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Why Paying CU Boards Could Hurt The CU Movement

Do you ever really notice the point at which a TV program you liked just doesn't interest you anymore? When a restaurant that was a favorite no longer makes you want to drive out of your way to eat there? Heck, do any of us even notice the much more significant things, such as the day you realized your child is not a child any longer? Of did you just look up one day and...?

That's the thing about evolutions; they are small and granular and slow and imperceptible, right up to the point they are suddenly, and often shockingly, glaringly apparent.

Credit unions are not immune from such slow change. It's easy to point to the bright-light trendlines, the decline in the number of credit unions, the growth in members and assets, etc. But like a speaker on a brightly lit stage, if you shade your eyes a bit you can make out some more subtle changes that may be far more impactful; the latest being plans in several states to allow credit union board members to be paid.

 

The Tent Poles

Along with democratic control and not-for-profit philosophy, the idea that there are members who volunteer their time to serve on the board of their credit unions has from the very earliest days been one of the three big poles holding up the Credit Union Tent. True, there have always been a few states such as Texas in which statutes allowed a CU board to pay itself or reimburse a board member for lost wages due to CU-related duties, but not many took advantage of the law and, if they did, they weren't paid much.

Are we now seeing the first micro-steps of a CU evolution? And if we are, just what exactly are credit unions evolving toward?

The latest to permit state charters to compensate board members is Tennessee. That's right, ironically the Volunteer State is giving credit unions the option of eliminating volunteerism. According to the Tennessee league, from the get-go there was broad, general opposition from the state's CUs when such legislation first debuted in 2009. That legislation ended up dying in committee.

But as every league has learned in its own legislature and in Congress, legislation and Lazarus have more than a first letter in common, and the Tennessee bill returned from the dead to pass in 2013.

 

Compromise Language

The Tennessee league was able to negotiate some of the specifics in the new law, which goes into effect July 1. Because the state already permitted CUs to reimburse board members for lost wages, it was able to insert language that gave credit unions the choice to compensate or reimburse board members, but not both. And whether to compensate at all remains optional for every CU.

Credit unions also got language inserted that requires, among other things, that CUs adopt a policy governing the participation and attendance that a board member shall comply with in order to receive compensation, and, much to their credit, a requirement that the annual report include board member compensation as a specific expense item.

Tennessee's credit unions were reluctant participants in the new law; not so in Washington, where the Northwest CU Association actually backed legislation allowing state charters to pay board members. As Credit Union Journal previously reported, the NWCUA said its extensive study of the issue suggests a paycheck will help CUs attract younger board members.

Maybe it will. But the challenge in getting younger board members traditionally hasn't been about pay, it's been about entrenched board members not exactly being aggressive about bringing in new blood or, even if they are, finding younger people who can find the time.

Supporters will argue that paying board members will mean more qualified people who can read balance sheets and challenge management. Maybe. But if I'm not mistaken the boards at U.S. Central and WesCorp and other failed corporates were made up mostly of CU CEOs who supposedly knew their way around a balance sheet, too.

The NWCUA said it believes new legislation will help to "modernize" the state's CU Act. And yet hasn't one of CUs' great strengths always been the timeless value of the business model?

The banking industry, meanwhile, must be loving this; if you can't stop CUs from adding more floors, you can certainly help them to erode the foundation.

 

More Than An Oxymoron

"Paid volunteer" is more than an oxymoron, it's going to be OxyContin for some; addictive and with side effects, such as wanting more and more money. Maybe it starts at $100 per board meeting; but wait, we heard another credit union is paying $500, so...

Someone, maybe the league, will collect data on what boards are paying and boards, often with the guidance of some consultant, will adopt resolutions that they always want to pay their members in the top quartile of the survey. And before you know it you have a self-perpetuating system for board raises, leading to boardroom discussion that has a lot more to do with this issue and a whole lot less to do with those folks they used to talk about, the "members."

It's a funny thing about small changes; they can lead to really big things.

Frank J. Diekmann can be reached at fdiekmann@cujournal.com.

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