CONTINUOUS LEARNING. INDUSTRY ENGAGEMENT.
FIA / CUIA - Empowering CUDIC - Beyond FICOM's Shadow
CUDIC has outgrown legacy legislation and FICOM’s shadow. CUDIC is responsible for deposit insurance of a C$77 billion industry that is used by almost half of British Columbians. Larger than most Canadian credit unions then it warrants full-time, permanent executive leadership. Larger than most B.C. Crown Corporations then it deserves independent, empowered and accountable governance oversight.
“CUDIC has outgrown legacy legislation and FICOM’s shadow. CUDIC is responsible for deposit insurance of a C$77 billion industry that is used by almost half of British Columbians. Larger than most Canadian credit unions then it warrants full-time, permanent executive leadership. Larger than most B.C. Crown Corporations then it deserves independent, empowered and accountable governance oversight.”
CONTEXT
The following submission was authored by Ross McDonald, in a personal capacity, in response to the Second Public Consultation Paper of a legislative review by the Ministry of Finance of the B.C. provincial government. Under the review, the Ministry of Finance sought public submissions by 19 June 2018. The legislative review considers changes to the Financial Institutions Act and the Credit Union Incorporation Act. This submission provides four recommendations on a targeted subset of relevant topics. Recommendations per this submission are aligned with stated legislative objective and collectively offer policy ideas that have the potential to courageously transform the regulatory environment of B.C. credit unions for the benefit of industry, government, taxpayers and employees.
Ross wishes to thank various credit union system veterans that kindly volunteered leadership inspiration, technical insight and professional encouragement. Thank you, appreciated.
This submission may be easier to read in PDF format. Download per bit.ly/fia-cuia-rm-pdf
EXECUTIVE SUMMARY
This personal submission to the FIA/CUIA Review seeks to frame an alternative regulatory structure for B.C. credit unions. Specifically, the submission provides four recommendations:
Recommendation 1 - Roles & Responsibilities
Transfer the mandate for prudential supervision, including completion of risk-based assessments and determination of deposit insurance premiums, of B.C. credit unions and credit union centrals from FICOM to CUDIC. Terminate any requirement that CUDIC be administered by FICOM.
Recommendation 2 - Legal Entities
Establish CUDIC as a Crown agency. Retain FICOM as branch of the Ministry of Finance. Collaborate with industry to review the legislative mandate, appropriate sustainable resources, and any potential merger of Stabilization Central Credit Union.
Recommendation 3 - Leadership & Governance
Appoint permanent executive and an independent, empowered governance body to provide leadership and oversight of CUDIC. Related competency matrices and governance processes should reflect CUDIC financial size, technical complexity and systemic role. CUDIC Board should adopt, and strive for excellence in, relevant governance best practices.
Recommendation 4 - Public Accountability
Regardless of their legal entity structure then FICOM and CUDIC should, as separate organizations, be subject to the “Performance Reporting Principles” and “Taxpayer Accountability Principles” as published by the B.C. government.
The recommendations are aligned with the primary objective of the legislative and regulatory framework “to maintain stability and confidence in the financial services sector by reducing the risk of failures and providing consumer protection and supporting objectives.” Related execution would necessitate short-term legislative change and organizational restructuring. Some portion of this work may be already actively engaged given the initial recommendations by the B.C. Ministry of Finance.
The recommendations recognize the current size, elevated complexity, resource challenges and peer jurisdiction approaches in regards regulatory oversight of credit unions. Recommendations may create significant benefits to government, to industry and to the public over a medium-term basis. Given numerous, diverse and substantive externalities that face the credit union industry, the recommendations may position the regulatory oversight for the coming decade until the next legislative review.
The author believes that credit unions contribute materially to the economy, employment and communities of B.C. This submission is motivated by personal appetite for a strong and sustainable B.C. credit union industry; for an effective, efficient and appropriate regulatory structure; for best practice adoption in regards governance oversight and public accountability.
RECOMMENDATION 1 - ROLES & RESPONSIBILITIES
Recommendation: Transfer the mandate for prudential supervision, including completion of risk-based assessments and determination of deposit insurance premiums, of B.C. credit unions and credit union centrals from FICOM to CUDIC. Terminate any requirement that CUDIC be administered by FICOM.
B.C. has the largest provincial credit union system in Canada. As at 31 December 2017 then B.C. credit unions reported C$77 billion of assets, C$66 billion of member deposits and 2.0 million members that represent over two-fifths of the provincial population. Three of the top five Canadian credit unions are located in British Columbia. The B.C. credit industry is growing. Between 2005 and 2017, B.C. credit union assets increased from C$36 to C$77 billion and membership increased from 1.5 to 2.0 million.
Over recent years, credit union operations have increased in complexity. Elevated consumer expectations, heightened competition and evolving technological innovation have necessitated significant investment by credit union organizations in digital channels, product offerings and operational efficiency. Increased scale may have permitted increased sophistication by larger B.C. credit unions. For example, between December 2007 and 2017, the total assets of Vancity Credit Union increased from C$14.1 to C$21.7 billion (Source: Vancity CU).
The B.C. credit union industry and its regulator gained national, systemic impact. In recognition of its importance to Canadian credit unions then, in 2014, FICOM designated Central 1 Credit Union as a Domestically Systemically Important Financial Institution. As such, it subject to commensurately elevated regulatory requirements and prudential supervisory expectations. Between 2005 and 2017, Central 1 Credit Union assets increased from C$5 to C$18 billion. While asset growth includes a 2008 merger with Credit Union Central of Ontario then the majority of asset growth was driven by higher member deposits at B.C. credit unions. As of 1 January 2017, responsibility for regulatory oversight of Central 1 Credit Union passed from the federal Office of the Superintendent of Financial Institutions to FICOM. Central 1 Credit Union holds mandatory liquidity deposits for all B.C. and some ON credit unions. It provides wholesale payments, treasury and numerous other services to credit unions nationwide. The nature and complexity of its operations, and therefore its regulatory policies and prudential supervisory approach, are materially different from that of a credit union.
FICOM does not appear to have the operational capabilities to fulfil its mandate in regards credit union prudential supervision. In 2016, the BC Auditor General concluded that “FICOM may not be able to detect a worsening situation at a credit union in time to address and reduce the risk of failure.” This expert, independent determination strikes at the heart of the prudential supervision function. FICOM Supervisory Framework publication states that “the objective of FICOM’s supervision is to reduce the likelihood that a provincially regulated financial institution will fail.”
Over recent years, FICOM appears to have completed a very small number of supervisory reviews of credit unions. B.C. has 42 credit unions. The 2014 BC Auditor General report stated that “With their shortage of staff, it would take over 14 years to review all of BC’s credit unions instead of FICOM’s intended target of two to three”. It could be inferred that FICOM completed supervisory reviews of three credit unions (42 divided by 14), or equivalents thereof, each year. This compares to the 14 to 21 credit unions, or equivalents, that require prudential supervisory reviews annually to achieve FICOM’s target. The 2016 BC Auditor General report stated that “FICOM’s actions to address its staffing shortage are not working. FICOM has further reduced the number of credit union reviews it will do each year”. This suggests that FICOM prudential supervision team may review each credit union once every couple of decades or so. This frequency of review compares extremely poorly to regulatory standards in other jurisdictions and in other regulated industries. The lack of timely supervisory assessments of credit unions may increase deposit insurance risks for B.C. taxpayers, given current unlimited deposit insurance policy.
