In my thirty years of forming credit union collaborations, I have come to see common lessons, especially in multiply owned CUSOs providing one or more back office operational services. I examine twelve of those lessons in these types of CUSOs.
- Collaborations are usually born out of fear. Creating and maintaining collaborations is hard work and it takes a significant motivator to undertake the effort. Sometimes the motivation is opportunity but it is often fear. The fear of becoming obsolete in a world full of low cost and efficient competitors is real. Collaborations are created by those with the vision to see the challenges that lie ahead and understand the urgency to make changes while there is still time to act.
- Collaborations must overcome cultural and instinctive biases. Sharing resources and working together in a collaboration for the mutual benefit of the partners is a foreign concept in the for-profit business world. The success of a collaboration is not dependent upon the legal terms in a contract, rather it is the power of the owner/user model. All users of the collaboration own the collaboration. If there is a problem for a user, the owner fixes it. You would think credit union folks get this concept and many do but not all. It is an especially hard concept for examiners and lawyers.
- A collaboration is a relationship not a transaction. A collaboration will succeed if the partners view the relationship with the lens of the long term benefits and understand that all services are not “home runs” all the time. Constantly “hitting singles” will win you the game. Just as in a marriage, the key is to make adjustments to nurture the relationship between the partners and consider the effect of one’s actions on the other partners.
- Trust is the key to all collaborations. This is a trust that the partners share a belief of the importance of the collaboration, trust to meet the commitments made, trust to be truthful, trust to “have the back” of your partners; and trust to communicate to keep the partners aligned. Trust begins with the credit union CEO’s and, if successful, moves to the senior staff, the board and the rest of the staff. Many successful collaborations have begun when two or three credit union CEO’s decide that it is essential to obtain scale. They say to each other, “We have to do this and while all the details are not clear yet, we are committed and will find a way.” The collaboration will start off with a plan but the plan is constantly changing as the collaboration faces unforeseen issues to overcome. At some point, a collaboration requires a leap of faith grounded on trust. After it is formed a collaboration requires constant vigilance to protect it from adverse internal and external forces.
- A champion may create a collaboration but the institution must sustain it. Credit union CEO’s and boards change. The enduring collaborations will develop new champions within the credit unions to ensure its continued successful ongoing operation and benefits. Credit union boards will hire new CEO’s who fully support the collaboration.
- Scale by itself is not enough. Inserting a CUSO into a credit union’s operations actually adds costs unless the credit union adapts its internal business model. Credit unions must agree to use the same policies, documents, procedures and related vendors. It is only through standardization of the back office functions that scale enables the credit unions to achieve the efficiencies they seek. Doing more with less people is also key to saving money. Usually the CUSO employees will have higher levels of expertise that are now affordable given there are less employees with a more efficient process. The strategic thinking has to be elevated. A $250 million credit union in a collaboration with three other equal sized credit unions must think in terms of how a credit union with the scale of $1 billion operates. Significant benefits from collaborations require significant changes.
- Quantify the benefits of the collaboration so you will know how to maximize the benefits. You will be able to determine what services will have the “biggest bang for the buck” and what metrics will determine success. You will also know how many partners is an ideal number before the complications of running the collaboration make it counterproductive.
- For operational services, peer sized credit union partners each with an equal vote works best. Peer sized credit unions face similar problems that require common solutions.
- Developing a collaborative mindset is key. Determine what services are off-limits to collaboration (e.g., member facing services) and be open to collaborating on all other services with credit unions of like mind-set. When new services are considered, think of how new services might be enhanced if done through the collaboration and how that might help both your credit union and your partner credit unions.
- If the CUSO is providing a key service hire a person with CEO level capabilities to run the CUSO. If the CUSO is run by a person who has to be micro-managed daily by the credit union partners, the CUSO will be mired in mud. The CUSO CEO is accountable to the credit unions but he or she needs the ability to work effectively without constant supervision.
- Educate and communicate with the credit union boards and staff on the reasons for the collaboration and how the collaboration will affect their roles. The more education and communication there is, the more likely the changes will be accepted internally.
- Provide a means to unwind a collaboration. Nothing is permanent. If a partner wants out, the CUSO’s operating agreement should provide a means for the partner to disassociate in a manner that does not harm the collaboration and is fair to the disassociating partner.
Read more on A Dozen Lessons Learned in Credit Union Collaborations By Guy Messick…
Never burn a bridge with former girlfriends. It can jump start a career. I stayed friendly with my high school girlfriend Maryanne who married John Unangst the President of Franklin Mint Federal Credit Union. John formed one of the first CUSOs in 1988. The CUSO provided mortgage services and data processing services to multiple credit unions. As a result of meeting John through Maryanne, I formed John’s CUSO. John became a director on the newly formed NACUSO Board and asked me to go with him to San Diego on his dime to a NACUSO Conference and play golf. My bags were packed before he finished his invitation.
