By Chip Filson

A CEO’s lament:

You state in your article: Protecting the decisions and mechanisms for maintaining our differential is the mandate for the future. But what differential? Other than ownership, how is a credit union different from a bank? Credit unions are very bank-like and banks have become credit union-like in their service offerings.

Does this ownership difference even matter? And if so, is it just to defend the tax exemption?

Is the cooperative charter merely a “flag of convenience” useful until a more attractive regulatory option becomes available?

Critical Elements in Cooperative Literacy

I believe that the undervaluation of the cooperative charter is partly due to a lack of knowledge about the dynamics and power of cooperative design. Cooperative literacy should entail some knowledge of:

• The history of the US credit union movement and the five “chapters” of its evolution;
• The values and principles on which cooperatives rely especially self-help and self-reliance;
• Credit union cooperative structure, institutional purpose and the foundation of their financial resilience;
• Cooperative’s competitive advantages in a market economy: the member-owner design;
• The evolving regulatory priorities and the importance of dual chartering choices;
• Cooperative’s role in the US economy from its historically innovative focus on serving member borrowers to more recent counter-cyclical role during economic crisis;
• The leverage power of credit union’s--their unique ability to create collaborative networks enhancing member value.

Few academics or financial analysts focus on the credit union cooperative system.

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The consequence is that credit unions are underreported publicly and largely absent from the national policy dialogue—unless the topic is taxation.

As a result, the cooperative model is largely unknown to the public at large and accepted on good faith by members that it embodies a truly different kind of financial character.

Many adherents within the movement are unable to articulate a convincing rationale for the cooperative option in today’s deregulated, expanding universe of financial services.

As credit unions move away from their historical and/or organizational experiences, the necessity to use cooperative insights fades. Member-owners become customers. Financial independence, the distancing from historical context, and the market’s ever-present competitive pressures cause many credit unions to view their past as just another story.

What Does a Cooperative Charter Stand for Today?

Much has changed in the movement since the early decades of the 20^thcentury.

Many leaders have adopted a “post-coop” mentality, in which differences with other financial institutions are minimal. The largest credit unions grow and succeed without any distinctive cooperative measures of results.

While there is no denying credit union’s business character and scope are changing, I view some of these directions disturbing.

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Causes for the Changing Attitudes towards the Relevance of Cooperative Design

The further credit union leaders are removed from experiences in which their organizations were formed, the harder it is to appreciate the ideals and purpose that motivated previous leaders. One hundred ten years since their founding, credit unions have become part of the financial establishment participating in all aspects of market opportunities and governmental programs. The progressive goals motivating the founders don’t resonate to the mood of today’s leaders.

The regulatory reassertion by the NCUA during the Great Recession (2008-2011) has encouraged institutional priorities over cooperative system responsibilities. Each credit union increasingly acts as if it alone must determine its future in its own way.

 The Costs of the Loss of Cooperative Self Awareness

The post-recession regulator’s imposition of a “rugged institutional individualism” for coops aligns well with the ethos of a capitalist, market driven economy. But this go-it-alone institutional model entails costs, some consequential.

Three costs come to mind.

1. The first is the loss of intellectual and organizational substance. Failing to focus on cooperative principles and design would be debilitating by itself. But coupled with an “anything goes” acceptance of business tactics leads to a faulty premise that the best way to beat the competition is to become the competition. If the banks can do it, so should we.

This “institutional individualism” creates a “live and let live” attitude toward peers. Meetings become show-and-tell sharing events avoiding real dialogue about cooperative fundamentals. Challenging a peer’s business practices is bad form.

Controversial topics such as risk-based pricing, ATM surcharges, indirect lending, buying banks and mergers that benefit incumbent managers, are considered each credit union’s prerogative.

The movement learns to accommodate such changes at the expense of founding principles and cooperative intent.

By past standards many credit union leaders and most members are cooperatively uninformed -a situation that is taken for granted as normal.

2. The loss of community experiences and local empowerment. Consumer trends encouraging financial independence align with the belief in the rugged individualism of Americans. This trend reinforces some managers’ belief that member loyalty lasts only for a five-basis point difference in rate. Member-owner loyalty to their institution and the significance of cooperatives local communal role is downplayed, if not forgotten.

The result is to focus on products, transactions and institutional success. Interactions among and with members are “thinned out.” Conversations about creating stronger local voices are lost. Without credit union orchestration, the ability to knit people together to empower them is missing. This knitting can create shared purpose and conviction outside the financing role of the credit union and thus raise up an entire community.

3. With no cooperative debate about design options, credit unions become inarticulate, unable to express or explain what they believe characterizes a system of cooperative institutions. While words do not supplant deeds, articulacy matters as it helps leaders to communicate their understanding of cooperative obligations.

Without this dialogue, new employees and succeeding waves of leaders inherit a barren cooperative vocabulary. Front line and director volunteers become tongue tied trying to explain the cooperative difference. Public presentations become an exchange of clichés or stale logic.

Enhancing Cooperative literacy

The trend to cooperative agnosticism as a new normal should be resisted. It is deeply problematic for the future of the system and should be recognized.

Some may say it is too late, the horse is out of the barn.  A this-is-the-way-it-is frame of mind can lead to fatalism about whether anything can or should be done.

The tendency to extrapolate current trends into a future that is already determined is bogus reasoning. To accept analysis which conveys an impression of inevitability is wrong. Cooperatives would never have existed if the status quo were also the future. Unexpected things can and do happen. These will disrupt the flow and inspire course changes.

Cooperative design encourages credit union leaders to cultivate what matters to members and their current mood. Some credit unions are trying to be radical innovators to give member-owners more financial security. Others are experimenting with creative ways for institutional collaboration and ownership of shared resources.

Future success depends on regaining core insights derived from member-owner design. We need more public debate to affirm what practices best suit the spirit of what cooperatives are designed to be. This interpretation matters because it will influence the practice of what we become.

A new dialogue about cooperatives can educate all of us about future potential. It will discourage the regulatory impulse to create a one size fits all approach to oversight.

Most importantly it could lead to a great awakening among 100 million member-owners of what a tremendously valuable asset they have working on their behalf. That could spark for another economic revolution addressing seemingly intractable problems of inequality and shared opportunity. That could become the foundation for future generations of cooperative members.