Tell Me Why I'm Wrong

Feat. Randy Karnes

Scale is not everything

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Be careful not to dismiss ownership as some inconsequential detail on the path to success

I received a comment from Gregg Stockdale on my last piece, “The risks of vendor consolidation on the credit union industry“. In it he wrote:

“What disrupter of the credit union industry followed this model?  -“Only ownership can prioritize disruption of the status quo, competitors and the core of innovation. Cooperative ownership of our solutions is the key”  Also, “Protecting the decisions and mechanisms for maintaining our differential is the mandate for the future”  –  What differential?  Other than ownership, how is a cu different from a bank?  Cu’s are very bank-like and banks have become cu-like in their service offerings.  The big disrupters have come from outside the entire industry and many are privately owned.”

I agree whether a CUSO, CU, or any other company is a disrupter can be difficult to identify without close examination. But I contend there are many in the CUSO space as vendors, and in the credit union space, when they are judged locally by their consumer-owners (members) who meet or surpass the bar for disruption. Where I think Gregg was off track is his MACRO EXPECTATIONS from these ideas. He dismisses CU ownership as the DIFFERENTIAL that counts. It does count, and it should. Credit unions represent consumer owners, citizen ownership, and ultimately the best of community ownership model in society. Our economy and government should be more aware of that and be more demanding of that differential. If they were, it would be more than just an internal goal of cooperatives to focus on disrupting, it would be a national goal and mandate that they do. For that reason I judge the NCUA not to be a cooperative regulator, but just a bank regulator hiding under a cooperative banner.

Owners, no matter what their type, can internally mandate that their approach to the marketplace be disruptive to their competitors, for their consumers, and for the status quo. We both can be disappointed when their efforts are not STUNNING and APPARENT to the outside world, but their efforts can be real. They can be real one consumer at a time. So when he mentions the “big disrupters” he is scaling disruption with a MACRO EXPECTATION again. Why?

That is the point of my blog – vendor mergers like Fiserv and First Data are based on the MACRO EXPECTATIONS that scale is all that matters. And that when scale wipes out the nuance of niche approaches by simple rolling over the needs of those niche players we lose something, and in our case (CU supporters and believers) we might lose everything when we buy from these vendors.

I do believe that CU*Answers is a disruptive force, but not one that will move the world or even vendor analysts. I believe the force mandated by our ownership will move our industry to respect itself via our intent. I believe the force mandated by our ownership will move our industry to see that the cooperative inherent win-win model with consumers is powerful because consumers are the owner. And I believe that that is a disruptive idea for the ages when highlighted, amplified, and sincere in its efforts. So I focus on the micro-disruption of the owner’s intent, the owner’s heart to move things given a chance. Every community’s heart given a chance. I believe that our industry should be concerned when the vendor marketplace consolidations take that chance away.

Thanks to Gregg for commenting and pushing the conversation further.

The risks of vendor consolidation on the credit union industry

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By now you’ve probably read about the announced Fiserv-First Data merger. In an opinion piece, one person suggested that “small banks and credit unions fear big fintech.”

“Fear” is the wrong word here though. It should have been “CU Thinkers See the Long-Term Challenges in Vendor Consolidation.”

It is not just competitors merging here that should concern credit union planners and leaders. It is the consolidation of focus, project resources, and price to ROI expectations that should worry a niche-based industry like the credit union industry. When the vendor marketplace or the industries that support a marketplace design, like financial services, become so out of proportion with segments of customer niches, then those niches are mandated to more and more.

Those niches, in this case credit unions, struggle with each renewing contract and acceptance of norms other than the ones that they count on to propel their unique success. What appears to be simply buying tactics at one level of the credit union becomes accepting new conditions that change the very culture and business approaches that once were the defining differentiators for credit union success.

