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Mergers: The Do-Nothing Option Is Gone Forever

The unsolicited merger proposal from Wings Financial FCU recently presented to Continental FCU is generating much news coverage and discussion. Regardless of one's opinion about that situation, there is no doubt that the credit union industry is experiencing a seismic paradigm shift. Not surprisingly, certain purists within the industry are convinced the sky is falling. However, credit union industry pragmatists believe there are compelling business factors that have created this new dynamic. To them, a change in the rules of engagement is long overdue.

MERGER PROPOSAL TESTS CU'S SUCCESS AND OPPORTUNITIES

Any CU that receives a merger proposal, whether solicited or not, should be flattered that they are seen as a desirable acquisition. Consider the alternative of being too unappealing to attract a suitor. Receipt of a merger proposal becomes a true test of a credit union's success and opportunities in the marketplace. From a practical standpoint, which CU is the surviving or merging credit union may not be relevant to either institution's members, as long as they receive great products, desirable services, and convenience.

BOARD DUTY OF CARE AND LOYALTY

Every CU board member has the duties of care and loyalty to the institution and to its members. Directors must perform their duties in good faith and in a manner the director reasonably believes to be in the best interests of the credit union. This fiduciary responsibility would mandate that any credible merger proposal be given the utmost due diligence and consideration. The refusal to do so could be viewed as dereliction of duty, subjecting the board to member criticism, regulatory scrutiny, or legal action.

CU MEMBERS/OWNERS ENTITLED TO VOTE

Taken a step further, if credit union leaders truly believe that the members own the institution, then the board should always put any credible merger proposal before its membership. Whether voted up or down, the will of the membership will prevail. Logically, if the credit union's members "own" it, they should also be entitled to sell it at a profit regardless of whether the sale is accomplished through a merger, voluntary liquidation, or conversion to a mutual savings bank charter and subsequent IPO.

MEMBERSHIP CAN FORCE VOTE ON MERGER PROPOSAL

As the recent battles over credit union charter conversions have shown, it takes merely 750 FCU-member petition signatures to force a special membership meeting to remove a board of directors. That includes a board that might block a merger vote. Every credit union board is better off addressing a merger proposal head on with maximum transparency and allowing the members to decide for themselves what is in their own best interests. Regardless of the outcome of governance battles, credit union members always have the option to vote with their feet and take their business down the street.

NEW COMPETITIVE REALITY DRIVES CU MERGERS

Now that Wings Financial has kicked open the door for unsolicited merger proposals, others will surely step through it, too. From this point forward, every credit union's leaders should be prepared to be on either the giving or the receiving end of an unsolicited merger proposal at any time. The "friendly-only" merger atmosphere of the past has lead to survival of the fattest, not the fittest. The do-nothing option is gone forever. Whether one views it as good or bad, there is a new competitive reality driving CU mergers.

Marvin C. Umholtz is CEO of Umholtz Strategic Planning & Consulting Services and membership director for the Coalition for CU Charter options. He can be reached at marvin.umholtz<at>comcast.net.

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