Managing In The Dark: The Impact of Scarcity on Leadership

Years ago when I worked in training I recall being in an training development committee meeting in which we were within weeks of rolling out the pilot training for new managers on how to coach front line staff. Everything looked like it was set to move forward when one of the committee members, a senior branch manager who had been part of our profile group, said, “I have to admit I don’t know how I can afford to do this once we roll this out. I have eleven people in my branch and I still have to do my real job.”

Silence entered the room as each of us absorbed the potential reverberations of what one of the pilot designers had just thrown onto the table. The chairperson started going around the table asking for input from other members to see if they had similar concerns and then one young leader (who later stated she was nervous on speaking up because she was only a coordinator and not a “manager”) said, “I have around eleven people on my team and I can’t afford not to do these things with my team. So we have been doing this for the last year.” With that simple statement it became clear to me who the real leader in the room was.

This example also drove home to me the lesson of mental focus and how it can shift our deliberations. In how we can have people we trust operate from a scarcity mentality and if left unchallenged can limit the options on the table for our organizations. Take the example stated above. When that branch manager stated he couldn't afford the time to do something he enabled himself to place that task beyond reach. It shifted from being difficult but obtainable to simply not relevant as there was no perceivable manner in which the task could be accomplished.

Compare that to the 2^nd leader who by concluding she couldn't afford not to do it she changed the very focus of the leaders who were gathered around the table. She had concluded that she had to afford it and worked towards that goal. When we ask “How can I afford to do this” it shifts the playing field from scarcity in not doing the task to scarcity in not completing the task.

For many in the credit union industry this same type of scenario happened last year when new regulations required members to opt into courtesy pay. Some organization decided that they simply could not afford the time and effort to re-opt everyone into courtesy pay so they simply discontinued the service. Other organizations came to different conclusions as they realized that they very much needed the non interest income that courtesy pay provided to their credit unions. For them the question became the 2nd “How do we opt all our members into courtesy pay and still continue to do everything else we had planned?”

These leaders realized that there is a need to be able to see and operate in the dark. To take steps forward trusting in the talent of the organization to provide the next lamp of light before the last one fades. New ideas were presented, resources reallocated, and operational focus shifted. These leaders were able to decide what they wanted to accomplish. Too often we as an industry look to large credit unions or Big Banks to see what the options are and then follow in their lead. In effect we wait to be told what to choose.

I still marvel at the courage of Unitus Community Credit Union for charging a modest fee for personal financial management tools for their online members. The normal choice on the table is to offer it for free and simply let the membership of the whole credit union absorb the cost. Yet, what if the credit union is trying to keep rates low and still grow net worth. It would be very easy to come to the conclusion, “that we can’t afford to offer PFM for the online members.”  Instead they came up with a third option that goes against what everyone else in the industry would tell them they could choose.

One of my favorite chapters I have read recently is the first chapter of Rich Dad Poor Dad by Robert T. Kiyosaki who wrote of the dynamic of hearing two different world views from his parents.  He had been exposed to two opposing attitudes in thought that played out like you see below.

• One Dad thought that the rich should pay more taxes to take care of the less fortunate. The other said, ‘Taxes punish those who produce and reward those who don’t produce.”
• One Dad recommended, “Study hard so you can find a good company to work for.” The other recommended, “Study hard so you can find a good company to buy.”
• One said, “When it comes to money play it safe and don’t take risks.” The other said “Learn to manage risk.”
• One believed, “Our home is our largest investment and our greatest asset.” The other believed, “My house is a liability, and if your house is your largest investment, you’re in trouble.”
• One taught me to write an impressive resume so I could find a good job. The other taught me how to write strong business plan so I could create jobs.”

I think for many leaders who sit at our tables we have similar disconnects as some have one view and others have the opposite view. As our economy begins to pick up and Big Banks begin to rev up front line operations, acquire our talent and look to cross sell within their branch networks to our members we will find ourselves having to make decisions on how we will compete in an improving economy.  We will face similar questions and diverging worldviews.

• Is our goal to take care of the less fortunate or to go after more affluent or younger members?
• Is our goal to grow organically or to use our capital looking for a sweet out of state merger opportunity?
• Is our goal to conserve capital to appease our regulators or is it to push and manage risk for higher margins?
• Is our goal to help members get into homes or is it our goal to manage our pipeline to what mortgages we can sell to banks because we can’t afford to have low interest mortgages on the books for 30 years?
• Is it our goal to decrease cost by slashing jobs or is it our goal to increase sales and service, deepen wallet share to the point we have to create more jobs due to growth?

Whatever our choices are it is critical that we understanding how we arrived at them. To add a service or not add a service, to fee checking or not fee checking, to close branches or open in new markets, all of these questions are impacted in how we form our deliberations. Did we come from a place of scarcity to arrive at our conclusions? Are we certain we haven’t just looked across the banking divide and blindly allowed our Big Bank counterparts to tell us what to choose?

