit union over $ 1 billion dollars in assets will report operating losses for the third quarter, year-to-date, and possibly into next year.  However the number that caught my attention - and I believe is the true indicator of performance - was the $100 million in loan originations in September alone, of which $35 million were real estate secured.  If every financial institution had the courage to continue to do what this credit union is doing, we would not be talking about a credit crisis today.

2. Secondly, we must not be afraid to use capital in bad times as well as good.  When everyone is profitable, there is little resistance to opening branches, growing loans and shares and trying to invest in new member services.  But when times are bad, the practice is often to shut down these “good investments” and stop growth, especially when the net worth ratio is headed below some arbitrary floor such as 6.5 percent. 

Capital is more necessary in bad times.  That is why it was saved during the good times.  Not to use it and let the ratio fall, is to potentially destroy the ability of the mutual institution to work its way through difficult times.  But that is another article for another day.

But there is more to the story.  Moses did not live to enter the Promised Land.  Rather it was Aaron who led the difficult journey across the Sinai Desert to a success.  Leaders can make mistakes, but they can also learn to redeem themselves. Every day, that is exactly what credit unions are doing with members by the thousands—giving them a second chance and maybe a third one.  And they are doing it with the capital they accumulated, just for this kind of economic circumstance.  That is also why we call ourselves “cooperatives.”

 

 

 

Oct. 27, 2008


Comments

 
 
 
  • Get over your religious hang-ups and hear the truth of the message ... that is what is important... Capital is not king - the members are!
    unknown
     
     
     
  • It's getting a little religious around here with stories like "7 Deadly Sins" and parables from Hebrews... Please revert back to an agnostic editorial perspective.
    Anonymous
     
     
     
  • AMEN! Every point is right on target. This is how we will differentiate ourselves from ANYONE in the FI business.
    Anonymous
     
     
     
  • Chip, I know how tempting it is to stop building branches, to stop making capital investments like new technology and to cut back on marketing when net income is too low or even negative. You are right that we must invest when there are opportunties and positive returns for those investments. The next year, 2009, will test all of us. We are investing over $1 million in new capital projects even though net income will only be about $3 million. I think the next three years will be a window of opportuntity. The big banks are all encumbered with big problems, big acqusitions and big losses. Once they get caught up they will go after the retail banking business. They have learned one thing from this crisis. They have learned that the best business is the retail business. That puts every credit union in the cross hairs. The next Bible parable will be the fatted calf and we are it if we don't do something in the next three years to build our franchise.
    Henry Wirz
     
     
     
  • I liked the story. I believe that the Bible has many management lessons for us to learn from and use in our daily life. Management makes the same mistakes today that they did thousands of years ago. Lets learn from the past. However, I disagree with your premise that we continue doing business in the regular manner when we lose money. A negative ROA is deadly. When a CU has a negative or low ROA it needs to fix the problem. Fixing a problem doesn't mean you are not serving the member. But, when you have a negative ROA you need to Fix It, Fix It, Fix It.
    Wayne Langei
     
     
     
  • Love the analogy-it caught MY attention, made me read further and pass on to others! As usual, Chip eloquently puts things into perspective.
    Anonymous
     
     
     
  • What a great article. It just makes sense...focus on the member. Duh. P.S. I'm very unreligious, yet don't feel threatened in the least about a refererence to a story most have heard at one time or another. Well done.
    DTaylor
     
     
     
  • Preach on. Content was spot on, and folks who are irritated by Biblical metaphor probably need to hear more of them, not less.
    Bob Gilbert
     
     
     
  • Chip, your religious metaphors are really over the top. Your message is fundamentally sound but you are losing your audience by fixating on this delivery style.
    Anonymous
     
     
     
  • Well said and about time it was said! We made capitol King and growth Queen, immediately following HR1151. Only history will determine how successful we will be after we sold our souls . Now let's talk about who we are. We have allowed others to define a cu for too long. When do we step to the plate and make that announcement?
    Anonymous
     
     
     
  • The article, is timely, concise and says what needs to be said. Now all we need do is get the examiners to agree.
    Anonymous
     
     
     
  • Thank you for these expressions! I often feel like a sap at work for reminding our team why we are here...to serve the member! Now is our time to shine among our competitors and show our members what we really stand for but we can only do this if we stop hoarding and use wisely what we have.
    dmoore
     
     
     
  • Article is spot on and not religious (loosen up people!). The metaphor was a good one that many will understand which is exactly why it is relevant to use here. Drives the central point home very effectively. Bravo.
    Anonymous
     
     
     
  • The article makes you think. Lately we have all been focused on dealing with the "crisis" hence we go into crisis mode. Step back and take a look at the big picture. That I know of the sun still came up this morning. And we still live in the greatest nation on earth. Good Job.
    Anonymous
     
     
     
  • The article makes you think. Lately we have all been focused on dealing with the "crisis" hence we go into crisis mode. Step back and take a look at the big picture. That I know of the sun still came up this morning. And we still live in the greatest nation on earth. Good Job.
    Anonymous
     
     
     
  • I agree with #13. The message good, but the metaphor was too intricately detailed for those who don't relate to the Old Testament. The point could have been made as forcefully, and with equal appeal to all audiences, without using Christian metaphors. It feels like the author sought out ways to introduce these themes more than the themes really lent themselves to the topic.
    Anonymous