  1. Focus – As these super-firms–these glaciers–set their marketplace priorities and execute their plans, they will continue to marginalize credit unions and their drive to be unique in a commoditized, externally defined marketplace. How will CUs set their own unique priorities?
  2. Project Resources – With vendor consolidation combined with resource scarcity we see in the labor markets, these recombining firms have less project management focused on niche marketplaces and the concerns of those marketplaces to project manage CU adjustments and change priorities.
  3. Price – Does a vendor design its prices for its success or to the needs of its clients after absorbing the prices cast upon them? CUs are increasingly becoming price takers and massagers through CU distributors like PSCU, COOP, etc., but less so price innovators through ownership or via their own manufacturing of solutions.

While some segments of the CU industry believe they can grow and keep pace with the scale that can keep them in the game with these firms, other segments will feel these pressures growing. Credit unions are not just struggling with the need to compete with other financial service segments for consumer connections, they are or will struggle to find a vendor focus that does not simply press them into being weaker versions of their competitors via commoditizing of their business models – not just their tools that support their products. And like cancer, one day you wake up and find you’ve been eaten from the inside out, and the body does not respond to the mind’s desire to execute its own plan.

CUs must continue to prioritize their own uniqueness, and that is the ownership model. Cooperative ownership is the key to being the manufacturer of price and culture even in spaces that seem dominated by commodity tones. Pushing to design prices that allow a client to earn out on the investment, pushing to focus resource and project management based on the timing of the client, and pushing to ensure that models for shared and cooperative execution come to the forefront.

We are an industry of cooperatives, and that required sense of connection is important to our futures. Only ownership can prioritize disruption of the status quo, competitors, and the core of innovation. Cooperative ownership of our solutions is the key to:

  • Price Disruption – to ensure our cooperative models can earn the ROI on the prices they pay.
  • Access Disruption – to ensure that the things CUs need are not walled off from them or relegate them to the back of the line.
  • Execution Disruption – to ensure that when service engagement options need cooperative alternatives, they are there.

Protecting the decisions and mechanisms for maintaining our differential is the mandate for the future. Whether it be in our dismay about a regulator who seems as resolved as ever to a one-way model for financial service firms or about the fact that we increasingly rely on vendors where we are only an afterthought in their strategies, we all, the customer-owners and members of credit union cooperatives, should not fear the future. We should simply mandate the future to the greatest extent we can by mobilizing active ownership in every level of our value stack or vertical capabilities.

Tell Me Why I’m Wrong.

Why be right when you can have the last word?

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NCUA Board approves amendments to 2015 risk-based capital final rule, delay until 2020

The NCUA recently adjourned from their October board meeting and with respect to the impending RBC rule has approved action to raise the minimum impacted asset size from $100M to $500M. More importantly, however, they have delayed implementation from January 2019 to January 2020. Vic Pantea provided his thoughts on this decision:

“This action, in my humble opinion, will kill the entire RBC rule for the immediate future. I see a purely political compromise here that allows both McWatters and Metsger to gain satisfaction. McWatters who argued strongly, back in 2015, that the board did not have the authority to implement RBC, cannot reverse implementation as long as Metsger, who voted along with Matz, is the other vote on a 2-person board. But by getting the delay to 2020, we can assume that Rodney Hood will supply a 2nd vote sometime during 2019 to eliminate the final rule, regardless of Metsger’s disposition as an expired board member or if his eventual replacement has been appointed. Metsger, as a consolation, can continue to say that for as long as he held office, he was a supporter of RBC and excessive agency overreach in the name of “protecting the NCUSIF.”

Got to love politics… The pendulum between rules and tools swings back and forth based more on who has the last word than what is right. Always being last to the party on these kinds of things is a good bet. Picture all the effort and money that has been wasted in debating RBC, CECL, and other regulatory divides in the last 5 years.

How many real issues might have moved forward if we had not stalled so many people in debating the “what if’s” of fluff, risk management overreach, and style points for politicians? Imagine all the CU leaders that were discouraged by the doomsday preached when the predictions of these changes doomed all small CUs. And most of the debate was over late to the party, overreactions to disasters already survived, and the idea that data and measurements can predict the unpredictable, low probability events called life.

My advice: live by the creed of “do valuable things and good things will happen” as CU leaders. Let’s find a way to never be herded into a corner again by those who garner our attention over shuffling paper, debate the inconsequential, and doom us with protection from “it could have been worse” insurance policies.

