Part One: Merging for the Right Reasons
By Christian Mullins
Credit Union mergers are announced on an almost daily basis. With very few exceptions, the decision was made before properly exploring every option. This may, or may not, be the fault of the lost credit union’s Board of Directors (Board) and Executive Management (Management), but it is relatively certain that one of four common mistakes were committed, leading to that credit union’s extinction.
Failing to replace the individual(s) directly responsible for the day-to-day management of the credit union. In every business, there are people who have performed well in the past but today find themselves performing poorly. This is either due to a change in attitude or in the job’s parameters. A change in attitude is easy to recognize and remedy, but a change in a job duties may be more difficult to identify and interpret. Living in what some have dubbed ‘The Information Age’, a certain knowledge and comfort level with technology is required, and credit unions are no different. The onset and overall reliance on computer driven technology has resulted in the need for all financial institutions to not only incorporate staff that both understand and embrace technology, but a Board and Management that recognizes its proper and optimal utilization. Today, running a credit union requires a type of adaptability that wasn’t as necessary in the past, and if Management cannot adapt to confront the industry’s ever-changing landscape, it’s time to bring someone in that will.
Confusing ‘end of an era’ with ‘end of a credit union’. Certain CEOs have been with their credit union for decades, and in some cases, since inception. As a result, it’s only natural for the CEO and credit union to be thought of, abstractly, as a single entity, with members thinking “Mary Jones IS XYZ Credit Union”. It’s imperative that the Board never falls into this line of thinking, always remembering that the credit union is for the members, not the CEO. In time, the CEO will announce their intentions to retire. While replacing a long time President or CEO may be a difficult or emotional experience, there are plenty of qualified individuals to take his or her place, already on staff or with another credit union, that hold the same values and beliefs as the retiring CEO. A proactive Board understands retirement to be inevitable, with a succession plan already in place to minimize the transition period. Without a succession plan, a credit union is vulnerable to merger, especially if the CEOs tenure ends at an unexpected time.
When approached to merge, listening to, but not hearing, the pitch. Credit Union’s contact each other from time to time, inquiring on the possibility of merging. The inquiry may be overt, or it may be as innocuous as a monthly lunch. When they feel a credit union is most vulnerable, the larger CU will discuss how helpful a merger will be to the smaller credit union’s membership, including, but not limited to: additional ATMs, more branches, and a greater selection of services. Discussions may also include how the larger credit union is using technology that the smaller cannot afford, upward mobility for employees, and stature in the marketplace. Some points will be valid, while others will appeal to pride. It’s imperative to understand, however, that if another credit union wants to merge, the small CU has something the larger one wants. Mergers are a long, difficult process from an administrative standpoint, and the notion that one credit union would exterminate another out of kindness is foolish thinking. Credit Unions most vulnerable to this kind of proposal are small to medium sized with older executive management, or CUs that have recently suffered a hit to their Select Employer Group, like the closure of a factory.
Pressure, and money, will bias decisions. A new hire makes every attempt to succeed, giving their full effort on a daily basis. As the person becomes more efficient, they are able to take on additional duties, increasing their production, but at the same time increasing pressure, whether actual or self-induced. A credit union CEO is no different. There is always more work to be done, and if they run a smaller credit union, they may not have a full compliment of support staff to assist them. This pressure builds over time and may even lead to burnout. A merger may offer that CEO a Vice President position at a larger credit union, which may have the dual benefit of less pressure and increased compensation. For those that aren’t natural Alphas, a demotion resulting in less stress and more pay is an easy choice, and the CEO will recommend to the Board that the credit union merges. In this case, the Board should recognize that a merger is in the best interest of the CEO, but not necessarily the credit union, and take whatever action, from hiring additional staff to replacing the CEO, it deems necessary.
It’s easy to fall into the mindset that every credit union that is lost to merger is a victim, casting the larger credit union in a poor light. This line of thought doesn’t take into account the larger credit union’s point of view, however, and it’s important to view the issue from all sides before coming to judgment.
Part 3: Merging for Success.
Part 4: Long Term Consolidation Effects.