“FICOM may not be able to detect a worsening situation at a credit union in time to address the risk of failure.”
The extent of FICOM’s responsibilities are materially greater than those of peer provincial regulatory entities. FICOM regulates multiple industries - credit unions, trust companies, insurance companies, real estate, mortgage brokers, strata properties and pension plans. FICOM performs substantially all regulatory function for B.C. credit unions. Specifically FICOM - inclusive of CUDIC - is responsible for regulatory policy, statutory approvals, prudential supervision, deposit insurance and market conduct. Most, if not all, other Canadian provincial regulatory structures use multiple organizations to perform equivalent industry coverage and functional responsibilities.
Despite FICOM’s multi-year resource challenges, its authority was recently further extended. In 2017, the BC Ministry of Finance tasked FICOM with the new function of Office of the Superintendent of Real Estate, a seemingly prominent and impactful role given the substantive recommendations of the B.C. Government’s Independent Advisory Group.
The B.C. Ministry of Finance should revisit any business case that requires CUDIC to outsource its administration and/or operations to FICOM. The BC Ministry of Finance FIA/CUIA March 2018 recommendations state that “CUDIC was merged with FICOM in 1990 to allow expertise to be pooled; that pooling of expertise continues to be relevant and important today.” At that time then both FICOM and CUDIC were startup organizations, perhaps with an all-hands-on-deck mindset. But CUDIC and FICOM are now mature organizations. The rationale of pooled expertise between FICOM and CUDIC may reflect legacy pragmatism rather than current circumstances or future needs of the B.C. credit union industry and related regulation.
FICOM operational capabilities to set regulatory policy for credit unions appear effective under the current organizational structure. Since the prior FIA/CUIA review then FICOM has introduced, and updated, a significant number of regulatory guidelines. It has also progressed multiple adhoc initiatives, such as stress tests, in efforts to assess industry risk and/or to enhance credit union capabilities.
RECOMMENDATION 2 - LEGAL ENTITIES
Recommendation: Establish CUDIC as a Crown agency. Retain FICOM as branch of the Ministry of Finance. Collaborate with industry to review the legislative mandate, appropriate sustainable resources, and any potential merger of Stabilization Central Credit Union.
The size of CUDIC net income may warrant it being a standalone organization. For the year to March 2017, CUDIC net income of C$57 million. Such earnings are large relative to a) BC’s largest credit unions, b) aggregate earning of BC credit unions, and c) many BC Crown corporations. For comparison, Coast Capital Savings Credit Union reported C$58 million net income in the year to December 2016. In the same period, BC credit unions collectively reported net income of C$263 million. Over recent years then net income of CUDIC relative to that of BC credit unions has increased materially, from 13% to 22%, principally due to material increases in deposit insurance premiums. Investment returns from the CUDIC deposit insurance portfolio funds FICOM operations.
The size of CUDIC assets may warrant it being a standalone organization. Between December 2007 and 2017, CUDIC assets increased from C$230 to C$596 million (Source: CUDIC). CUDIC assets have grown materially through higher system deposits, elevated funding policy target and fund transfer.
The B.C. Ministry of Finance should revisit its seeming business case for FICOM’s expansive mandate scope and instead prioritize effective structure, functional excellence and public accountability. The BC Ministry of Finance should strive to identify, and to adopt, best practices in regards the regulatory structures for credit unions. With the exception of BC then most, if not all, regulatory structures in other Canadian provinces separate regulatory functions into multiple organizations. Typically, regulatory policy and statutory approvals are performed by a provincial government organization, while deposit insurance and prudential supervision are executed by a provincial crown corporation (commonly a ‘Credit Union Deposit Guarantee Corporation’).
CUDIC prudential supervision may enable a simple, transparent funding model. The B.C. credit union industry would directly fund the majority of regulatory costs, including prudential supervision activities, through deposit insurance premiums to CUDIC, while the B.C. Ministry of Finance and/or stakeholders would fund residual FICOM functions. Most, if not all, monetary transfers between CUDIC and FICOM, and between FICOM and the BC Ministry of Finance, would terminate. The current funding model may be needlessly complex and appears significantly different from practices in other provinces.
“The B.C. Ministry of Finance should revisit it seeming business case for FICOM’s expansive mandate scope and instead prioritize effective infrastructure, functional excellence and public accountability.”
Legal separation between FICOM and CUDIC may be beneficial to government, industry, taxpayers and employees. The competency matrix, staffing requirements and labour market rates across the regulatory functions likely vary materially. There may be some functions that are performed to a higher standard; with greater timeliness; or on a cost-effective basis by public servants employed by the B.C. Ministry of Finance. For example, public servant direct access to B.C. government resources may provide clarity of discussions towards better and/or more timely decisions for statutory approvals. B.C. Ministry of Finance may seek to have direct input - perhaps to partly mitigate its deposit insurance risk - into processes that introduce, edit, or alter the intensity of regulatory policies. Employees may benefit from legal separation of FICOM and CUDIC as some current FICOM employees may prefer to remain in the public service.
Risk assessment responsibility and related funding source were significantly migrated from industry to government. In 2005, the relationship between FICOM/CUDIC and Stabilization Central Credit Union (‘SCCU’) - an entity owned and governed by B.C. credit unions - was significantly revised and “this resulted in the Stabilization Fund being reduced by $83 million to approximately $30 million, with the CUDIC deposit insurance fund increased by a like amount.” (Source: SCCU 2005 Annual Report). “These new arrangements restrict the flow of information between Stabilization Central and FICOM/CUDIC, with the result that Stabilization Central’s role in assessing risk is more limited” (Source: SCCU 2005 Annual Report). The 2005 fund $83m transfer was transformative in size relative to then asset sizes of CUDIC and SCCU.
SCCU should be considered as part of any regulatory restructuring. SCCU has a legislative mandate to act as the stabilization authority to B.C. credit unions. SCCU - owned, governed and operated by industry - appears to provide a valuable force for betterment in the credit union system. It advises specific credit unions that voluntarily choose, or have been required by FICOM, to initiate organizational changes. It promotes best practices across B.C. credit unions. In an environment of increased complexity and elevated regulations then it may act as an informed, cost-effective and trusted counsellor to boards of directors of B.C. credit unions - especially those of small and medium size. Its role contributes to the mitigation of deposit insurance risk. Annual reports of, and the 2015 FIA/CUIA submission by, SCCU disclose deliberations by its board in regards organizational viability and potential merger partners. They also highlight significant desire for a clearly defined, appropriately informed and credibly sustainable role. SCCU could play various future roles. Its functional responsibilities could be extended. Its legal status could remain as a standalone entity or be merged with Central 1 Credit Union or CUDIC. This submission does not consider related matters or propose specific recomendation(s). The B.C. Ministry of Finance should collaborate with industry to critically assess the business case, alternative strategic options, and effective future role of SCCU.
RECOMMENDATION 3 - LEADERSHIP & GOVERNANCE
Recommendation: Appoint permanent executive and an independent, empowered governance body to provide leadership and oversight of CUDIC. Related competency matrices and governance processes should reflect CUDIC financial size, technical complexity and systemic role. CUDIC Board should adopt, and strive for excellence in, relevant governance best practices.
By virtue of legacy legislation, CUDIC has never had dedicated executive leadership. The Superintendent of Financial Institutions also holds the official capacities of Superintendent of Pensions, Registrar of Mortgage Brokers, Superintendent of Real Estate plus CUDIC Chief Executive Officer. The CUDIC Executive Director, and limited CUDIC staff members, are FICOM employees. FICOM completes executive functions, such as establishment of the deposit insurance fund target policy, on behalf of CUDIC (Source: CUDIC annual report). FICOM staff provide significant operational services and administrative support to CUDIC.