Would you enjoy warm pork rinds with your car loan?

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Have you read the last two postings of Tell Me Why I’m Wrong? Vic Pantea and Patrick Sickels commented on an NCUA Interagency Statement Clarifying the Role of Supervisory Guidance and while they may not be riveting, they are informative. Do not get me wrong, their postings are good work. Logging the document and ideas for a rainy day after a bad exit interview with your examiner is probably prudent. You know those meetings… the ones where the board wants to know what the heck happened in that last exam and why the examiner is throwing their weight around when you promised you are in compliance with the rules.

It is a good document to pull out during a board member orientation where you discuss the concept of being a regulated firm heavily leveraged not only by the rules, but by the feelings of your insurance agent (the NCUA) as well. Remind the new board member to consider Vic’s optimism and support. “I hope that more CU CEOs and Boards will fearlessly and forcefully argue for those strategies and solutions that they have created for the benefit of the members they serve that are within the powers granted them but in conflict with “supervisory guidance.”

The problem with the two postings is WHO CARES? Who thinks an interagency statement that was designed as a “get out of jail card” for the NCUA board and home office bureaucrats to explain that they do try to “temper” their field agents is going to change anything? 

I struggled when Patrick brought the statement to my attention. Patrick’s lawyer side was showing a “precedent for arguments not yet made” kind of thing. Too many times I have seen field examiners blow off the home office’s cautions at the NCUA, and the oversight of the NCUA by other government officials has seldom seemed to weigh in on the side of a CU under pressure. And Vic, reminded me that this might help CUs play up, but is there momentum to be gained when you only hear about when CUs gave in and almost never about the wins made through pushing back? For a second, I wondered if it would be better to post an opinion piece of the value of serving warm pork rinds at loan closings, but I gave in. I took the bait that NCUA was sincere.

But now I worry that even if the NCUA were sincere, the game is set and we all will respond year after year in the same groove: capitulation to our fate. We need supervisory guidance no matter the consequences. Tell Me Why I’m Wrong.

P.s. Are we pushing for a new norm?

Approval seeking is not a positive leadership trait

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Why social media and the hunt for Likes and approval is likely to derail future leaders

If you were to ask past leaders in our industry—or any industry for that matter—most are likely to agree that hunting for approvals in an echo chamber is a trap. So how do you coach a new generation of leaders that are growing up in a world where social media reigns?

Future leaders do not need to be “liked” or garner approval as their strongest talents—they need to hone their skills as learners, influencers, and debaters of value. I am not sure that social media does any of that for most of its participants. Can you really learn anything from tracking manipulated, advertised opinions and Likes via social media today? How do we push our leaders to ensure that they are building the talents and drive to build learning organizations and voices that can inspire all of us to benefit?

Being a lifetime student does not come from being agreed with, it comes from the challenges of opposing viewpoints and then creatively learning to reconcile that dissent. When you are fearful of rejection, you will insulate yourself and your beliefs and ideas to the point that learning stops and talents wither. But this is not a new problem; we see it in organizations that do not share their business plans with members, who no longer believe the market cares about their hopes for cooperative ownership, and who have shifted to the idea that consumer acceptance and Likes about the nuances of today’s financial service tactics are more important than what separates us from look-alike-competitors who sell the same nuances.

While the term “echo chamber” may be approaching overuse, it is one that the credit union industry should recognize as not a new problem. As the agents of our credit union member-owners, we have created our professional and third-party commentator echo chambers since the first day we pushed our volunteers out of the operations. The CUNA system, the regulatory system, and other vendor organizations have isolated our conversations and taught us to accept the status quo limits of our influence and debate. We hunted for acceptance and the positive feedback of like-thinkers-like-relationships for decades until we accepted the doctrine of our credit union industry to be worth its weight on our entrepreneurial hopes or innovative thrust towards member-owner potential.

So, we do need to guard ourselves from accepting and pushing our future leaders into an even bigger acceptance of the social media echo chambers that are too consumer-focused and manipulated by network managers way beyond our control or influence. We need to encourage future leaders to think critically, hunt out dissent, and look for the teachings that come from debate and alternate ideas. We need them to hone their skills at negotiating with ideas counter to their own and influence the future from what they learn.

