There has been a flurry of news articles and opinion pieces about what a credit union should disclose to its members when members are asked to vote on a merger of their credit union. It is a worthwhile question to ask but there are legitimate privacy interests of credit union management that we should be mindful of and respect. The key is to determine where the line is. If a Merger Information Disclosure was created, it might have the seven questions below. The first three questions are of obvious concern to members and need no explanation. I will comment on the others.
- What will be the impact of the merger upon the types of products and services offered to members?
- What will be the impact of the merger upon the cost of products and services offered to members?
- What will be the impact of the merger upon the branches and electronic access available to members?
- What will happen to the credit union’s capital as a result of the merger?
In most cases, the capital of the merging credit union will be merged with the continuing credit union for the benefit of all the members. In some cases there is a special dividend to the members of the merging credit union. This question gives the merging credit union the opportunity to disclose a special dividend without drawing attention to the possibility if that is not being done.
- What are the reasons that the board of directors is recommending the merger?
This question gives the board an opportunity to provide other reasons for the merger, e.g., the board cannot find a successor to the retiring CEO or the continuing credit union has superior technology that will elevate the member’s experience.
- Is there any compensation or other monetary benefit being offered to directors by the continuing credit union? If so, what is the type of benefit being offered and the conditions of receipt?
While this should never be the case, it is good to be able to say to the members there is no compensation being paid to the directors which would pose a conflict of interest.
- Other than the retention of comparable jobs and salary, is there any compensation or other monetary benefit being paid to senior management by the continuing credit union? If so, what is the type of benefit being offered and the conditions of receipt?
Here is where it can get sticky. In many cases, the continuing credit union guarantees jobs to employees, including senior management. As long as the jobs and salary are comparable pre-merger and post-merger, there is no need to disclose anything. However, if the CEO is getting a large sum of money for a no-show type job, the job and salary would not be comparable and it would compel a disclosure that the situation existed. If the continuing credit union is funding a retirement account for the CEO, that also would require a disclosure. The funding of a retirement account may be defensible as providing an honorable retirement to a long standing and faithful CEO where the merging credit union did not have the funds or the inclination to take care of the CEO’s retirement. Nonetheless, I would require the disclosure with an explanation. I would not require the disclosure of the sums paid or funded. As long as an arrangement is disclosed, the decision of whether to disclose the details can be left to the “marketplace”. The directors and management can decide whether to provide the specific terms of the arrangement and the members can decide when they vote whether they are comfortable with the level of detail and whether they think a conflict of interest may have influenced management’s recommendation to merge.
The final disclosure is one that I would give if I was the all-powerful credit union czar. You know that guy behind the curtain scaring the cowardly lion.
- Did the credit union try collaborating with CUSOs before you gave up and decided to merge?
Perhaps a bit over the top. I told you that I would have to be all powerful to get away with this one but the facts are that credit unions can often find answers to common reasons for mergers (lack of revenue and high operating costs).
Just so I don’t receive a lot of hate mail, I do realize that there are many strategic mergers that are thoughtful plans to increase the value of membership. So if you like my disclosures, particularly number 8, you may want to lobby Congress to convert the NCUA to a one person dictatorship (it has worked so well at the CFPB) and name me as the All Powerful Credit Union Czar. I only need 100 days to get these helpful changes in place.