For over two years, FICOM absence of permanent executive leadership has impacted CUDIC. Carolyn Rogers resigned as Superintendent of Financial Institutions in May 2016. Jeffrey Wu, Executive Director CUDIC, left FICOM at a similar date. Since that time FICOM has been led by an Acting Superintendent, Acting Superintendent Regulation, Acting Deputy Superintendent Prudential Supervision and Acting Deputy Superintendent Market Conduct. FICOM corporate functions are directed by an Interim CEO. Day to day operations of CUDIC are overseen by a FICOM employee that was appointed Acting Executive Director CUDIC.
CUDIC deserves full-time, permanent executive leadership:
its organizational size is larger than most B.C. credit unions and most B.C. crown corporations
its operating environment - the B.C. credit union industry - has increased materially in terms of size and complexity
its impact on supervisory risk assessments, and potential remedial interventions, to B.C. credit unions may be significant
its leadership competency matrix - including technical expertise, management skills and stakeholder relationships - may differ significantly from that required to set regulatory policy or assess statutory approvals
its responsibilities and resources, subject to above recommendations, may increase materially
By virtue of legacy legislation, CUDIC has never had dedicated governance oversight. Members of the FICOM Commission also act as Board Directors of CUDIC. As at March 2018, there were six appointed members of the FICOM Commission. It may be indicative of the conjoined relationship, of limited resourcing and/or of perceived functional priorities that CUDIC appears not to have submitted a response to the 2015 Initial Public Consultation Process of the FIA / CUIA consultation review. Were this the case then its Board of Directors should justify why CUDIC elected not to offer thought leadership, policy opinion and/or regulatory input on legislative matters at the core of its organizational purpose.
CUDIC Board may have mismatched competencies. Conjoined governance of FICOM and CUDIC implicitly requires compromise in appointee selection. Competency matrices are commonly used by a Board of Directors to balance its collective professional experience, environmental or contextual knowledge and personal attributes and skills. FICOM provides regulatory oversight for multiple industries including credit unions, insurance, trusts, pensions, real estate and mortgage brokers. FICOM Commission members presumably have appropriate expertise and experience across these industries, and understanding of related regulatory issues. Implicitly then only a subset of that expertise, experience and skills are relevant to credit unions and to CUDIC. Yet the CUDIC Board and FICOM Commission have identical membership.
Diverse conflict of interest requirements may limit the candidate pool for CUDIC Board. The Board Resourcing and Development Office related posting stated that “to be considered as a [FICOM] Commission member an individual must not have any real or perceived conflict of interest with the industries or institutions regulated by FICOM.” The conjoined governance structure therefore means that a candidate with a potential conflict of interest in the pension, mortgage broker, insurance or real estate industry is automatically prohibited from providing governance oversight of CUDIC and its credit union mandate.
CUDIC has outgrown legacy legislation and FICOM’s shadow. The size, complexity and impact of the B.C. financial services industry is material. Largely devised in the late 1980s then legacy legislation in regards leadership and governance of CUDIC may be outdated. CUDIC is responsible for deposit insurance of a C$77 billion industry that is used by almost half of British Columbians. Larger than most Canadian credit unions then it warrants full-time, permanent executive leadership. Larger than most B.C. Crown Corporations then it deserves independent, empowered and accountable governance oversight.
CUDIC Board should have the authority - and the resultant responsibility - to appoint and to assess its Chief Executive Officer and to develop executive compensation plans. Multiple governance experts identify CEO selection as a key function:
‘Selecting the chief executive officer and planning for CEO succession are among the most important responsibilities of a company’s board of directors.’ - Harvard Law School Forum for Corporate Governance & Financial Regulation ‘Advice for boards in CEO Selection and Succession Planning’
‘Choosing the next CEO is the single most important decision a board of directors will make.’ - Harvard Business Review, ‘The Art and Science of Finding the Right CEO’
‘During a CEO search process, boards might do well to keep their long knives sheathed because, in fact, real leaders are threatening to those intent on preserving the status quo’ - Harvard Business Review, ‘Don’t Hire the Wrong CEO’
CUDIC Board should demonstrate leadership to credit unions through its compliance with governance best practices.
RECOMMENDATION 4 - PUBLIC ACCOUNTABILITY
Recommendation: Regardless of their legal entity structure then FICOM and CUDIC should, as separate organizations, be subject to the “Performance Reporting Principles” and “Taxpayer Accountability Principles” as published by the B.C. government.
“Political accountability is the accountability of the government, civil servants and politicians to the public and to legislative bodies”
Governance bodies that oversee public service organizations are typically obligated to publish service plans, annual reports and other documents to public stakeholders. Disclosures may be driven by legislative requirement, government expectations or voluntary engagement.
Substantially all Canadian financial regulatory agencies appear to make extensive public disclosures. For example, Credit Union Deposit Guarantee Corporation - typically responsible for deposit insurance and prudential supervision functions in peer provinces - publish annual reports that are comparable to a public company. Such reports may contain some or all of audited financial statements; management discussion and analysis; CEO and Board reports; executive team profiles; governance practices; industry developments; regulatory updates; supervisory performance metrics; and/or executive compensation.
Public disclosures by FICOM and/or CUDIC appear to be negligible. Neither FICOM nor CUDIC publish an annual report or similar document that provides insight and rationale into goals, achievements, risks, key decisions, financial performance and/or other information. CUDIC publishes limited annual financial statements. As a ministry branch, FICOM disclosures could potentially be provided in the service plans and other reports published by the B.C. Ministry of Finance. But the most current Annual Service Plan Report (2015-2016) published by B.C. Ministry makes no reference whatsoever in regards financial statements, performance metrics or any other information for either FICOM or CUDIC.
Regardless of their legal entity structure, both CUDIC and FICOM should initiate compliance with the B.C. Performance Reporting Principles. In 2003, the B.C. government established “Performance Reporting Principles For the British Columbia Public Sector”. The related publication frames eight principles of deemed best practice that were approved by the Auditor General of B.C. The principles seek to support an open and accountable government.
FICOM should dislose, and provide credible rationale, to industry and to the public its plan to achieve key organizational goals. For example, the 2018/19 to 2020/21 Service Plan of the B.C. Ministry of Finance establishes a performance target for FICOM that, in 2017/18, 85% of financial institutions have a supervisory assessment completed in the prior three years.
In June 2014 “Taxpayers Accountability Principles”, the B.C. government introduced a new expectation “for deputy ministers ... to hold the entity [B.C. public service organization] accountable for the outcomes and measurements identified by the minister responsible, in consultation with the respective board chair.”
Executive leadership is obligated to make difficult decisions. This is the case in industry, government and communities. Some decision may involve topics that have high complexity, elevated sensitivity, material implications, accelerated timeline and/or significant subjectivity. Decisions may impact the organization, employees, communities and other stakeholders. Decisions may be made with imperfect information, unknown external forces and without the benefit of hindsight. Regardless, executive leadership and related governance body should be accountable to stakeholders for the resulting outcomes.
“The Taxpayer Accountability Princples state that ‘Board members act independently from the organization’s executive and have the best interests of taxpayers and shareholder as their primary consideration.’”
