Sunday, November 14, 2010

Are Credit Unions Engaging Their Members?

In publicizing the credit union difference, credit unions regularly talk about their members as owners. However, are credit unions engaging their members as owners or are their members really just customers in the eyes of management?

What got me wondering about this question was a November 4th letter on Cooperative Operating Philosophy from the Farm Credit Administration (FCA), the regulator of the Farm Credit System (FCS), to Farm Credit institutions, financial cooperatives serving agriculture.

The letter encouraged Farm Credit institutions to engage their members as owners.

"Members need to know and understand their rights and benefits of ownership and be informed of the many ways they can exercise those rights and participate in the control of their institution."

While not mandating, the FCA wrote that FCS institutions could engage their members by:

1) posting their bylaws on their website;
2) ensuring that members petition rights are understood and fully supported; and
3) informing members how they may bring matters to the attention of the board or the membership as a whole.

I then went to several credit union websites including Navy FCU, State Employees CU, Altura CU, and Safe CU. I could not find their bylaws or any information on petition rights.

If management is not engaging members to participate in the control of their credit unions or providing them with the necessary information to participate in their institutions, then there may be a principal-agent problem.

1 comment:

  1. You raise an interesting point. I have seen several credit unions use various items on the FCA list you posted, but never bylaws. (However federal CUs generally use the standard bylaws on NCUA's website.) I've seen a few CUs post one of these: code of ethics, complaint or dispute process, contact information for individual directors (rare), and annual meeting procedures (i.e. for nominations from the floor). And in searching for this kind of thing I noticed Australian CUs post their constitution - which looks to be similar to bylaws.
    I think it's a good recommendation, but as a former CU insider it never occurred to me.
    As far as a principal-agent problem, maybe potentially it is. But how is it different from other mutuals?



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