Posts tagged ‘Washington State’

Paying Board Members Is A Bad Idea

Against my advice (I’m devastated), Washington State is about to become the 11th state in the nation to authorize the compensation of board members. The legislation, which passed with unanimous support and according to the CU Times is expected to be signed by the Governor, would also authorize the compensation of supervisory committee members.

The good people of Washington State did much more harm than good with this legislation. Too many more credit union victories like this one and we will all be polishing our resumes or at least explaining to people that credit unions have gone the way of other not-for-profit financial institutions that lost their exemption when Congress decided that they were too much like commercial banks.

I understand the argument for the payment of board members. It is getting more difficult to find civic-minded professionals to sit on boards where they are responsible for overseeing increasingly complicated organizations at a time when increased regulations are putting both directors and institutions under greater scrutiny. We will get a larger pool of qualified applicants, so the argument goes, by giving boards the option of compensating community members for their time and effort. To me, this argument in tantamount to saying you support Democracy but just don’t think people are talented enough to decide who gets elected. The volunteer composition of all boards is the single most important component to ensuring that the interest of the membership is what guides credit union decision making. I don’t want someone on a board who is doing it for the money or, worse yet, is doing it because he or she needs the money. I want someone on the board because they believe in what the credit union stands for and want to help out their local colleagues, association members or community.

I would put the track record of credit unions and their volunteer boards in safeguarding the financial institutions they oversee up against those of for-profit institutions any day of the week. For example, where were the directors of community banks when the ground was being laid for the Savings and Loan crisis? Those directors of Enron sure did a bang-up job, didn’t they? And the compensation of directors at some of our largest banks responsible for causing the Great Recession has actually increased in recent years.

Just about anyone in our industry can repeat by heart that credit unions don’t pay corporate taxes because they are member owned, not-for-profit cooperatives that return profits back to their members in the form of better and cheaper financial products and services. This is all correct but ultimately credit unions don’t pay taxes because Congress decided a long time ago that it didn’t make any sense to make them both pay taxes and carry out the socially important mission or providing alternatives to commercial banks and helping people of modest means.

The more we willingly do away with fundamental distinctions between ourselves and our for-profit counterparts, the more we put our industry at risk.

April 19, 2013 at 7:43 am 1 comment

Paying Directors: A Bad Idea

imagesCA51V5PORecently, a series of legislative proposals were unveiled in Washington State in the name of credit union modernization.  Among the proposals, which the Credit Union Times reports are supported by the Northwest Credit Union Association, is one that would permit credit unions to have a paid board of directors.  With all due respect to the state that gave us Starbucks, Microsoft and the best years of Ken Griffey’s career, this is a dangerously bad idea that the entire industry should oppose.  Here’s why.

Ask anyone outside the industry what is a credit union and they will struggle to tell you what distinguishes credit unions from banks except for the fact that credit unions are not-for-profit.  They like credit unions because of an intuitive sense that they are not out to gouge their members which is why bank transfer day continues to resonate with the general public.  Do away with that distinction and you might as well turn out the lights on the credit union difference and have these institutions convert to community banks and start paying taxes.  I’m sure the people in Washington State feel we can maintain the credit union difference by doing away with volunteer boards, but the general public won’t get the distinction and neither will Congressmen or legislators, many of whom aren’t all that anxious to help out credit unions in the first place.

A volunteer board of directors goes to the core of the differentiation between credit unions and traditional for-profit financial institutions.  We don’t need Sarbanes-Oxley style financial oversight precisely because our directors aren’t going to be tempted to look the other way so long as the value of their preferred stock keeps rising.  How do we make that argument if we can only get directors who are in it for the money?

But let’s say we can continue to successfully thwart attacks on our industry, wouldn’t allowing compensation of directors for their service increase the quality of directors?  No, it won’t.  For one thing, it’s not as if credit unions would, or even could, pay the type of compensation that would make them competitive choices for directorships among other financial institutions.  Somehow, I just don’t see a person exiting their cabinet post in the Obama Administration and sifting through directorships, choosing a credit union over J.P. Morgan Chase or, for that matter, choosing a credit union over the local community banks, which are always going to be in a better position to entice someone who is in it for the money with greater compensation.  In fact, think it through logically and do we really want the type of person who will be intrigued by the type of compensation he or she could receive?  State legislatures around the country have been increasing pay for decades now, has that really improved the quality of our representation?

I understand the frustration that is being felt in Washington State because credit unions will tell you that it is getting impossible to attract new people to serve on volunteer boards at a time when new leadership is needed more than ever.  But the answer isn’t to throw up our hands and start enticing people whose heart isn’t into it to serve on boards that should be dedicated first and foremost not to putting aside a little money for their retirement, but to make sure that people in the community get a fair deal for financial services.  As I pointed out in one of my monthly blogs for CU Insight (did you notice the shameless plug), there are things that credit unions can and should be doing to improve board turnover and diversity.  Throwing up their hands in frustration and starting to hand out paychecks is not among them.

February 11, 2013 at 7:28 am 3 comments

Authored By:

Henry Meier, Esq., Senior Vice President, General Counsel, New York Credit Union Association.

The views Henry expresses are Henry’s alone and do not necessarily reflect the views of the Association. In addition, although Henry strives to give his readers useful and accurate information on a broad range of subjects, many of which involve legal disputes, his views are not a substitute for legal advise from retained counsel.

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