For example, FICOM executive and governance body should be accountable for decisions to return millions of dollars to B.C. general revenues rather than spend it on mandate fulfilment and/or operational betterment. Related funds were ultimately sourced from credit union deposit insurance premiums. Gerry Kyllo, MLA, neatly captured the situation in a Select Standing Committee - observing that FICOM executive faced multiple options and, regardless of whether “it’s a wrong decision”, a distinct choice was made. That such disclosures result from adhoc testimony to public officials rather than from routine stakeholder engagement processes may conflict with the intent of the Taxpayers Accountability Principles. Respectful of their primary consideration, FICOM Commission should routinely report to the public details of important goals, decisions and perfomance of FICOM and provide related rationale on how it perceives key aspects to reflect the best interests of taxpayers.
The funding basis and governance model of credit union regulation may be subject to a principal-agent gap. Despite industry funding FICOM/CUDIC operations then its contribution to related governance, and its receipt of perfoamnce disclosures, are both minimal and contary to practices in peer provinces. Lack of industry participation in oversight may have denied due challenge to FICOM Commission and executive. The 2015 submission to the FIA/CUIA consultation process by the B.C. credit union system noted that “as the funder of CUDIC, credit unions should have a greater voice in its governance.”
REFERENCES
Selected Deposit Insurance Organizations
CUDIC (BC) - http://www.cudicbc.ca
CUDGC (AB) - http://www.cudgc.ab.ca
CUDGC (SK) - https://www.cudgc.sk.ca/about-us/
DGCM (MB) - http://depositguarantee.mb.ca/home/
DICO (ON) - http://www.dico.com
CDIC (Federal) - https://www.cdic.ca
Stabilization Central Credit Union - https://www.stabil.com/
Government References
FICOM - Supervisory Framework - https://www.fic.gov.bc.ca/pdf/aboutus/FICOMSupervisoryFramework.pdf
B.C. Government - “Taxpayer Accountability Principles” - https://www2.gov.bc.ca/assets/gov/british-columbians-our-governments/services-policies-for-government/public-sector-management/taxpayer-accountability-principles.pdf
B.C. Government - “Performance Reporting Principles” - https://www2.gov.bc.ca/assets/gov/british-columbians-our-governments/services-policies-for-government/public-sector-management/performance_reporting_principles.pdf
BC Select Standing Committee on Public Accounts - Draft minutes, October 2016 - https://www.leg.bc.ca/documents-data/committees-transcripts/20161005am-PublicAccounts-Vancouver-Blues
B.C. Ministry of Finance - “2015/16 Annual Service Plan Report” - http://www.bcbudget.gov.bc.ca/Annual_Reports/2015_2016/pdf/ministry/fin.pdf
B.C. Ministry of Finance - “2018/19 – 2020/21 Service Plan” - http://bcbudget.gov.bc.ca/2018/sp/pdf/ministry/fin.pdf
Federal Department of Finance and Treasury Board of Canada - “Directors of crown corporations: an introductory guide to their roles and responsibilities” - http://publications.gc.ca/collections/collection_2016/fin/BT77-1-1993-eng.pdf
Statistics Canada - 2016 Census data - https://www12.statcan.gc.ca/census-recensement/2016/dp-pd/hlt-fst/pd-pl/Table.cfm
Sources Referenced in Submission
Canadian Credit Union Association - Top 100 Credit Unions, Q4 2017 - https://www.ccua.com/~/media/CCUA/About/facts_and_figures/documents/Largest%20100%20Credit%20Unions/top100-4Q17_12-Apr-18.pdf
Canadian Credit Union Association - System Results, Q4 2017 - https://www.ccua.com/~/media/CCUA/About/facts_and_figures/documents/Quarterly%20National%20System%20Results/4Q17SystemResults_14-Mar-18.pdf
Harvard Law School Forum on Corporate Governance and Financial Regulation, ‘Advice for boards in CEO Selection and Succession Planning’ - https://corpgov.law.harvard.edu/2012/06/11/advice-for-boards-in-ceo-selection-and-succession-planning/
Canadian Coalition for Good Governance - ‘Building High Performance Boards’ - https://www.ccgg.ca/site/ccgg/assets/pdf/building_high_performance_boards_august_2013_v12_formatted__sept._19,_2013_last_update_.pdf
McKinsey & Company - “The CEO Guide to Boards” - https://www.mckinsey.com/featured-insights/leadership/the-ceo-guide-to-boards
FIA/CUIA System Response - http://www.fin.gov.bc.ca/pld/files/BC%20Credit%20Union%20System%20Response.pdf
Wikipedia - Accountability - https://en.wikipedia.org/wiki/Accountability
DISCLAIMER & COPYRIGHT
This article reflects the personal recommendations and statements of the author, Ross McDonald. It is wholly intended to assist the B.C. Ministy of Finance as part of the FIA/CUIA Public Consultation. This article does not represent the views of any financial cooperative, corporate organization, regulatory body or government ministry. All content is wholly based on information that is in the public domain. Where relevant, sources have been identified and referenced.
Although the author has made significant effort to ensure that the information in this submission was accurate at the date of completion then the author does not assume any liability to any party for any loss, damage, or disruption caused by errors or omissions, whether such errors or omissions result from negligence, accident, or any other cause.
All rights reserved.
System-Level Leadership Vacancies - 3/3 - Glass slippers
Prince Charming used but a glass slipper and unerring faith to find his true love Cinderella. Governance bodies may need to take a more sophisticated, pragmatic and urgent approach to recruit permanent system leadership.
“A weighty burden falls on governance bodies of system-level organizations. It is they that will ultimately select and nurture a new generation of system leaders”
SERIES OVERVIEW
This article is the third part - Glass Slippers - of a three-part series related to current vacancies of permanent leadership at system-level organizations that impact B.C. credit unions.
Empty Seats: Current vacancies & short term impact
Visionaries Wanted: Medium & long-term implications
Glass Slippers: Governance actions & best practices
This publication may be easier to read in PDF format. Download per bit.ly/bc-leadership-doc-all
This article comprises four sections - Cinderella's glass slipper; System-level CEO recruitment; Stealing good ideas & leveraging best practices; and a Call to system-level governance bodies.
CINDERELLA’S GLASS SLIPPER
Prince Charming used but a glass slipper and unerring faith to find his true love Cinderella. Governance bodies may need to take a more sophisticated, pragmatic and urgent approach to recruit permanent system leadership.
Imagine for a moment that the Prince faced three options to find his bride:
Search high and low throughout the land. The glass slipper must surely be a perfect fit to signal true love. Patience.
Ask advisors & other palaces. Perhaps different slippers or a prioritized search process. Assemble a royal working group.
Trust his heart. Seek passion for serving the realm today & for dreaming of a better tomorrow. Forget footwear.
An unromantic royal advisor may tell the prince of trade-offs between time, cost and quality. A recent ball attracted but a few, rare princesses. Princes of nearby kingdoms also seek brides. Some princesses may be seasoned wearers of high heels. Some may simply covet a pair of snazzy slippers. Extra resources may quicken slipper fittings. But while the prince searches, the realm may become restless and remains unattended.
“Prince Charming used but a glass slipper and unerring faith to find his true love Cinderella. Governance bodies may need to take a more sophisticated, pragmatic and urgent approach to recruit permanent system leadership.”