True Grit: Who Will Redefine The Model in 2011

 As a movie it was a classic, untouchable in many regards. True Grit was the only movie the “The Duke” won an Oscar for when he portrayed a scruffy, hard-drinking US Marshal named Rooster Cogburn. My initial thought when I heard that Jeff Bridges was in the remake of True Grit was blasphemy! [Editors note: keep reading it really is not a movie blog post.] It was going against an established standard that everyone else followed. It was John Wayne’s defining performance. For any other actor to follow would be folly and a huge mistake!  Guess what…I was wrong. The movie rewrote the standard and suddenly what was unthinkable was a stone cold reality…the new reality was Jeff Bridges in True Grit was simply cool and it worked. In 2011 as credit unions we also need to reexamine how we view some established standards.


Today in financial services banks and credit unions are waking up to their new reality. Big Banks are now in the position of having to wring more revenue out of customer accounts. The new trick and question on the table is how to justify new ways to raise fees on basic products like debit cards, ATM machines and checking accounts.


This new focus comes as many financial institutions brace for as many as 200 new regulations that could hit the books in 2011. Many of the new regulations will focus on reducing the fees that can be accessed by financial institutions on consumers. The end result is in my opinion a mixed bag for consumers and for credit union members. I fully believe this is the year that many bank credit-card users will experience higher inactivity fees and foreign-network exchange charges, while free checking accounts will simply fade into memory.


In a recent article in the Wall Street Journal author Robin Sidel wrote, “To counter that lost revenue, banks are thinking about imposing annual fees of $25 or $30 on debit cards, according to people familiar with bank strategies. Some are also considering limiting the number of debit-card transactions that a customer can make each month, these people said. Another idea circulating in the industry: Limiting the size of a purchase that a customer could make with a debit card. At the same time, reward programs for debit cards are likely to get the ax, these people say.”


This mad scramble for lost revenue will be even harder for credit unions as they have built their reputations on being less fee- centered than Big Banks. Sadly this becomes a more pressing issue as it is the smaller credit unions that are still expected to compete with the products and services of Big Banks. Following “the stampede” to fee on basic services is a mistake that will hurt those members who can least afford the fees.  It is low income members who will suddenly face new fees because they can’t maintain higher deposit balance limits or use self service access points like online banking.


The challenge for 2011 is how do credit unions pay for services with limited capital, share insurance premiums, and tighter margins as interchange income looks to be slashed as new proposals, part of the Dodd-Frank financial-overhaul bill , cap interchange at twelve cents a transaction become part of the new reality of 2011. By some estimates that could represent a reduction of about 84% from the current average rate of 44 cents.


The answer comes in a change of perspective and a wiliness to challenge standards that for many of us we never thought we would challenge. As a industry we have to look at premium value added services. This idea hit me as my wife and I were joining a gym. Editors Note: Yes, I like millions of others around the world have already joined a gym hoping that this year it will “really take” and that I won’t quit in two months.


As my wife and I were filling out the paperwork the size of the gym and the types of equipment really impressed me. How could they afford to offer this gym with no contract for only 1 dollar down and ten dollars a month? Now many of you probably already see the business model behind the gym membership special. By charging a low cost of entry fee and low monthly maintenance fee the number of people opting out of the gym is not tied to the number of people not using the gym’s services.  Most people will cancel a gym membership if the cost is too high and they do not feel they are getting the value they thought they would.


However, with a low cost model this gym is counting on people continuing to pay the membership dues even without going to the gym. The ten dollars a month membership fee goes from being “membership dues” to “membership I will take advantage of tomorrow.” Simply put at ten dollars a month the membership is worth it to say, “I belong to a gym that I might use next week if I feel like it.” Ten dollars buys me convenience and peace of mind that I am not giving up on my goals. So what happens is that the many are now paying the membership price of those who actually use the gym on a regular basis. This sounds shady when you say it like that. I am not prosposing charging members for services they don't value or need. Yet, that is exactly what most credit unions do when they do not pass cost for premium value added services that do not pay for themselves.


For credit unions to offer premium services "free of cost" to a small select group of users (for example those 5 to 10 thousand members who use your PFM) and to then to pass that cost onto the whole membership is in fact doing what the gym does. You are charging members for a service that they are not using. Think about it... in the past if most credit unions were to consider offering personal finance management for online banking or adding the new iphone app for the small percent of members using mobile then the whole membership would bear the price of those costs as the credit union added those service costs to its operating expense which places pressure on credit union margins in loan or deposit rates.


Perhaps it is time to rethink this model. Two years ago the concept of free checking was considered table stakes for most financial institutions. Today the reality has changed. An example of this shift in mindset is being seen as credit unions exit 2010 and enter 2011 with new product offerings that are no longer free.


Take the recent headline in Netbanker which comments on Unitus Community Credit Union, a credit union with around 70,000 members and over $800 million in assets, as it unveiled its new personal finance management tool, “Total Finance” in late 2010. After, a 30-day free trial, members pay $2 per month for the service.


In years past the pitch would have been to make this service free as it makes members more “sticky” to your financial institution. The reality is that this sales pitch has been the highlighted bullet on PowerPoint sales presentations from vendors for far too many years. Credit Unions have been investing in bill pay, WAP mobile banking, electronic statements, account aggregation, credit score monitoring, electronic billing, and Short Message Service (SMS) text banking all with the same pitch line, “This makes your members stickier.” 

