20 August 2009

A Multi-Party System?

Several months ago, I tweeted the seemingly random comment: “credit unions should go to a two-party system.” One person responded “What are you proposing? The Credit Union Civil War?” Others wondered if I was joking.

Quite the opposite, actually.

Turns out, this was an issue that had been bugging me for some time. Not all credit unions share the same operational philosophy. Sure, we are all not-for-profit financial cooperatives, guided by democratically-elected volunteer directors, that return earnings to member-owners. This basic structure leaves a lot of room for interpretation, however.

How does your credit union empower member-owners to control their credit union’s operations? How are earnings returned to members? How does your credit union cooperate with other credit unions? The community? The credit union system? How does your credit union stand on the idea of growth? When is growth bad? What’s your position on risk-based pricing? Tiered deposit rates? When is profit from product offerings, even profit that is returned to members, bad profit?

The ways credit unions answer these questions can vary widely...but I’ve always wondered if we could generally put credit unions into two or more distinct, and official, categories.

Let me explain.

The Tampa Bay Devil Rays decided a few seasons ago that they would build their team around speed and defense. They started assembling young talent to fit this mold, and put their plan into action. While most teams were stocking up on proven power hitters and veteran pitchers, the Devil Rays were creating a style of their own. It was still baseball, and it was not to be considered better or worse that the prevalent model, but it was a distinct approach to the game.

Credit unions use distinct approaches as well. Increasingly, there seems to be a divide between a few general approaches to the way credit unions do business. Our reactions to the Corporate Stabilization issue give a unique insight to my point. Many credit unions adamantly opposed a taxpayer-funded solution to the problem. Others saw access to TARP as being a responsible solution. It was a healthy debate (that doesn’t need to be rehashed in this post), and very telling about what we have become as a movement.

Disagreement among credit unions is natural, but how do we balance our individual credit unions’ stances on the issues with the overall consumer view of credit unions? More specifically, how do credit unions organize amongst ourselves into political-type parties? How does a consumer know how an individual credit union stands on important philosophical issues? Not all democrats think alike, and not all republicans think alike. Generally, however, we can pretty much know how each will approach a decision.

“How’s the U.S. two-party political system working out for you these days?” you are no doubt murmuring.

Well, you make an excellent point. It’s dysfunctional. But it’s no more dysfunctional than confusing the marketplace with differing views on credit union philosophy. If our core principles are our keys to differentiation, shouldn’t consumers know generally how you implement those principles?

So, here’s the idea.

Organize a group of credit unions to spell out certain philosophical principles that member credit unions within the group must abide by. Credit unions could voluntarily join the group based on their general belief in that framework. Multiple groups could emerge, and each would present a distinct alternative to how credit unions should operate. Consumers would then know exactly what a credit union stands for before joining, and would more easily decide which values he/she aligns with.

For example. A group of credit unions could decide that their soul focus should be on democratic control, member ownership, and organic growth within the individual credit union. This would totally change this group’s approach to an important issue such as credit union to bank charter conversions. It would also dictate how those credit unions attract members. Want an equity stake in a credit union? This is your model.

Maybe another group emerges that says “to heck with individual credit unions, our goal is to make the movement as a whole bigger.” This group would truly believe in the notion that we are a cooperative of cooperatives. How would that affect this group’s stance on corporate credit union bailouts? Inter-credit union competition?

Another group could emerge that believes credit unions are purely social service organizations. Outreach, consumer education, advocacy, and development would clearly drive these credit unions. How would this change how this group approaches pricing? Would members of these credit unions then choose to receive lower returns on their deposits or higher loan rates in the name of philanthropy?

The number of philosophical divisions could be endless, but I would imagine that you could generally develop a small enough group of subsets that it isn’t overwhelming for the audience. Imagine the democratically-elected leaders of these divisions being at the table when our trade associations or regulators assess their positions on a matter.

The intention is not to create disunion within the movement. Instead, it’s a way to create better debate within the movement about key issues. While I truly believe credit unions need to speak with a unified voice, I also know that the reality is that we simply don’t have that consensus. Maybe this structure would allow us to better reach agreements on transformative issues? Maybe it will allow credit union boards to do some soul searching about what it is they are here to do? Maybe this exercise will simplify complex ideas like national branding campaigns, specific legislation, or opportunities for collaboration?