SYSTEM-LEVEL CEO RECRUITMENT
Each system-level organization, in its own way, has a significant current and/or future impact on the credit union system. But there appear to be several key differences in organization and circumstance that may impact CEO recruitment:
System-level organizations vary materially in their employee size, legal basis, ownership basis and ultimate purpose
System-level governance bodies vary materially in their number, expertise, representation and nominations authority
All recruitment processes, with exception of Central 1, appear not to be assisted by incumbent permanent CEOs
Exit circumstances of prior/current permanent leadership may vary significantly by system-level organization
Current process stage of recruitment of permanent leadership appears to vary materially by system-level organization
Ideal profile, and likely compensation expectations, of new permanent leadership may differ materially by organization
Permanent leadership may face near-term challenges that, despite overlaps, may be dominated by entity-specific issues
Leadership recruitment initiatives by governance bodies of FICOM/CUDIC and of Stabilization Central Credit Union do not appear to have significantly leveraged, if at all, executive search services.
“Boards often fail to grasp the complex nature of succession.”
STEALING GOOD IDEAS & LEVERAGING BEST PRACTICES
Plenty has been written about CEO recruitment. Thought leadership, perceived best practices and potential pitfalls seem well-documented across a range of publications. Some expert advice appears both timelessly and generic while some advice may be specific to an economic cycle, industry, organizational type, organizational circumstance or nature of the transition. There are inevitable differences between CEO succession issues at an international corporate conglomerate, such as General Electric, and the equivalent processes at any of the system-level organizations that impact B.C. credit unions.
Significant wisdom may be gleaned. In efforts to assist governance bodies then the author has selected a handful of publication. Where possible, direct quotation has been made. The governance bodies responsible for the appointment of permanent leadership of B.C. credit union organizations vary significantly in their profile. As do the organizations that they govern. Learnings may be applied on a selective basis or adapted as appropriate. The author perceives that related external advice may be categorized into three discrete components - succession planning; executive search & selection; and leadership on-boarding.
SELECTED PUBLICATIONS
HLS#1 - Harvard Law School, ‘Advice for Boards in CEO Selection and Succession Planning’
HBR#1 - Harvard Business Review, ‘The Art and Science of Finding the Right CEO’
HBR#2 - Harard Business Review, ‘Don’t Hire the Wrong CEO’
HBR#3 - Harvard Business Review ‘The Secrets of Great CEO Selection’
HBR#4 - Harvard Business Review ‘The Right Way to Bring a New CEO on Board - After the Handshake’
FAST#1 - Fast Company, ‘Why You Should Hire for Potential not Experience’
Weblinks to all publications append this document.
SUCCESSION PLANNING
HLS#1: ‘Most boards review succession planning with the incumbent CEO on a regular basis. We advise that there be a comprehensive discussion at least annually regarding internal candidates and planning for emergency circumstances.’
HLS#1: ‘In ideal circumstances, the succession process will be managed by a successful and trusted incumbent CEO, with the board or a board committee overseeing the process, reviewing the candidates and providing advice.’
HLS#1 - ‘A board working on CEO succession without [an incumbent] CEO can be dysfunctional where:
‘a board has personal animosities or recurring substantive disagreements that prevent it from reaching consensus on priorities or candidates, or
the board has one dominant personality whose influence is so strong that other directors are effectively excluded from the decision-making process, or
a board [say through prioritization of independence] lacks the depth of experience and expertise in the company’s business and industry.’
HBR#1: ‘Many CEOs don’t push their boards to discuss what might happen when they leave, because they don’t want to think about it—unless they know their departure is imminent. By then it’s probably too late to start preparing succession candidates.’
EXECUTIVE SEARCH & SELECTION
HBR#2: “If boards follow the guidelines below, they are much more likely to hire the right CEO:
Come to a shared definition of leadership [in the specific context of current organizational challenges]
Resolve strategic & political conflicts [‘board should not assume that a new CEO can come in and puts its house in order’]
Actively measure the soft qualities in CEO candidates
Beware of candidates who act like CEOs
Recognize that real leaders are threatening [‘without realizing it, many boards are adverse to outsiders who threaten to shake things up’]
Know that inside heirs usually aren’t apparent [‘outgoing CEOs often aren’t good at ... choosing their own successor’]
Don’t rush to judgment’
HBR#3: ‘Board members who are adept at picking CEOs do four things others don’t:
Work painstakingly to clarify the essential qualities to succeed in the job [‘two or three pivot capabilities’]
Keep an open mind about where the best candidate will come from [‘back off from longtime favorites and keep an open mind’]
Go deep to understand which candidate is the best fit
Allow for imperfections in the chosen candidate [’every CEO has an open flank’]’
HBR#2: ‘During a search process, Boards might do well to keep their long knives sheathed because, in fact, real leaders are threatening to those intent on preserving the status quo’.
HBR#2: ‘Search firms do what they are told. In essence, headhunters look to fill round holes with round pegs. And that is fine so long as they are told the right thing. There are two problems with this. First, the Board had better be sure that they have a round hole to fill. Second, talented, frequently younger people - high-potential sorts - are excluded from searches because they lack the exact experience being sought.’
FAST#1: ‘Organizations and their leaders must transition to what I think of as a new era of talent spotting–one in which our evaluations of one another are based not on brawn, brains, experience, or competencies, but on potential. The question is not whether your company’s employees and leaders have the right skills; it’s whether they have the potential to learn new ones. Four other hallmarks of potential are curiosity, insight, engagement, and determination.’
LEADERSHIP ON-BOARDING
HBR#4: ‘Whether new CEOs are hired from the outside or promoted from within, they should be aware of a daunting statistic: One-third to one-half of new chief executives fails within their first 18 months, according to some estimates.’
HBR#4: ‘Most new leaders fail not because their financial or operational abilities are inadequate but because their style or political skills render them unprepared to manage the organization’s culture.’
HBR#4: ‘Although many people tend to think of succession as the process of identifying and assessing internal and external candidates, defining the characteristics the new CEO will need, and ultimately settling on a final choice then that’s really only half the job. Succession should include activities that occur after the new CEO takes the job - activities designed to maximize their chance of success. In many ways, the later stages are more difficult than recruitment and assessment phases. They involve emotions, ego, beliefs about what the organization should become, and, in particular, company culture and politics.’
HBR#4: ‘For a board, a CEO succession is a critical moment in the life of the company - a time when directors should expect to be meeting, talking and contributing more than they ordinarily do, much as they would during a merger or an acquisition.’
HBR#4: ‘Clear expectations are among the most crucial things directors can provide.’
CALL TO SYSTEM-LEVEL GOVERNANCE BODIES
The B.C. credit union system needs permanent leadership. The system’s purposeful impact on membership, employment and communities seem stronger today than ever. Its future potential to benefit the economy and society appear vibrant. The system seems likely to face challenges that are numerous, complex and substantive. It needs strong and progressive permanent leadership, across all system-level entities, to embrace a daunting suite of circumstances; to imagine a better future; to engage disparate system opinions; to navigate challenging political realities; and perhaps to bushwack a trail through unfrequented or uncomfortable terrain.
A leadership transition in a single organization may be significantly effectual to that organization. New leadership in a organization with system scope or authority has broader impact. But concurrent new permanent leadership across many system-level organizations may create implications and opportunities of seismic proportions.
Research notes sobering statistics of CEO failure. It also highlights best practices, potential pitfalls and thought leadership that may assist efficient, effective execution. The risk of untimely appointment of permanent leadership may be material too.
There is competition to attract leadership talent. In September 2016, the Board of Deposit Insurance Corporation Ontario appointed Guy Hurbert as Acting President & CEO. In March 2017, Credit Union Deposit Guarantee of Saskatchewan’s CEO Garth Melle announced his intention to retire effective December 2017. Numerous Canadian credit unions - including Cornerstone, Encompass, VP, Auto Workers, Plainsview, Mount Lehman, Lake View and North Winnipeg - have active or recent CEO recruitment campaigns.