We need to highlight where we fell victim to wanting the Likes of the NCUA, the molds of our trades, and the limited scope of our agreements with each other, and challenge them to debate and learn from the energy of disagreement on the way to new ideas implemented. Tell Me Why I’m Wrong.

What is showing its age more, your board members or your board approach?

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Be careful what you ask for—younger board members might not like what you’re selling

You want younger board members, you can’t handle younger board members! Or replace the word “younger” with some other characteristic you’re looking for: more business savvy, more technical, more mission-based, more member-focused, etc. The bottom line is… have you changed your approach to teaming with board members as a resource to be more?

How young is your approach? Is it a carryover from when your current board members were 33 years old? You might have changed from paper reports to digital ones on a tablet, but are they the same reports? You might have changed the order of the board sections, but have you really changed the board content? You might have moved from a Tuesday evening to a Thursday, but have you added or reduced the number of meetings you have per year? You get the point.

It’s tough, scary, and an uphill battle with traditionalists to upset the apple cart, but when you do bring in new board members, even one by one, the traditions are what you teach, not what they demand. Are you the reason that your credit union makes old souls out of every board member you attract?

Often when I meet 80-year-old-plus board members I find that they have stuck around not because of what is happening now, but because they remember what happened when it was “fun, rewarding, and real” for them as volunteers. They remember when they were part of building the credit union, not just rubber stamping someone else running the joint.

And right there is the key to how you need to make young board members feel today. They need a job, a purpose, and a role from their perspective not yours, not the NCUA’s, and not from the perspective that the place is on auto-pilot.

As a CEO, whether with 50 or 5000 employees, it can seem that you too are watching a business operation that is on auto-pilot when you think about the Monday to Friday operation. You can feel that you are supervising the operation and a board is a redundant asset helping you oversee something that cannot afford anymore supervision. So, you already feel marginalized, and you might be doing that to your board without even realizing it.

Just like you, they need to build something, to sense that they own something, and that their skills are important to something. Renew those feelings in your board and it won’t matter how old they are! They will engage what is being built, they will take interest in what they own, and they will get the pride of being important to it all.

Shift from blaming generational issues on your board and tackle the generational stagnation of your organization’s approach to the value of owners and their volunteering. Build something, if not just enthusiasm, and you will see a change. Tell Me Why I’m Wrong!

Why do we count on CEOs for success?

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Work hard to listen to the crowd, but CEOs are still the key ingredient

For over a decade, I’ve invited credit union CEOs from across the country to come to Grand Rapids and attend a CEOs-only event involving learning and discussion—and they’ve been greatly successful. A day and a half of teaching, and a full day of round table discussion (during which I did my best not to dominate the conversation!). We’ve had great conversations on the hot topics of the day, from compliance to service income, learning from peers, building businesses, and putting data into action. We talked a lot about the things we wanted to do or should be doing. Outspoken CEOs and I implored credit unions to listen, and to act. Some have, but many haven’t.

A couple years ago I introduced a different kind of event—boot camps for solution builders and data-minded individuals. These have also been eye opening for me, and we found CU designers across the network who were eager to come in and not just talk about what we should be doing as a CUSO, network, or industry, but to have their hands in the bread making. We’ve built tools and features together that our credit unions are now using today or will be using in the future. In many cases, however, the individuals in attendance, although eager to help build and implement solutions, didn’t always have the power at their own credit unions to make change happen.

So when it came time to start thinking about our annual CEO event, I recognized that credit union CEOs have the responsibility of being the intersecting point between what the CUSO should do and what CUs will do with it. Unless CEOs do their job for both sides of this question, we’ll never effectively match solutions with the efforts of CUs in our network. If credit union owners are the heroes credit unions need to survive long term, CEOs represent the owners of our credit union industry, and we need them to take ownership of its success. Not all CEOs need to be active. And the same CEOs don’t need to be active every time. But we need a healthy community so that there is a material group of CEOs active at the right times.