Maybe it won’t.


Andy Janning said...

Thanks for such a thought-provoking topic.

Rather than highlighting and marketing the differences within our movement, I think we need to get a heckuva lot better at highlighting and marketing the differences of our movement.

Ask any 10 credit union members the differences between us and a bank and you'd probably get at least 8 blank stares and nervous giggles. If we start making the philosophical and operational distinctions you propose, I think we lose these folks altogether.

Matt Hand said...

Your use of the Tampa Bay Devil Rays is a very good analogy. I have to make sure everybody knows that their against-the-grain approach did lead to great success in the 2008 season, when they finished first in their division and made it to the World Series. They finally did succumb to a red-hot Philadelphia Phillies team, but only after they had proven that a focus on young players with good fundamentals and dexterity will win you ball games.

Oh, and one more baseball thing... they actually changed their name from "Devil Rays" to just "Rays" before their successful 2008 season. The owner said his team would be "a beacon that radiates throughout Tampa Bay and across the entire state of Florida." I find it to be a great name for a team playing in the "Sunshine State".

I think your ideas are spot on and they are similar to what motivated my team to start Credit Unions Rising. We still have more work to do on the site, but our communication walls are ready to go, and we welcome anybody credit union-related who would like to contribute.

Rachel said...

Matt- Thanks for the thought provoking ideas. Individual credit unions would be wise to ponder over your thoughts. And, like you suggested board/management should do some soul searching, to see where their CU should be aligned...and all product offerings, products, benefits, resources, etc. should be poured into/reflect that philosophy.

Your thoughts could easily be compared to churches. Where people over time have chosen to separate from one sect or another to create something similar (with the same CORE philosophy) yet with different practices or approaches. This allows people of similar mindsets to "flock" together, so-to-speak.

I can see how your concept would benefit the movement more so behind the scenes than with the general public. It could benefit those who have chosen credit unions for their career decide which type of CU they should work for. It could benefit like-minded credit unions in developing cooperative concepts/projects/etc.

If presented publicly, I would be concerned that there would be more confusion than benefit. As Andy referenced, most members don't even understand the difference between a credit union and a bank...maybe that's our fault for not REALLY working hard to look and act different and make products that align with our core principles and philosophy.

Matt, the Credit Union Warrior said...

@Andy - Thank you for your comment! I'm glad you brought up the point of marketplace confusion. My take is that, as is, we have already lost folks. We've done that for two reasons: 1) We haven't done a great job of getting our message out; and 2) We haven't delivered a clear picture of what our philosophy is. Number 2 feeds number 1. You see, there are distinct differences in our philosophies even within the credit union framework. If we pull those apart and clearly define the different "sects," we will much more effectively be able to stay on message and deliver that message.

@Matt Thanks for chiming in! Please keep up the great work over at CU Rising - I love what you're doing with that!

@Rachel Your point about religious sects is very well made. That's kind of what I'm proposing. To take from Christianity for example, we'd sort of be saying: "Listen, all Christian churches believe that Jesus was the son of God. But the Methodists practice this way, and the Lutheran's practice this way, Baptists believe this and that, etc." We're still trying to sell the idea of member-owned, not-for-profit financial cooperatives...we're just helping consumers understand precisely how our individual credit unions line up in terms of philosophy. All of these sects would believe in credit union basic philosophy and cooperative principles, but credit unions would be able to organize with like-minded credit unions within the movement to establish "mini-movement" subgroups that would be better able to leverage their message, political influence, and shared vision.

Kelly Schermerhorn said...

Hmmm, I think I get the gist of the discussion, but, frankly, am afraid that only further confusion will ensue. "United, we stand, divided, we fall" is what comes to mind.

As a topic of debate over a beer, it is great, but having been involved in the debate over a national Cooperative Marketing plan, it only seems to move us further from success.

Matt, the Credit Union Warrior said...

Kelly - this idea addresses the exact thing that prevents national branding campaign from happening -- disunity. A multi-party system would make us all stronger, more focused, and, more importantly, more accountable for our actions.

Status quo isn't a better option.