A weighty burden falls on governance bodies of system-level organizations. It is they that will ultimately select and nurture a new generation of system leaders. Recruitment processes may be difficult, demanding and even frictional. There may be issues that impact, and consequences of, any untimely appointments (‘empty seats’); with any trade-offs in ideal candidate between short-term operational execution and long-term leadership potential (‘visionaries wanted’); and inevitable desire to appoint the perfect candidate (‘glass slippers’). The stakes are high. The future is watching. Both the B.C. public and the national credit union membership likely applaud your best efforts. Good luck.
“Selecting the chief executive officer and planning for CEO succession are among the most important responsibilities of a company’s board of directors.”
REFERENCES
B.C. system-level and other leadership announcements
Central 1 Credit Union. Press release: https://www.central1.com/news/central-1-ceo-announces-intention-step-down
Stabilization Central Credit Union, Executive Team: https://www.stabil.com/contact/
FICOM / CUDIC, Executive Team: http://www.fic.gov.bc.ca/pdf/news/News%20release_InterimLeadership.pdf
CUDGC SK, CEO: https://www.cudgc.sk.ca/wp-content/uploads/2017/03/CEO-Retirement-Announcement-20170314.pdf
Lake View Credit Union, Executive Team: http://lakeviewcreditunion.com/your-credit-union-2/management-and-board/
DICO, Acting President & CEO: https://www.dico.com/design/4_14_Eng.html
Selected recent B.C. system-level publications
Central 1, ‘Supporting Credit Union Success: A discussion of the future role and structure of centrals and system partners’. Report: https://www.central1.com/sites/default/files/uploads/files/Future%20State%20Discussion%20Paper%20with%20Letter.pdf
Central 1, ‘If not now, when? Next steps in the future role and structure of centrals and system partners. Report: https://www.central1.com/sites/default/files/uploads/files/FutureState_IfNotNowWhen.pdf
BC Ministry of Finance, ‘Financial Institutions Act / Credit Union Incorporation Act Consultations’. Submissions by B.C. credit union system, centrals, FICOM & other entities: http://www.fin.gov.bc.ca/pld/fiareview.htm
BC Auditor General, ‘Credit Union Supervision in British Columbia’. Report: http://www.bcauditor.com/sites/default/files/publications/2014/report_16/report/OAG%20Credit%20Union%20Supervision%20in%20BC_FINAL.pdf
BC Auditor General, ‘Progress Report: Credit Union Supervision in British Columbia’. Report: https://www.bcauditor.com/sites/default/files/publications/reports/FINAL_Credit_Union_Progress_Audit.pdf
FICOM, ‘Identification of Central 1 as a Domestic Systemically Important Financial Institution’. Press release: http://www.fic.gov.bc.ca/pdf/info_bulletins/cu-14-001.pdf
FICOM, ‘Financial Institutions Commission Regulation of Central 1 Credit Union'. Press release: http://www.fic.gov.bc.ca/pdf/fid/correspondence/16-2452-LTR.pdf
FICOM, ‘Credit Union Guidelines’. List: http://www.fic.gov.bc.ca/?p=fid/guidelines#cu
CUDIC, ‘Update on the Proposed CUDIC Risk Based Premium Assessment Methodology’. Letter: http://www.fic.gov.bc.ca/pdf/fid/correspondence/17-0024-LTR.pdf
Deloitte, ‘21st century cooperative: Rewrite the rules of collaboration’. Report: https://www2.deloitte.com/content/dam/Deloitte/ca/Documents/financial-services/ca-en-financial-services-21st-century-co-operative.pdf
Central 1 Enterprise, ‘Executive Exodus’. Article: http://enterprise-magazine.com/features/executive-exodus/
CEO recruitment
Harvard Business School, ‘The Art and Science of Finding the Right CEO’. Article: https://hbr.org/2011/10/the-art-and-science-of-finding-the-right-ceo
Harvard Law School, ‘Advice for Boards in CEO Selection and Succession Planning’. Report: https://corpgov.law.harvard.edu/2012/06/11/advice-for-boards-in-ceo-selection-and-succession-planning/
Harard Business School, ‘Don’t Hire the Wrong CEO’. Article: https://hbr.org/2000/05/dont-hire-the-wrong-ceo
Harvard Business Review ‘The Right Way to Bring a New CEO on Board’. Article: https://hbr.org/2016/12/after-the-handshake
Harvard Business Review ‘The Secrets of Great CEO Selection’. Article: https://hbr.org/2016/12/the-secrets-of-great-ceo-selection
Fast Company, ‘Why You Should Hire for Potential not Experience’. Article: https://www.fastcompany.com/3035990/why-you-should-hire-for-potential-not-experience
ACKNOWLEDGEMENT
The author wishes to thank selected credit union system veterans that generously volunteered technical expertise, system memory and professional guidance. Out of discretion then no names are noted. Thank you. Their wisdom, perspective and encouragement were most appreciated.
DISCLAIMER & COPYRIGHT
This article reflects the personal comments of the author, Ross McDonald. This article does not represent the views of any financial cooperative, corporate organization, regulatory body or government ministry. Comments are wholly based on information that is in the public domain.
Although the author has made every effort to ensure that the information in this article was correct at press time, the author does not assume and hereby disclaim any liability to any party for any loss, damage, or disruption caused by errors or omissions, whether such errors or omissions result from negligence, accident, or any other cause.
All rights reserved.
System-Level Leadership Vacancies - 2/3 - Visionaries Wanted
To advance impactful, perhaps disruptive, change then permanent leaders must be bold, persistent and persuasive. There will inevitably be doubters, detractors and stallers. Were the changes easy, they may already have been implemented. Visionaries wanted.
“To advance impactful, perhaps disruptive, change then permanent leaders must be bold, persistent and persuasive. There will inevitably be doubters, detractors and stallers. Were the changes easy, they may already have been implemented. Visionaries wanted.”
SERIES OVERVIEW
This article is the second part - Visionaries Wanted - of a three-part series related to current vacancies of permanent leadership at system-level organizations that impact B.C. credit unions.
Empty Seats: Current vacancies & short term impact
Visionaries Wanted: Medium & long-term implications
Glass Slippers: Governance actions & best practices
This publication may be easier to read in PDF format. Download per bit.ly/bc-leadership-doc-all
This part comprises three sections - medium term implications; external quotations and graphics; and long term implications.
MEDIUM TERM IMPLICATIONS - PERHAPS PRIORITIES RESET
Newly appointed leaders may bring curiosity and energy.
New leaders may ask questions, perhaps not posed for a while. They may contribute incremental technical expertise, professional experience or stakeholder relationships. They may bring creativity to frame fresh solutions to address historical challenges. They may benchmark the status quo versus industry best practices or consider learnings from other provincial credit union systems. They may consider alternative strategies to execute current organization roles and responsibilities. But it will likely take a while for leaders to complete any on-boarding and to reach full productive capacity.
“Recruitment may drain scarce leadership capacity, intensify succession planning or accelerate merger discussions.”
In the medium term, current initiatives may be re-prioritized. Legacy pet projects may lapse. New focus areas may emerge. Investments and/or partnerships in products, services or operational capabilities may be tweaked. Shifts in system, legislative and regulatory priorities may create opportunities or threats.