This year we will see credit unions begin to identify value added premium products and services and then pass those costs along to those members who want to opt into those services. At economic cooperatives this model seems fair to me. Offer free mobile and SMS text banking but if people want the newest DROID application with built in personal finance management with remote check deposit then you have those members opt into that. You share the cost with those members who value the service without passing the expense to the rest of the credit union membership by lowering rates of deposits or raising rates on loans.

After all I would have never have though you could redefine my favorite old west character Roster Cogburn. Yet, there I sat in the movie theater eating my popcorn and not once did I remember that this movie was a remake. I got exactly what I paid to see a story about my favorite US Marshall and left satisfied. The difference was in how the makers of the movie had defined the character.


This same challenge is what credit unions have to face in 2011. How are you going to add premium services with less non- interest income with loan rates at historic lows? Many people will see this issue differently but make no mistake the line is crossed and now others will follow. It is not a question of when only a question of who and how do you keep up.


No matter what side of the isle you find yourself on you now have to answer the question on the table. If you don’t charge can you add that new app or service and what will happen if your members don’t see you keeping up with the services they want? If you do charge do you risk public outrage by bloggers and disgruntled members who see you as adding fees?  No easy answers on this. Regardless of where you fall on the issue you will have to have True Grit to stick to your position.

Time to Get Our Houses in Order and Define Ourselves

Recently I came across the following excerpt from an article I had read years ago when a friend had emailed it to me. The article starts with the following point, “Many people do not believe that serious recession will ever come again. Feeling secure in their expectations of continuing employment and a steady flow of wages and salaries, they obligate their future income without thought of what they would do if they should lose their jobs or if their incomes were stopped for some other reason. But the best authorities have repeatedly said that we are not yet smart enough to control our economy without downward adjustments. Sooner or later these adjustments will come.”

In the light of 2010 this article seems boring as if it was only stating the obvious, but the writer of the article wrote this piece back in 1987. The soundness of this counsel is something that all of us in financial services have seen firsthand as we continue to push past one of the sharpest downturns in many of our careers.

The aftermath of the 2008 recession is that there are fewer banks and fewer credit unions in the industry. Lending has changed for many of us. No longer can we supply an unlimited supply of 500 dollar unsecured loans to our members at acceptable rates.  We all share a new reality in which credit has tightened as delinquencies have climbed in both consumer and commercial lending portfolios.

Small credit union collections shops have been hard pressed to keep up with the volume. Good members have become hard pressed as overtime has been eliminated or spouses have been laid off.  Sadly one of the most common job postings I have seen on the credit union job boards over the last year have been for newly created positions of “Collections Manager” or “Part Time Collector”.

Not surprisingly given these challenging times the reaction of most banks and credit unions has been to bunker down and to try and grow their loan portfolios with top tier credit members. This strategy has been adopted by Big Banks, Community Banks, and Credit Unions.  In today’s market everyone seems to be following this same type of strategy. So who is meeting the needs of our credit bruised members who are looking for someone to meet their lending needs?

Sadly, we have created a void in the market that is now being filled by payday lenders who are now starting to sound and act like credit unions in that they are meeting the needs of the under-served. This morning as I was reading the paper one headline that caught my attention was Pay Day Lenders Go Hunting.  

Emboldened by their competitive advantages and the banking industry's retrenchment, payday lenders are aggressively pitching debit cards and online bill payment. Some companies are opening payday-loan branches next door to banks and designed to look like them, even hiring former bank-branch managers

This problem that was on my morning paper had been brought to my attention earlier in the year when I attended a conference in which session moderator Lois Kitsch, REAL Solutions Program Director, asked us, “How many people in the audience have credit union members that use payday lenders?" Now many of us smiled because we figured Lois was experiencing jet lag and simply did not realize what state she was in. If she had she would have realized that our state had outlawed payday lenders and basically pushed them out of the state. Lois she added, “Oh, I know it is not legal here but do any of you have members in another state or members who would drive across the state line?”

Suddenly I realized that the fine people I had lived, worked, and worshiped with would not even think twice about driving across the state line to get a payday loan. For decades people had done work office pools and had someone drive to the state border to buy a lotto ticket. If they would drive for one then they would drive for the other.

Lois then continued and confirmed what I had already been thinking and then added a new twist, “An estimated 7% to 15% of credit union members use payday loan products.” Kitsch paused then added, “So do some credit union employees. Providing alternatives to payday loans is a good business decision, a good social decision, and a good advocacy decision.”

So what are the alternatives that are still prudent and not just “charitable social lending” to save the world? Some in the industry are working to help identify what those options are. In my opinion they have a difficult road as both ends of the credit union spectrum have to be satisfied.

You have to be able to offer solutions that pay for the service.Unsecured debt in low amounts to troubled borrowers is not an easy sell to any lender. The immediate reaction to such a proposal is to charge a rate that compensates for the risk involved which upsets credit union purists. 

Those that would have us give members loans regardless of risk and cost simply do not live in the real world.  There are scores of well intentioned purists who at times simply choose to ignore the balance sheet and do not try to consider the risk involved with their good intentions.  While their passion is commendable they have to help bottom line focused credit union leaders see past the charity element and help build a real business case for meeting these member and employee needs.

