By Michael Fryzel
The recent concerns being expressed by some credit union individuals over the compensation incentives being handed out to secure a merger are somewhat interesting. This method of enticement to secure one credit union to join another is not in any way something new. It has been going on for decades and is only causing concern now because of the large sums being paid and the alleged lack of disclosure of these payments.
A number of credit unions have publicly stated that their game plan to grow and become super-sized credit unions is through the merger process. They believe that the answer to their future success is not to grow within their approved field of membership but rather to seek out those credit unions that can be enticed to become part of them through offers of compensation and job security.
It is easy to argue that there is nothing wrong with this type of strategic growth plan. Mergers happen every day in the worlds of business and finance. And the merger packages include compensation for upper management that is being retained and for those who assisted in getting the merger accomplished.
The problems with some of the recent credit union mergers are the size of the incentive packages being offered and whether those receiving them are looking out only for their best interest rather than that of their members.
It has been rumored that at one credit union the CEO received a check for $250,000; the CFO received one for $150,000, and the COO was given $100,000.00 for the successful completion of the merger. The compensation was in addition to contracts for retention of their employment under the banner of the surviving credit union.
Credit unions have always claimed they conduct their business with full transparency. Credit unions and their trade organizations have always demanded the same of their state and federal regulators. Credit unions say that they are better than other financial service providers because they are open and honest in what they do.
An 'Absolute'
Now that there has been this disclosure of hidden benefits, some are questioning the merger process and looking for ways to make it better.
Incentives to accomplish a goal can be good, but when they involve the funds of a cooperative financial institution, full and complete disclosure to the owners of those funds is absolute.
It is unfortunate that as a result of a few credit unions’ practice of non-disclosure, they have raised the concerns of the NCUA, causing the agency to now review the industry’s merger process. At a time when President Trump has ordered a review of all regulations to lessen the burden on the financial service industry, the actions of a small group of credit unions has caused NCUA to now consider increasing that burden.
The credit union industry can only hope that NCUA can find a way to improve the merger disclosure process by a means other than a new regulation. If they can achieve that it will be of benefit to all. If they cannot, just remember from whence it came.
Michael Fryzel is the former chairman of NCUA and NCUA board member who is now in private practice in Chicago. Mr. Fryzel can be reached at meflaw@aol.com.