Examples are numerous and inherently uncertain. Any securement of a federal charter by one or more provincial credit unions will catalyze decisions by system stakeholders. Any untimely or unappealing response may bolster demand for federal charters. Credit union centrals may accelerate the transfer of trade association activities to the recently formed CCUA. A new Central 1 CEO could reframe proposed steps towards consolidation of second-tier organizations or national payments execution strategy. System stakeholders may need to respond to a stress event, say in regards a deflated housing market.
“‘The status quo is not an option. It is a slow and painful road to death’”
Regulatory matters may also be impacted. Permanent leaders may re-prioritize operations, initiate alternative strategies or execute policy redirection from a new Ministry of Finance. Operational expectations, stakeholder accountability, governance practices or reporting standards may be reassessed. To optimally fulfill responsibilities, some execution of regulatory functions may shift between FICOM, CUDIC, credit union central(s) and/or other resources. Regulatory priorities, supervisory practices, or operations models from other provincial jurisdictions may be selectively adopted in B.C. Any surge in federal charters would reduce the reach of provincial regulators and may reduce, or perhaps temporarily eliminate, deposit insurance assessments.
System-level leadership appointments may impact other executive positions. A new leader may seek to change their executive team. Recruitment may drain scarce leadership capacity, intensify succession planning or accelerate merger discussions. Credit unions already face an ‘Executive Exodus’ (Enterprise magazine, May/June 2016) given baby boomer retirement. A 2015 Central 1 survey found that 36% of Canadian credit union CEOs expect to retire by December 2019, with half of those by December 2017.
“Vacant positions in the Financial Institutions Division [at FICOM] are concentrated in senior level roles and specialized positions.”
LONG TERM - POSSIBLE SUBSTANTIVE PIVOT
In time, future system leaders may wield vision and courage.
Established permanent leaders may brandish bold imagination to envision a stronger future for provincial and federal credit union systems and their members. They may possess the persuasive prowess and determination to lead execution of transformative change through member-driven collaborative processes or politic-quagmired legislature.
In the long term, the Canadian credit union landscape may change materially. Some evolutionary changes, while likely challenging, seem reasonably foreseeable. Historically local, provincial credit unions may be displaced by hybrid of federal and provincial credit unions with differing legal basis; economic scale; membership geography; internal capabilities and regulatory requirements. Mandated credit union membership to provincial credit union centrals may be substituted for voluntary membership of consolidated central service provider(s), perhaps per the recent Central 1 ‘Consolidate and Integrate’ proposal. Traditional branch-based service channels may be diminished in favour of digital delivery, in response to consumer preferences and cost efficiency. Consolidation of credit unions, whether by mergers or other tactics, will likely continue with potentially acute strategic disconnect between large complex ‘corporate’ credit unions and small local community credit unions.
“Let’s face it - we have been down this road before. The consolidation of provincial centrals is hardly a new idea.”
Some implications are frankly speculative. Emergent financial technology innovation or expansive technology giant strategic ambitions may disrupt financial services, including credit unions, and stimulate new competitive entrants or business models. Any unconventional political representation at federal and/or provincial level may introduce policies of a disruptive or unexpected nature. Perhaps an increasing scope of operational functions of credit unions may migrate to credit union central(s) or credit union service organizations.
“The number, complexity, and impact of issues facing the credit union system and its new permanent leaders may seem daunting.”
Likewise, the regulatory landscape could change materially. Roles, responsibilities, and governance of relevant organizations may be re-imagined. Risk-based assessments may leverage artificial intelligence, big data or other technologies. CUDIC or FICOM may become a provincial crown corporation, perhaps comparable with other jurisdictions. Perhaps all large, complex and/or multi-province credit unions may be regulated by OSFI - whether through the popularity of federal charters or otherwise - and provincial regulators oversee smaller, simpler and/or local credit unions. Perhaps provincial governments may align deposit insurance, regulatory standards or supervision expectations/practices. This may simplify consumer protection as multi-province credit unions gain traction. Or some manner of consolidation of provincial regulator functions may access economies of scale and expertise. While perhaps politically unimaginable today then provincial jurisdictions may shrink, regulatory environments may become more complex, and/or provincial systems may become more inter-connected.
Without a shadow of a doubt, the above conjectures will be inaccurate, incomplete or plain wrong. Some may even appear unimaginable today. Future-guessing is perhaps better left to science fiction bestsellers. But the number, complexity, and impact of issues facing the credit union system, its regulators and collective new permanent leaders may seem daunting.
To advance impactful, perhaps disruptive, change then permanent leaders must be bold, persistent and persuasive. There will inevitably be doubters, detractors, and stallers. Were the changes easy, they may well already have been implemented. Visionaries wanted.
APPENDICES
CENTRALS MILESTONES
“CCUA has been established as the national trade association”
“The National Payments Strategy is nearing completion of work towards ... consolidation of the payments function”
“not all centrals are ready to merge into one national organization at this time. However, there may be some centrals that are ready to explore it right now.”
“Efforts to bring about an economic scale, integrated wealth management platform would continue.”
Source: Central 1
REGULATOR EFFICACY
“With their shortage of staff, it would take over 14 years to review all of BC’s credit unions instead of FICOM’s intended target of two to three.”
“FICOM may not [in 2016] be able to detect a worsening situation at a credit union in time to address and reduce the risk of failure.”
“Given that FICOM is funded entirely by credit unions ... and in recent years it has not spent all of the revenue it receives, it should be able to hire additional staff without an increase in its funding.”
Source: Auditor General of BC
STABILIZATION CENTRAL ROLE
“lack of clarity [of its role] makes it difficult for Stabilization Central to resource itself for a long-term vision.”
“... difficult for Stabilization Central to gain access to all information that is necessary to effectively identify and manage risk in the system.”
Source: Stabilization Central
CREDIT UNION SYSTEM PROFILE
SYSTEM EXPECTATIONS
“We expect the future for Credit Unions will include the following:
The primary relationship between Credit Unions and their members will increasingly be digital
Traditional economies of scale will increasingly be challenged by distributed, transparent and collaborative networks
The strategic management of data will be critical
Financial margins will continue to be under pressure
Regulatory costs and capital requirements are likely to increase
The diversity amongst Credit Unions will continue to grow”
Source: Central 1, author abbreviations
CENTRALS UNIFICATION
“SaskCentral aspires to a vision of a nationally unified and internationally capable co- operative financial network. [Central 1 proposed] vision would be realized when the services of all Centrals are consolidated.”
“Our vision for the national system calls for significant consolidation of Tier 2 organizations to a single national trade association and a single national wholesale financial institution.”
Source: SaskCentral, Alberta Central
FINANCIAL TECHNOLOGY
This concludes the second part of a three-part series. A list of sources and references will be appended to the final part in this series.
DISCLAIMER & COPYRIGHT
This article reflects the personal comments of the author, Ross McDonald. This article does not represent the views of any financial cooperative, corporate organization, regulatory body or government ministry. Comments are wholly based on information that is in the public domain.
Although the author has made every effort to ensure that the information in this article was correct at press time, the author does not assume and hereby disclaim any liability to any party for any loss, damage, or disruption caused by errors or omissions, whether such errors or omissions result from negligence, accident, or any other cause.
All rights reserved.
System-Level Leadership Vacancies - 1/3 - Empty Seats
There is currently a void of permanent leaders at system-level organizations that impact B.C. credit unions. All leaders of credit union centrals and relevant provincial government entities are currently appointed on an interim, acting or retiring basis. Unquestionably improbable but such are circumstances. Individually each leader has system influence but collectively they wield transformative impact.