I realize that for many of you reading this blog the concept of payday lending is an old and tired topic. While there might be “gold in the mines” the cost of business and the public relations nightmare make it an easy issue to put on the back burner. However, there is still a need to be meet and most credit unions will see noninterest income from interchange shrink by some estimates by as much as 70 percent with newly proposed Fed limits.

So we have an unmet member need with the potential to move back into a space we should have never left to payday lenders. How do we take some prudent steps back? That is the billion dollar question isn’t? While I do not have the answers I do know we as an industry need to tackle these questions below:

• What are appropriate products to add to our menu of services
•  How do we determine if our members are caught in the short term loan cycle trap
• We all know our members want a low cost short term loan option
• What is a product we can offer to help them move up a wealth path
• How do we price our products as low as possible to generate revenue the programs will need to make to see a return to all member owners
• How do you encourage your members to save and to become savvy borrowers

As we look at a new year I am suggesting that the time has come for us as an industry to get our houses in order and define ourselves to our members. While we are at it we need to help our members do the same. 

If we are in the business of improving our members’ financial well being then surely we have to help them with self-reliance. Self reliance simply cannot be obtained when there is serious debt hanging over a members’ household. One has neither independence nor freedom from bondage when he is obligated to others. If we as an industry can’t figure it out then we have left our members in the hands of payday lenders to define the solution.

Many of you reading this blog are industry thought leaders at your credit unions who understand the issues in much greater depth. Leave a comment and share your insight. Help educate those of us in the industry that want to make a difference but are not sure where to start. As always thanks for reading. 

What Are Your Success Rituals: Are You Wasting the Moment ??

One of my all time favorite movies is The Expendables. Really, I am thinking “Movie of the Year”! The movie follows the typical action packed movie plot of “shoot, strut, and sneer” at the camera.  In the midst of all the one line jokes and shoot outs one element that could be easily overlooked in the movie is when the leader of the group has a huddle to talk about the upcoming assignment, challenges, and goals for the task. This was not just a funny scene in the movie it was something that this group did before they went to work. For them this was a vital part of their routine in making sure everyone was on the same page. It allowed for them to get on the same page and to understand how they would each contribute to the success of the mission. For them it was a vital ritual to enable success.

Most of us have daily or weekly rituals we attend to. I listen to “Good to Great” by Jim Collins every morning on my commute to work. All jokes aside of me not having a decent music collection. I have probably listened to the audio book a hundred times over the last three years and still I find that it is a perfect catalyst for a new thought. As I listen to Jim Collins talk about some core concept I find that my mind travels to what I need to accomplish for the day. It is not long before his voice and my own thoughts merge on some new thought.  This morning ritual is a way for me to consider my day in an abstract manner and not just go through a mental checklist of fires I need to put out.

This concept of rituals is something that was recently addressed by Peter Bregman in his blog article The Value of Ritual in Your Workday in which he described the following, “Rituals are about paying attention. They're about stopping for a moment and noticing what you're about to do, what you've just done, or both. They're about making the most of a particular moment. And that's something we could use a lot more of in the business world.”

Consider the possibilities of every branch manager in your branch network pulling their staff together every morning for ten minutes prior to the branch opening.  They started each morning with recognition of prior top contributors for the branch goals.  In these huddles they were able to connect your staff’s collective attention on collaborating and to dedicate themselves, without distraction, to achieving the goals of that the group has to meet. What possibilities could happen if that branch manager acted more like a branch leader that acknowledges that each person's views, goals, and priorities are important and need to be heard in order for the group to be successful?  Only you can look at your own organization and consider what the possibilities might be if your front line community leaders developed these types of rituals or activities.

Make no mistake- everyone comes up with some type of morning ritual. It might be you have team members who read a dozen emails and drink their morning coffee. Other people like to be quite and gather their thoughts while others are social butterflies that go from one person to another to see what is new with them for the morning. The question you have to address,  “are these defaults rituals helping you or your team tackle the day as a group?”  Are they focused on the right things and do they know what your thoughts are on what you need the group to accomplish? 

As fans we watch our favorite sports teams huddle before big plays. As parents we have seen our sons and daughters in huddles as they work with their teams. We watch pro fighters huddle in their corners between every round getting advice and encouragement. Yet, in business the concept of a huddle seems silly to some. Somehow in business we are supposed to be able to convey our thoughts without sharing them, excite people without talking to them, and recognize people without interacting with them. It simply doesn't make sense. 

One step in changing this mindset would be to simply start with just yourself and your team.

• Write down who were your top contributors for yesterday
• Write down what the group needs to accomplish for the day
• Write down the pace they need to set to reach the groups goals

Now put it all together and send it out to your group. Congratulations, you have just had a virtual huddle!

The next step is to ask them later if the email was helpful and what they would like added. Then change it and repeat. Once you have your structure you can play with the setting by having the huddle in person. Then you can have others lead the huddle and have each person make their own behavioral commitments on how they will contribute. 

