I recently reviewed the report on the Top Co-op Issues 2017 based on a survey conducted by researchers at the University of Saskatchewan. The top three issues were public awareness, competitiveness, and the co-op difference.
From a BC credit union point of view, I think the third factor is the key, but my interpretation may not quite match the one the report writers describe, the need “… to re-engage the often-indifferent membership”. I think what is of concern is the erosion of member-ownership.
The fundamental difference between co-ops and other business structures is the ownership. Consumer based, democratic ownership is the unique feature, but this very quality is often obscured by the use of other terms that are more amorphous; our our ‘uniqueness’, our commitment to ‘community’, our co-op ‘values’, or ‘the co-operative difference’. This obfuscation of the ownership is a problem in itself.
The number of active and involved member-owners has always been a small percentage of BC credit union members, but those numbers are dropping even as nominal memberships grow. The number of people sitting on credit union boards is down by half since I got involved in the 1980’s (mostly due to mergers). Attendance at AGM’s is usually at minimum levels, unless meals and prizes are included as inducements. And the reporting out to member-owners is often the bare minimum.
The ‘momentum’ to further consolidate, to become federal credit unions, and to rationalize the second tier organizations, notably ignore this ownership principle. In fact, most of these proposals undermine consumer ownership. On one front, growth introduces a scale that is simply incompatible with traditional co-op governance practices, like member meetings. And on the other front, the many substantial second tier businesses (like the Co-operators Group, Central1) are all but unknown to credit union members, the alleged beneficial owners.
On a broader level, the path to greater efficiency is largely at the expense of accountability to our member shareholders. This is an issue that is receiving too little critical attention.
The relatively modest investment of each member also leads many to treat it casually. Yet a member shareholder’s proportionate claim on retained earnings, if disclosed, would multiply the stake by ten times or more.
Credit union member-owners provide expectations, capital and authority to those elected to direct the enterprise. Consequently, the directors (and management) are required to periodically report back, confirm support for policy choices, and seek consent on major decisions. These accountability loops are most important as a check on potential abuses or errant decision-making within the organization (whether co-op, company or non-profit).
- Practices for reporting out to members rely on statutory minimums. In BC the regulator issued a governance guideline to broaden the scope, and that document reflected evolving standards in corporate governance in other sectors, but many credit unions resisted changes. To their credit, some credit unions do report out additionally on some socially responsible investment measures. No credit unions report to members on their second tier holdings. Credit unions have not critically assessed, and promoted any enhancements to, member reporting regimes.
- Now, each year, members are able to express their views through elections and member resolutions at AGM’s. The routine is rooted in history when memberships were in the hundreds, and when members knew each other at work, at church, or in the neighbourhood. In larger credit unions, do these exercises continue work as a means for members to really affirm (or re-direct) policy choices taken by the board? For one thing, nomination and election campaign procedures are often quite constraining – far more restrictive than one sees in municipal elections. And AGM’s of large credit unions are frequently biased by the presence of a large number of staff (with their own interests) and may be too large to enable good constructive exchange or debate. The restricted access to member lists (unlike some other entities) denies members the right to organize and champion alternative policy positions.
- Major corporate decisions are made by ‘special resolution’, under the Credit Union Incorporation Act, large credit unions must use mail or electronic ballots. However, the mechanism is heavily biased in favour of insiders. Contrary voices or dissidents have no opportunity to present their arguments to the general membership. The opportunity for real debate, a full and fair representation of the proposal, has been subverted.
These are real weaknesses in our ownership and accountability regime. Corporate governance issues such as these have been under scrutiny in public companies for the last two decades, with a particular emphasis on shareholder accountability. Why are credit unions not doing so?
Likely, it is because current trends give greater discretion and powers to directors and executive managers. These other players may be gaining and member-owners losing.
Does digital technology potentially allow us to redefine consumer ownership accountability and participation for larger scale businesses? Particularly for our second tier businesses?