With that in mind, we made the decision to change what was a popular teaching and roundtable event into a more intensive boot camp experience where CEOs won’t just talk about what they want, but will take part in the strategic development of that future. In our case that means helping design new products and services for the future of our credit unions, but the same should apply across the entire credit union industry. Credit union CEOs need to be the heroes we count on to attain the future we want for our industry. Tell me why I’m wrong.

Trusting the work to capture the attention of owners is worth it in today’s credit union world

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Momentum is picking up around the idea of being more aggressive in developing an ownership community as a key credit union strategy and tactic. The more CU professionals see that it takes active owners (pioneers) to start and sustain credit unions, and passive owners (the indifferent) to end them, the more they are seeing active owners as the heroes in their credit union’s story. Add to that the growth of data and demographic tactics in CUs and who knows… maybe categorizing and cultivating members who think and act like owners might even be a long-term trend in CU operations going forward.

Only fly in the ointment? It takes work, and as we know in credit union land these days very few people trust the tact that work and sustained efforts are worth it without a clear ROI. It’s an accounting thing, or maybe an underwriting thing, but it just seems like credit unions want the black and white ledger calculation telling them it’s ok to expend the effort or risk their members’ money on such things.

And here is where it all falls apart. We will spend all kinds of “at-risk member’s money” to attract a potential consumer to our products. We love the high of a purchase, or a “yes” to our service and revenue generating products. We love the black and white accounting of something offered, something taken; there is a buzz in the value exchange. Consumers’ money, attention, affirmation, etc. for our corporate offerings. So why don’t we have something to sell consumers to be owners? Something that gave us all a buzz – something that said the consumer gets it! So we would get it.

We need to craft a different future, even if it is only for the credit union professional’s benefit. Members understand that ownership generally comes with a “transaction”, but the $5 par deposit as an ownership transaction just is not cutting it anymore. It’s forgotten as soon as it’s done; just the cost of opening an account. What then? How do we make ownership real in the minds of members, and beyond a simple one-time exchange? Stock?

Either way, an active ownership community within our overall member community is an asset! That asset has been undermanaged for years if not decades as credit unions have fought to develop their consumer communities. It may take a revolution related to data analytics to shine a light on the demographic and the value of these members, but as more and more CUs face moments when only an “owner” can make the difference, I hope it is not too late to do the work to turn the tide for many of the credit unions who are learning the difference between agents, consumers, and owners! Tell me why I’m wrong!

Check out this exchange between Randy Karnes and Susan Mitchell

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A conversation on innovation, collaboration, and CUSO executive compensation

I recently attended an Underground Collision session at the 2018 NACUSO Network Conference during which Susan Mitchell, CEO of Mitchell, Stankovic & Associates, and I discussed many topics ranging from innovation to CUSO executive compensation. Check out this excerpt from our exchange and be sure to check out the full article at the Underground website.

Sue:  Credit Union Service Organizations were started by credit union leaders as a for-profit, entrepreneurial endeavor to add value to members and generate income! Think of the early days of CO-OP, PSCU, CUSG, CU Direct, Shared Branching and CU*Answers. These collaborative efforts started some of the largest, most successful business ventures in the credit union industry and have returned significant dividends to the original investors, not to mention the impact on credit union owners and charitable causes. Is this true today or have they have become competitive ventures that may distract from the credit union mission?

Randy:  I always think of CUSOs as being started to expand the powers of credit unions. CUSOs created the ability to diversify the cooperative tactics and expand on the idea that if a community owned a cooperative venture then they should have the chance to leverage it for even more value. Why have a one-trick-pony venture? If we can do this, why not that. Cool idea. Now the natural extensions usually come in two flavors – financial service extensions or emulating vendor solutions from non-CU owned entities. But the spirit of the design to DO MORE with your cooperative owners is a cool idea.

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What helps you sleep at night might be the very thing guaranteeing your demise

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Is our trust in the power of the NCUA, our need to be compliant, and our faith in old designs the reasons our results leave us with a shrinking existence?