As leaders we know our people look where we look. Each time we pause, notice, and offer respect for their efforts, it reminds you and them to appreciate and focus on what each of us has committed to do. By elevating each activity and the contribution it makes to the team success each person on the team takes it more seriously. Each person gets more satisfaction from it. Our teams with whom we work will feel more respected and as leaders we'll feel more self-respect.

The Masks Big Banks Hide Behind: Debating Credit Union Versus Big Banks

In two years one of my favorite TV specials will come back to TV screens across the nation as people tune into televised political debates. The mindless rhetoric, the endless spin, the back and forth as statistics are used like right crosses and left hooks throwing the unprepared participant back onto the ropes. During this time the participants paint themselves one way then turn around and put on another mask and paint themselves another way. 

It would be interesting if we could finally talk through the issues that both credit unions and Big Banks face and take off the masks that Big Banks where as they testify in front of Congress or take to the airwaves downplaying another corporate scandal. 

Picture in the left hand side of the stage the Big Banker who represents the Giants of finance, the largest bank (Citigroup) has more assets, 2.2 trillion, than all US credit unions combined, with a blue suit, coordinated tie, flag lapel pin, and perfect hair standing at his podium. His is the perfect face is but a mask to represent the perfectly masked industry. In the other side of the stage looking much smaller is the credit union member looking like… well most of us.

Big Banker : “The nation’s credit unions get to have their tax-exempt status even as Federal regulators gave billions to the credit union industry due to risky bets on subprime mortgages. “ Then turning to his mask so that the profile side is to the TV camera he continues, “Regulators will supervise $50 billion in troubled assets and issue approximately $35 billion in taxpayer-issued bonds!”

Then pausing for dramatic silence he then adds, “To put it bluntly the credit union industry that has never paid a one red cent in federal taxes is swimming in a butter keg of a taxpayer-funded rescue because of their shoddy lending practices. Now is the time to raise taxes by taxing every one of them.”

Credit Union Member: “By bailout you must be referring to the five corporate credit unions. I want to make sure we are not talking about the 196 banks and all five Wall Street investment houses that have failed during the same time. I know it is hard to remember with all the banks that lined up for government money with open hands. 

We also should set the perspective on market share with total credit union market share in 2007 being around 6%, while total bank market share was around 81%.

On the issue of criticism it is fair that the credit union industry take a hard look at itself. We certainly need to do a better job of understand risk with member business lending with participation loans in sand states. In hindsight we could have been more conservative in some of our investment choices. Like the rest of the nation we believed Wall Street when they were peddling poison to their investors. Yet, during this recession we have continued to lend to small businesses and our local members while you have sat idle and starved the communities in which you operate of the credit they need."

Big Banker: “So you admit it? You did mess up. You are to blame… at last a credit union advocate who sees clearly!

Credit Union Member: "Well, actually I do appreciate your comment because I do think I have a pretty clear picture of the landscape. You mentioned that a taxpayer bailout that should cause everyone to reconsider the tax status of my credit union. This is where we might have to agree to disagree as the last time I looked at the paper it was filled with headlines about the various 190 banks that have failed…of course this doesn’t count the TARP money …170 billion give or take.

My understanding is that credit unions are taking care of their own as each natural person credit union is funding the corporate through share assessments. Credit unions are paying for credit unions. The billion dollar credit union, with hundreds of employees, and small credit unions, with only 3 employees, are all pitching in. As economic cooperatives each is helping to fund and replenish the corporate credit unions.

I am sure you would do the same thing right? I mean you are probably willing to write a check to the Megabanks to help them out. Right?"

Big Banker: “Don’t be idiotic of course we are not wasting stockholder capital giving it to another company. That would be ludicrous!”

Credit Union Member: “No, it would be cooperative. You probably are not aware of the model.”

Big Banker: “We give by paying taxes which is more than you can say.”

Credit Union Member: “Glad you brought that back up. I appreciate that about you. You are very good at bringing this issue up…almost like clockwork. So let’s talk about taxes. The purpose of taxes is to provide value to the citizens of the communities in which we live, work, and worship.

As we all know tax dollars help fund public services and to generate a safety net over which the financial marketplace performs its magical mystery act in which one dollar comes in and hundreds of dollars come out, all the while balancing consumer needs and of course stockholder returns. So let’s talk about value to the citizens of the communities in which we live, work, and worship.

As community based cooperatives credit unions provide value to the communities they serve through the provision of low cost loans, higher dividends on savings, and a cooperative economic profit sharing model that works without the government as middleman. This is a model that both political parties should love- people helping to bootstrap other people.”

As you are probably aware all members of credit unions benefit when a credit union prospers. Now on the issue of taxes some things to consider:

• Our members are taxed on the employment income they deposit into their credit union. 
• Our members are taxed on the dividends they earn on those deposits 
• Our members pay sales taxes on the items they buy with money from their credit union share draft account. 
• Our members pay property taxes on the vehicles and homes that they purchase with proceeds from loans granted by their credit unions. 
• The funds that are pooled by the member-owners of credit unions are taxed. 

The communities in which credit unions operate are beneficiaries of the increased spending power and financial well-being of credit union members."

