The times, they are a-changing. In fact, 5 generations ago, credit union leadership was completely different. Most leaders were volunteers with little expertise in running a financial institution. Today, leaders have more skills, experience, and support than ever.
And, when it comes to finding a good credit union leader, you get what you pay for.
To begin, let’s look at growth. The credit unions that grow reliably balance their mission with their business fundamentals. Those that focus on the mission but lack business acumen tend to flounder or at least grow substantially slower than their aggressive peers. Conversely, those that run a good business but forget the mission can’t engage their members (or prospects) enough to grow because they are no different than the competition.
Credit unions have a reason for existence—members own the credit union and should receive the best rates and service the organization can offer—not the highest level of profitability. Managing to that reason for existence is what helps credit unions grow.
So, what can we learn from the history of credit union leaders? Please note that what follows are observations, not heavily researched facts. Even the delineation of “generations” in credit union leadership is loose.
In the 30s through the 50s, credit unions were run and staffed by volunteers. They grew organically through small deposits and relationships with SEGs. There was little need for growth mindset and no real competition, because credit union were almost entirely small, community/company-focused, and mission-driven.
Expenses were minimal because things like marketing, technology, risk, rent, utilities, and payroll were generally nonexistent.
In the 50s and 60s, administration management became more necessary. Credit unions began to look into products outside of savings accounts and unsecured loans. For example, car loans, remodeling, and new appliances could all expand their lending portfolio.
Leadership was still limited to administering these processes. There were few expenses to worry about—no marketing, rudimentary technology, minimal risk, and they often didn’t pay rent or utilities, either.
Starting around the 70s, general managers came in as credit unions got bigger. There was still a limited amount of products and services they could offer, but they expanded nonetheless with tellers for general cash transactions and more loan types.
With more staff and more marketing, credit unions began to grow much faster than before. More importantly, credit unions were allowed to serve multiple SEGs (instead of just a single one).
With increased complexity came other financial challenges. There was high inflation, risk management, portfolio management, staff to pay, and new expenses related to growth, such as marketing and even technology.
In the 80s, 90s, and early 00s, executive leaders entered the scene. Many of them came up through the credit union, and many had executive education or experience. This elevation of leadership was necessary, as credit unions grew in complexity and sophistication.
For example, new products abound, with checking accounts, CDs, credit cards, and mortgages. These products meant more expenses and more risk, as well as a need for personnel to manage the products and technologies at play.
Around this time, credit unions were also allowed to expand their field of membership above 1 million people. Suddenly, the need for growth strategy was almost as important as managing increasing complexity.
The new generation is moving the model in ways we haven’t seen before. In the last 18–24 months, 25% of the largest credit unions have new CEOs. These people are well educated and typically have “grown up” in credit unions but some are coming directly from FinTechs or large banks.
More importantly, they understand what it means to be a digital, data-forward organization. They bring a growth mindset and know what’s needed to expand in major markets.
New Financial Issues in Credit Unions
Gone are the first-generation days of minimal expenses. Labor costs have skyrocketed, driving operating costs up significantly. Inflation certainly isn’t helping. In fact, many executives are expecting total expenses to go up between 10% and 20%, thanks to higher labor, plus marketing, technology, and other operating expenditures.
Total credit union growth is expected to reach only about 10% over the next year.
The math is clear: credit unions can’t thrive if expenses are outgrowing asset growth.
An important scale strategy that works is to grow your assets more than you grow your expenses, you can decrease expenses percentage of your business and perform at a very high level as a result. Doing the opposite becomes problematic very quickly. That money has to come from somewhere…
There are two ways to manage these expenses:
First, credit unions can move operation expenses to lower cost possibilities. Outsourcing work from an expensive locale to a cheaper one is an easy example of how to accomplish this. Additionally, credit unions can invest in or partner with fintechs that can automate, streamline, or take on an aspect of product or member service much more cheaply than a credit union can offer on their own.
Second, credit union balance sheets have less risk on them than any of their competitors. With a predicted recession through the first quarters of 2023, this is an opportunity to grow lending for organizations that understand their risks.
Credit unions with a strong understanding of the risk on their balance sheet can accelerate out of a recession faster than anyone.
Navigating Leadership in the Future
Not only are credit unions adding positions, but they’re adding positions that are in high demand. It’s not just that executive compensation is growing—executive teams are growing, too.
Getting fair and market-standard compensation is critical to finding leaders who are prepared for today’s challenges, including a high-inflation environment and expected recession.
If you’d like to discuss executive compensation or strategy, I invite you to reach out to me here. I’d love to connect!