Recently Chip Filson emailed me wondering where to go next with his series on the NCUA’s management of the Temporary Corporate Credit Union Stabilization Fund and distribution. Good work, strong arguments, and passionate about the need for all of us to push to right the wrong in the way history will record this solution. It most likely has run its course, and Chip was wondering how to sum it up, push it forward, or reconcile all of that work against the dismal response from our industry. And while I have seen some recent angst when CU CEOs compare their refunds to their lost investments for the bailouts, I imagine that this episode will go down to “it sucks, but it’s how the world works.” I thought I might share my response to Chip with you.

“Chip, I hate that I am writing this, but like you I wonder – will your diligence pay off here or is the machinery (NCUA’s propaganda efforts) going to roll on by as the parade watchers (credit union stakeholders) turn their attention to new attractions? There is probably not a good reason to expect action from anyone in the CU industry and a tiring reader base, so who could you appeal to that might want to make a stink about this at a higher level? Government watch dogs, a higher-level player who wants to point out sins of past administrations or solutions, etc. Most likely no one. I believe we should now think more about the future. How can you stage this not to be just about righting the past (NCUA mismanagement), but to be more about changing things today for the future? Who might want to be on the NCUA board and sees this mess as a campaign plank for their election/selection?

I remember the day my father told me that he and my mother did not have control over the world and how it would treat me. It struck me that maybe I was smaller than I ever realized in relation to everyone else around me. I could not appeal directly to the powers that shaped my world; I did not have a voice that was easily heard by those who could ignore my hopes and dreams; I was afloat and the concept of control of my own destiny seemed a child’s fairy tale.

It is possible that the credit union industry will one day face the same “in your face” awakening about much of what is fears and embraces about the NCUA and regulations as a motivator and comfort. It will see that false hopes in the NCUA, our insurances independence, and our government’s backing of cooperatives. Will it crush us or free us? Will we go silent for a lack of thinking anything will change or will we search harder for the right people to influence and push for what we need? Will we be even less likely to push the edges of design or debate with examiners as powerless messengers of a system without representation or will see the need to agree to disagree and act to shape new destinies with our consumer-owners?

Without a doubt the real powers in our industry already understand the false hopes of counting on those who really are not empowered to change things. The winners in our industry already see that “going along to get along” with directors and NCUA messengers fits their short term existence, but there is a potential that one day the rest of the industry will awaken to the idea that compliance with someone else’s ideals for what they should be is only a suggestion, not the iron clad, all empowered design for success. It is time to reach for more, time to jump the track and push for a new regulatory approach.

We need to elect or influence the election of NCUA directors. NCUA director candidates must be able to declare platforms that they believe in, and will work towards. We need an agency that has a CEO who can lead the agency and work with directors. We need a functioning entity with cause, vision, and something more than a governmental employee’s hope for a long-term job and a pension. We need a future where the industry understands the boundaries that both constrain us and foster us – the boundaries that we evolve with an agency willing to be transparent and communicative on par with their expectations of us.

And while much of this seems like a fairy tale’s outline for change, I would rather work on that than suffer working through fooling myself that the current design of the NCUA will ever yield different results.”

Wow! Looking back I managed to vet a whole lot of stuff, include mom and dad’s teachings and fairy tales… but did I say anything that will inspire Chip to push credit union leaders to act differently? Can we change our behaviors in response to recognizing through our faith in these systems we have adopted bad habits that need to change:

  • Over capitulating to external powers
  • Over paying for compliance without searching for not needing to comply–both rules and the peer pressure of “best practices”
  • Put seat warmers on a pedestal without examination, and accept committees as leaders over our vision empowered
  • Over trust group think and under trust their community’s needs – their local membership needs
  • Count on others more than we count on ourselves

I know all of us like to go to sleep thinking that while we sleep the good guys are on duty and through their powers of control we have nothing to worry about, but I am quite sure that we all need to rethink trusting the NCUA’s powers to fix things will suffice. We overpaid for the Corporate Crisis and will for every crisis if we do not. Tell me why I’m wrong.

P.s. Most nights I do not sleep because I know that my world is safe in the hands of those in control, I sleep trusting with faith in the fact that every day members have goals that inspire our efforts, our work, and our hopes. There is freedom in trusting chaos and yet unrealized success.