Big Banker: “Those are your customers not you."

Credit Union Member: “That is not correct…see we don’t have customers we only have members. The members are the credit union. However, I do have some good news for both you and your fellow bankers.”

Big Banker: “This nation does not need good news it needs for credit unions to stop using an unfair advantage by going after our customers and driving down our loan rates. It needs for you to stop paying higher rates on deposits. It needs you to give back by paying your share!”

Credit Union Member: As I was saying the good news is that you are always welcome to join a credit union and feel what we are talking about.

Now on the issue of our tax-exempt status if you feel that is such a game changer for community banks you are welcome to convert to a credit union. That would require a few changes which I am sure you would not mind. First you would need to limit your commercial lending and do more lending in under served communities. Be aware this could impact the number of “business lunches” on the golf course. Then there is the stock. You would not have private stock option deals in which you under price your stock so that it is lower for you than what your stockholders can get it. Oh, those cushy board jobs with all the perks and nice salary would probably disappear as well. Lastly, you would need to retain more capital. Four to five percent for bank may fly but as a credit union you need to think about doubling that. Safety and soundness you know. Like you mentioned earlier we don’t want any taxpayer bailouts.

Big Banker: “Silence..." Fade to black as the Big Bank mask continues to smile at the camera. 

Ready To Rumble - Guess Who's Back For Round Two ???

One of my favorite sports is that of mixed martial arts. To the people that know me this is often a surprise as I am not really a blood thirsty type of person.  Yet, put mixed martial arts in front of me and suddenly I am intensely focused on the action. I know that people have a wide and differing views on the sport. To fans it can be seen as the ultimate expression of competition and to its detractors it is simply blood sport that grinds up the talent of its participants. I am Sweden on this issue – neither agreeing or disagreeing.

 I remember the first match I ever watched. A very slender quite man entered the circle wearing a traditional white jujitsu gi. His opponent was a boxer that packed an additional twenty pounds of heavy bone crunching muscle.  As they went through the introductions I could not believe how calm this skinny guy in white pajamas from Brazil appeared.  Didn’t he know he was about to get pulverized? The other guy was fresh off of 15 straight victories and looked liked he could punch through concrete. In fact, he was so confident in his punching ability and his power to knock out his opponent he wore only one glove to the match thinking he only needed one punch to win the victory. In his mind he was the only real game in town. Two minutes later the boxer was defeated and the world of mixed martial arts was wondering who the skinny kid from Brazil was.

Fast forward to our current environment and we still see opponents that think that they can beat the competition with only one hand and that they are the only real game in town. Big Banks with somber faces and hats in hand have been claiming that, because of a Federal Reserve rule change and the financial reform bill, they now have to create new fees to make up for the ones the government banned as unfair.  The money that they take with one hand is then passed on to stockholders via dividends  and cooperate executives who collect fat bonus checks. That whooshing sound is the sound of money leaving your members wallet and your  local community.

So how do we as cooperatives face this challenge?  When I look at the page hits for the blog by far the most popular pages are those in which the concept of matching member needs are the central topics. The topics also tend to generate the most comments. A recent and very unscientific poll on the blog revealed that fifty percent of you do offer sales but only as “needs based solutions”.  Twenty percent do not offer sales at all. While the poll is entertaining and extremely unscientific  is does allow us to look at each other and consider our next steps as cooperatives and what exactly that means from a  cultural perspective.

I think before we look forward we need to look back and also look across the table.  As each of us gaze at our competitive landscape it is easy to focus on the credit union across town. Many of you have pulled the call reports and you can see that you have not suffered the losses that your local competition has (turns out participation loans are trickier than people thought) and your opt in campaign back in the spring for courtesy pay has maintained the non interest income stream for another year.  Thanks to some fast and innovative promotions consumer lending is holding steady. People in the community are slightly less worried about losing their jobs so your new and used auto is beginning to trend back towards 2007 levels. 

Before we all congratulate ourselves on a job well done we need to consider that many credit unions were successful in the past in spite of themselves. The margins were such that you did not have to be overly efficient and your staff could just get by using credit union charm and acting as order takers for members.  The past two years have seen many credit unions grapple with hard decisions and forced efficiency gains. For many credit unions the last two years have been crucible moments in which core cultural values have been dusted off and people inside the organization have had to dig deeper to help members in distress.

Now that you have made hard decisions where are you going to take your operation? More importantly where is that Big Bank in your town taking its operation?  Just as credit unions have made hard decisions so have BigBanks. The fall out on both sides has been much like a no holds barred tournament as the weaker have fallen prey to stronger.  In the third quarter alone 41 banks have thrown in the towel for a total of 127 so far this year. The closing of the doors were often no more than changes in the signage as they were quickly taken over by the FDIC (Federal Deposit Insurance Corp.), who  changed the name on the front door (but kept the FDIC sticker) over a weekend. Make no mistake more will evaporate. Last time I did a Google search (again another very unscientific  method )there were 860 banks on the FDIC's list of problem institutions as of September 30. That is up from 829 at the end of June.