“There is currently a void of permanent leaders at system-level organizations that impact B.C. credit unions.”
SERIES OVERVIEW
This article is the first part - Empty Seats - of a three-part series related to current vacancies of permanent leadership at system-level organizations that impact B.C. credit unions.
Empty Seats: Current vacancies & short term impact
Visionaries Wanted: Medium & long-term implications
Glass Slippers: Governance actions & best practices
This publication may be easier to read in PDF format. Download per bit.ly/bc-leadership-doc-all
INTRODUCTION
There is currently a void of permanent leaders at system-level organizations that impact B.C. credit unions. All leaders of credit union centrals and relevant provincial government entities are currently appointed on an interim, acting or retiring basis. Unquestionably improbable but such are circumstances. Individually each leader has system influence but collectively they wield transformative impact. This article explores system implications in the short, medium and long term. The future is alas tricky to predict, especially given a context of new permanent leadership. Presented implications will inevitably be wrong but they strive to illustrate the nature of potential change and the magnitude of positive opportunity. But first, the entities.
B.C. SYSTEM-LEVEL ORGANIZATIONS & LEADERSHIP STATUS
Central 1 Credit Union
Central 1 Credit Union provides a suite of wholesale products and services to credit unions nationally. It is also the primary liquidity manager, payments provider and trade association for its credit unions in B.C. and Ontario.
Central 1 Credit Union announced on 19 May 2017 that its CEO, Don Wright, ‘has decided to step down, effective July 31’. The related press release noted that 'To ensure a successful transition, Wright plans to stay on at Central 1 until a new CEO is chosen' and that 'The process of selecting a new CEO will begin immediately'.
Stabilization Central Credit Union
Stabilization Central Credit Union provides remedial advisory as a ‘stabilization authority’ to credit unions, including those under regulatory intervention; manages the Master Bond Program; and aids in the timely identification of system risks.
Its Board appointed an Interim CEO, Jennifer Scott, following the January 2017 departure of Chad Boyko. Its Board initiated a public search for a permanent CEO in February 2017. As at publication date then no appointment had been announced.
Financial Institutions Commission (‘FICOM’)
FICOM is a branch of the B.C. Ministry of Finance that provides regulation, prudential supervision and market conduct oversight to provincial credit unions, provincial credit union centrals and selected other financial services industries.
Current FICOM leadership is wholly comprised of non-permanent appointments. Carolyn Rogers resigned as Superintendent of Financial Institutions in May 2016. Frank Chong, Tara Richards, Michael Peters and Chris Cater hold roles of Acting Superintendent of Financial Institutions, Acting CEO, Acting Superintendent of Pensions, and Acting Superintendent of Real Estate and Acting Registrar of Mortgage Brokers respectively.
The B.C. Ministry of Finance publicly marketed the positions of Superintendent of Financial Institutions and CUDIC CEO in July 2016 and again in December 2016. The B.C. Ministry of Finance also publicly marketed, in March 2016, positions that included Deputy Superintendent Regulation, Deputy Superintendent Prudential Supervision and Deputy Superintendent Market Conduct. As at publication date, and to knowledge of the author, then neither FICOM’s Commission nor CUDIC’s Board - governance bodies with the same membership - had announced permanent appointments.
Credit Union Deposit Insurance Corporation (‘CUDIC’)
CUDIC is a statutory corporation, administered by FICOM, that provides deposit insurance coverage for provincial credit unions; determines annual assessments; manages the ex-ante fund, and substantially funds FICOM operations.
Its Board appointed an Interim CEO, Frank Chong, following the 2016 departure of Carolyn Rogers. The Superintendent of Financial Institutions of FICOM also holds the role of CEO of CUDIC. CUDIC has an Acting Executive Director.
B.C. Ministry of Finance
British Columbia held provincial elections on 9 May 2017. No political party secured a majority of seats. Political party discussions and government legislative processes appear to be evolving. As at publication date, any impact on the leadership, priorities or specific policies of the B.C. Ministry of Finance remains unclear.
IMPLICATIONS OF NEW SYSTEM LEADERSHIP
The credit union industry is a busy place. Numerous circumstances and developments have created current need or future opportunity for material change. Some initiatives are reactive to externalities, such as demographic changes in member expectations or emergence of financial technology. Some initiatives are proactive to bolster the long-term market competitiveness and positive impact of the credit union industry. While a few changes may impact a single credit union then most material developments are at system level. Even matters initiated in regards a single provincial system, such as regulatory legislation or standards, may likely influence peer policies and practices nationally over time.
The implications of current B.C. system-level leadership vacancies could be considers in multiple ways. For simplicity, this article uses a time-based approach:
Short term - Likely operational execution
Medium term - Perhaps priorities reset
Long term - Possible substantive pivot
SHORT TERM IMPLICATIONS - LIKELY OPERATIONAL EXECUTION
Faced with high complexity and material uncertainties then existing decision makers are prone to pause.
The greater the number of risks, probability of occurrence and/or severity of impact then the stronger is the incentive to defer decisions. Examples of this include major political uncertainties (e.g. Brexit or CETA); corporate opportunities (e.g. M&A transactions); forthcoming legal or regulatory decisions (perhaps federal credit union); unclear visibility on economic conditions (e.g. base rates); and changes in leadership.
In the short term, system stakeholders may focus on the execution of day-to-day operations. Members and communities must still be served. Centralized infrastructure must still operate. Government processes continue. For middle managers, staff and membership then it may feel like business-as-usual. At least for a while. But without clear leadership then system-level initiatives, legislative reviews and regulatory decisions may be progressed with a reduced level of ambition or urgency, if at all.
An example may be deposit insurance. In March 2016, CUDIC circulated a consultation paper in regards its methodology that determines assessments. In January 2017, the Acting Executive Director CUDIC reporting to Interim CEO CUDIC issued a public letter that stated ‘FICOM and CUDIC staff determined that further work was necessary’ with expectations of a release of a ‘new methodology for comment to the system by Fall 2017’. 2016 CUDIC assessments of C$47 million represented 18% of system net income. The deferral may impact any credit union subject to active or recent regulatory intervention.
“Choosing the next CEO is the single most important decision a board of directors will make.”
Governance bodies, selection committees and any executive search advisors will presumably be busy. In some cases then a Board may consciously seek to appoint an Interim or Acting CEO, say to bridge a limited time gap between a departing and recruited permanent CEO or to engage specialist leadership expertise for a specific issue. For example, the Board of Lake View Credit Union (C$330 million assets and 10,500 members) recently appointed an Interim CEO shortly after it announced the exploration of a potential merger with Integris Credit Union (C$700 million assets and 25,000 members). But any failure to appoint a permanent qualified leader on a timely basis may merit questions to - and of - a governance body in regards succession planning, recruitment deficiencies and remedial Board intentions.
This concludes the first article of a three-part series. A list of sources and references will be appended to the final article in this series.
DISCLAIMER & COPYRIGHT
This article reflects the personal comments of the author, Ross McDonald. This article does not represent the views of any financial cooperative, corporate organization, regulatory body or government ministry. Comments are wholly based on information that is in the public domain.
Although the author has made every effort to ensure that the information in this article was correct at press time, the author does not assume and hereby disclaim any liability to any party for any loss, damage, or disruption caused by errors or omissions, whether such errors or omissions result from negligence, accident, or any other cause.
All rights reserved.