In San Diego, I did a presentation to a four table conference. John suggested to the NACUSO Board that I be their General Counsel. My most attractive feature was that I was free. So began my representation of NACUSO. I thought I could handle this gig as CUSOs are essentially small businesses and I had a lot of experience representing small businesses, including being the attorney for the local Chamber of Commerce. I grew up in a small business. My parents owned two restaurants. Eventually, my practice evolved into the near exclusive representation of credit unions and CUSOs.
The part of our practice that gets my juices flowing is helping credit unions create and expand CUSOs and other collaborative relationships. How can we structure a relationship between organizations and people that will reward all participants on a personal and professional level? Collaboration is not easy. It is not altruistic. It is finding people with the right values and incentives to work together to achieve a common goal. It is a challenge but when it works, it can provide amazing results.
Read more on Never Burn a Bridge With Former Girlfriends…
I get it. You want to merge with a peer sized credit union. Together you will have more scale, twice the number of branches, twice the membership size, twice the assets…twice, twice, twice. Having all things twice should create the golden ticket of economies of scale. But after the merger you seem to have twice the payroll but not twice the benefits. What happened? The dirty little details get in the way.
- If you don’t trim the payroll, you don’t save money. People are the highest cost of operations. Unless you have fewer employees after the merger, you are not going to save money. Are you willing to make those decisions?
- If you don’t trim the vendors, you don’t save money. The continuing credit union needs to quickly decide what vendor to use for each service. Having multiple vendors for a service within a credit union does not create efficiencies.
- Be ruthless in you vendor selection. Past relationships with vendors are great but that is not a reason to keep a vendor if the vendor is not competitive on price and quality. Buying a foursome at your credit union golf outing is not a sufficient reason to keep a vendor.
- The cost of terminating vendor relationships is a cost of the merger and should be calculated into the decision. This is especially true for core IT services where the termination fees can be excessive.
- The staff expertise needed to run a credit union of X size is not the same as running a credit union of 2X size. The general level of expertise has to increase significantly if the size and complexity of the operation increases significantly. There are all-star employees working at smaller credit union who could work at any sized credit union but the overall expertise level at smaller credit unions is not equal to the overall expertise required at larger more complex credit unions. If the merger puts you in a peer class that is significantly larger, are you willing to make the necessary changes in staff? That is a significant hidden merger cost.
- Larger credit unions tend to have different operational processes and a more formalized protocol and policy structure, which is often required to ensure consistency in member loans and regulatory compliance. Are you ready for that?
- The technology tools in a larger credit union tend to be more extensive and expensive than in a smaller credit union. Do you understand that cost and has that been a part of the analysis?
- If the merger puts your credit union within the jurisdiction of the CFPB, are you ready for the enormous costs of that oversight?
- Do you have the attitude to analyze the profitability of services and cut services that cannot be self-sustaining?
- Have you gotten past the post-merger identity of the CEO and directors? Does the board have the vision and talent for a larger, more complicated organization?
- How are you dealing with the staff issues? What will be the organizational structure and who is in each of the slots? How are those decisions being made…by unemotional analysis or by cutting internal deals to be “fair”?
- How are you dealing with different salary levels and employee benefits? Do you have to pay retention bonuses to keep key employees around for the transition?
- Can you close branches? Do you have keep unprofitable branches open?
- Is there a strategy to tear down the “us vs. them” walls and tribe-like behavior that sometimes occurs post-merger?
- Do you have the metrics to measure the success of the merger?
Read more on Voluntary Mergers: The Stuff No One Says Out Loud by Guy Messick…
That was the title of the January 4th article posted by Emily Waite on GonzoBanker. The article is geared to encouraging the 6,000 banks that share less than half the market to come together in the spirit of collaboration so they can compete.
Waite states “Today, banking executives are struggling to stay current in an industry growing ever-more complex with increased regulation, changing customer expectations and digital disruption.”
Sounds so familiar, which is why we are proud to have over 3 decades of collaboration history under out belts in the form of the CUSO. There are estimated to be over 1,200 CUSOs in the US and we’re excited to be able to confirm that number with data after the CUSO Registry is complete this week. Reminder: If you haven’t registered your CUSO, please do so before March 31st.
Read more on Collaboration: The New Competitive Weapon…
This year my husband and I traveled to Roswell, New Mexico for 4th of July and the International UFO Festival. It’s not to be missed. On Saturday morning we decided to take a walk around town. Just a couple of blocks off the Main Street and at the end of the historic district we came upon this beautiful home/credit union:
The Florist Federal Credit Union. Founded in 1969 the credit union only serves florists, their families and their employees. They offer business loans, deposit accounts and merchant card services. Their VISA cards are gorgeous (flowers of course) They are $7.8 million in assets with just 900 members. This is old school, single sponsor, in a house, listening to their members needs and providing the unique products their target audience wants. I wonder if they still have a credit committee? They are financially strong and as long as there are flowers and florists this credit union should be around for a very long time.
Read more on Merger Should Be the Last Resort. Collaboration is Key….