Before we all rejoice we should consider that like many of us the BigBanks are again finding their feet and are up for another round. For the third quarter, banking industry profits leaped higher as revenues increased and loan loss reserves subsided. For the group of about 7700 banks and thrifts net income was $14.5 billion. That's up around 12 billion from last year in the third period.

More good news is that the percentage of banks losing money at the end of the quarter was the lowest level since June 2008, when the economy was about to plunge over the cliff. If you were to look back a year ago, almost 33% of all U.S. banks were bleeding red ink. Fast forward today and now, it's less than one in five.

Make no mistake we are all in for a tough round two. Unlike that fight I watched so long ago this time BigBanks are taking off the gloves all together as they work to challenge us in our local markets and in our legislative arenas. Tax exempt status is back on the table as The Independent Community Bankers Association (ICBA) argues bad investments by credit unions have led to the takeover of five corporate credit unions by the National Credit Union Administration (NCUA) during the past 18 months. Big Bank are hiring top talent in your ranks as they again rev up their profit centers. This time around they are focused on gaining back bread and butter consumer relationships from your members. Are you Ready to Rumble ?

Practical Application:

As you look to next year who do you see as your competition for your members attention and in meeting their financial needs?

How are you adjusting your hiring strategies to make sure you bring in the talent you need to take your organization to the next level?

Do your top performers share best practices or are they quite so as to not upset their peers?

How skilled are your staff members at articulating the points of differentiation for your institution?

As Big Banks are flooded with money and are again hiring what is your strategy to retain top talent in your organization?

The Elephants in the Room- Changing Our Culture To Our Landscape

Who Are We Exactly ?

The credit union movement is one of the most dynamic and diverse movements in business today. If you were to attend a credit union chapter meeting you would find leaders from multibillion dollar credit unions sitting at the table with credit unions with just three to four people. The challenges for each of them are very unique. The billion plus dollar credit unions have to deal with scale and increased complexity that comes from having so many members and assets. The small credit union struggles with equally daunting challenges but on the opposite side of the equation as they struggle with little money and tight budgets. For them the question of the day is how they can get an extra printer or a new desk to replace the equipment that is on its last legs.

What Keeps Us Up At Night ? Our Members ???

If you were to poll the group of leaders in a local chapter meeting on what keeps them up at night some would say credit unions need to be focused on small business lending and raising the cap, others might say we need to be talking to lawmakers about alternative capital or the state of corporate credit unions and their need to consolidate and create economies of scales. As fascinating as those topics are a central issue for credit unions is learning to really listen and talk to their members about the value of their services and products. A silent credit union who masters the business of “order taking” is only as good at serving their members as the member is in understanding their own unknown needs. Simply put- members are not financial service experts- they simply don’t know what they don’t know.

Part of the challenge of the debate on "sales" is that credit union’s foster incredible loyalty in their employees and leaders. When speaking to a leader of a large credit union about culture they stated, “We do not hire from the outside except of entry level positions.” You could  appreciate the sense of pride this person felt when he stated he was a branch manager and had been with the company twenty four years. This company was his first job out of college and was central to how he defined his career success. This type of talent pool strategy is not unique to this one credit union. There is undeniable strength in the strategy that the executive management team is able to make sure outside influences don’t change the core culture. On the flip side there are equally daunting drawbacks as the downside to this strategy is that change is a fact  and we all have to adapt to changing external business conditions and market forces.

Just in my short career I and many of you reading the blog have seen financial service industry grow more complex. Big Banks have not stopped in their relentless pursuit of market and wallet share. Twenty years ago there was no Citigroup or Bank of America as we know it today. The players on the field have changed and their tactics have improved in their ability in parting members from their wallets. What does it look like on the other side of the fence?  If you could be a fly on the wall in the Big Bank boiler room what would it look like? Here is my experience that I would like to share as a point of perspective.

A Peek At the Dark Side 

In 2004 a Big Bank opened a new call center two counties away from my home to handle one of their multiple billion dollar card portfolios. The building was a state of the art facility that would house over one thousand associates. Each entrance had an eye scanner that scanned each person’s pupil before allowing them into the building. I was hired as one of the first service and sales managers for the new operation. The day I walked into the building the leadership staff was non-existent except for a newly promoted site Director and one very overworked Human Resources officer. Walking into the empty building and seeing line after line of phone pods I could not help but wonder how we were going to get 600 people hired, trained and operational for Christmas shopping which was six weeks away.

The central task was to train associates to handle incoming calls and answer the typical questions that cardholders have regarding their credit card. This type of activity is typical of most large credit card providers in the industry. If you were to listen in on the call you would hear the associate use carefully selected care phrases (“Mr. Customer, I would be glad to take care of that for you.” or “Thank you for being a Big Bank card member”)  to let the customer know how much their business is valued. This is a standard in the industry as credit providers compete for the same customers that rotate in and out of the various credit card portfolios.

The real challenge comes at the pivot point in the conversation where you have handled the service request and the member is looking to exit the call. This is where some credit unions would end the conversation by thanking the member for being a member of the credit union. This is not where the Big Bank customer service agent is trained and incented to end the conversation. 

The Pivot Point 

The Big Bank associate is trained to continue and using verbal cues from the customer presents an additional product or service for the customer that they might not be aware of. For example, you might have an associate talking to the card holder about the company's card reward program. The associate answers all of the card holders questions and then reads a statement exactly word for word detailing the program and the terms and conditions. Once the card member has agreed the associate clicks the button and then marks down a sale. What the cardholder did not know was that sales associate just made four dollars on that call for adding the reward program.

This is an example of Big Bank “needs based selling” that many card providers are now doing in their call centers. This activity is not something that happens randomly. The associates involved are incented per sale and have desktop prompts that list the next most profitable sales opportunity for the company. The expectations are that associates in this operation would make an offer at least seventy percent of the time. This means your members who have any Big Bank relationship are being bombarded with sales presentations. This does not count television, radio, and web advertisement.

Why Our High Moral Ground Hurts Our Members 

You could have better rates on your credit card, you might even a better rewards program that does not rely on twenty or thirty percent of the users having their points expire. Yet, if your members are not asking you about it and you are not expecting your staff to educate members on it then what is the value of your program to your membership? Your cultural stance on not "selling" to your member has allowed them to remain with a Big Bank product or service that cost them more money. 

So how do you combat this stream of misinformation that is bombarding your members? You have to create a version of service that proactively educates and empowers your membership as they interact with your institution. You have to create an cultural intervention for your staff. The intervention needed is not one of organizational structure but is rather one of culture or operational environment. 

Cultural Change - One Bite At a Time 

This type of cultural change will require the initiative to tackle educational gaps and the definition of what your staff view as a collaborative culture. David Nadler, author of Champions of Change,  wrote about the subtly of the word culture, "In the 1970's and '80s, as U.S firms struggled desperately to figure out why Japanese companies were becoming global powerhouses, some observers seized upon 'culture' as the key ingredient in the Japanese recipe for success." Nadler continued, “The term took on outsized and ambiguous, almost mystical, connotations" The author then provided the substitute term of “operational environment”.

To create this operational change you must address three areas of the operating environment the first being artifacts. Artifacts are observable behaviors, these artifacts are in fact overt manifestations of your credit unions values and beliefs.  Stop and think about the visual experience your staff has when they walk into their work space.

• Are there posters on the walls, papers on the glass doors or windows of manager offices highlighting the member successes they have achieved?
• Does the space around them encourage them to educate and empower your members? For example, when a person walks into the sales offices of an automobile dealer it has a feeling of deals and negotiation in the air. No one is surprised to see someone purchase a car. In contrast, to walk into a law office one would not expect to hear the buzz of capitalism as people haggle over the price of a product.

This same type of change was needed when I walked into the Big Bank operations area. The site was intended to be a customer service and sales site. However, the sales portion was missing from the organizational artifacts. A sales force feeds on energy as each person competes with peers or with themselves to present with enthusiasm a product or service that a consumer is not aware they were initially in need of. Back in 2004 looking around the Big Bank operational floor there was nothing to make you think that people were expected to do any sales. This in turn provides an excuse for those who are not engaged in trying to sell.

Our first step was to change the artifacts on the floor. So we did the following things:

• Giant message boards were placed on the walls. These boards will list top sellers and publicly recognize those associates who are meeting the sales goals.
• Created an "atmosphere of urgency". To accomplish this, associates need to understand the site's performance in comparison with the other twelve Big Bank sites. To create this awareness management displayed where the site's performance was in comparison to other sites.

Values - The Bridge from Vision Statement to Agent Conversation 

Real change has to impact the values of the operation. This level of the operating environment is the organization's espoused values. These are public expressions of what people value as important in your organization. An example of this is our credit union vocabulary. We don’t have "customers" we have "members". We are not banks we are credit unions. To impact this level of the operating environment staff need to hear and learn to speak in context to what the values represent.

How do you change this? You have to start to interject into daily conversations the key metrics and drivers that you expect your staff to be aware of to reach the desired outcome for your department.  Staff need to be able to define in words what success will feel or sound like. A good starting point is to redefine the “key words”.  So going forward “sales” are a chance to “match member needs”. 

Give your staff defined principles to value and follow. The expectation when talking about credit union products and services are that conversation should be based on the context of the conversation in front of the staff member. The goal is to educate and empower members to make informed decisions on the level of economic participation they want with the credit union. 

Celebrate member success stories in which you made a difference to a member. Send them all the way to senior management. Put them on your intranet. Write a blog post about them with your membership and post it on that new Facebook page marketing talked you into. Promote and recognize the values you want to reinforce in the culture you are creating.

As you stop and consider the billions of dollars our members are paying to Big Banks for auto, mortgage, and revolving credit the question of sources for additional capital come into focus. Consider the billions of dollars parked in low interest Big Bank savings accounts and our members oblivious to the power of real economic cooperation. Those are the questions we have to answer. Those are the billion dollar elephants in the room that no one wants to talk about.

Each of us owes it to our membership to educate and empower member owners on the powerful principles of economic cooperatives.  We have to be able to move past credit union charm to real economic empowerment by educating that member in front of us on the value of being a member owner of a credit union.

Don’t just read the blog share your comments and opinions. This blog is meant to be a cooperative experience for us all.