NCUA Should Stay Out of the Board Room When it Comes To Mergers
ALEXANDRIA, Va. -- Commenters on NCUA's proposed regulation regarding the disclosure of executive compensation in a voluntary merger generally agreed that such decisions should be left up to the board of the credit union.
Credit union commenters on this NCUA proposal stated that the agency should go back to the drawing board or, better yet, nix the plan altogether. At least, NCUA should wait on the recommendations of its own Outreach Task Force on the broader matter of disclosure of executive compensation.
"NAFCU firmly believes that federal credit unions should have the ability to fully exercise their business judgment to merge should it be in their members' best interest," NAFCU Senior Vice President of Government Affairs Dan Berger wrote. "NAFCU also believes that the integrity of the merger process is imperative. The decision to merge must be made free from undue influences; indeed, transparency is crucial to ensuring that interests of the members are paramount to a merger decision. While we recognize that the proposed rule is designed to ensure that executive self-dealing will not be a motivating factor in merger deliberations, NAFCU is extremely concerned that the proposal may have a chilling effect on the right of federal credit unions to make reasonable business decisions to benefit their members without achieving this goal."
CUNA's comment letter stated that NCUA has not demonstrated "adequate substantiation" of the need for regulation in this area. CUNA Deputy General Counsel and Senior Vice President for Regulatory Advocacy Mary Dunn wrote, "In our view, NCUA has not provided adequate substantiation to credit unions as to why the rule is necessary or sufficiently explained why the 15% or $10,000 figures are the appropriate levels for disclosure. We seriously question whether the low figures NCUA has chosen are indeed 'material' or would entice a credit union official to make a choice that was not in members' best interests. Without further explanation from NCUA, it is unclear on what basis the agency could arrive at the appropriate level for disclosure. Also, if adopted, the proposal could have a chilling effect on mergers, which are often positive transactions that benefit credit union members."
The Georgia Credit Union League seconded the lack of evidence of a need for this proposal. "We note the Agency's concern...However, absent any credible or substantial evidence of the violation of member rights, loss of services or benefits resulting from the numerous voluntary mergers that have occurred during the past decade, we see no reason for the imposition of another regulatory requirement," GCUL Vice President of Credit Union Development Richard Ellis wrote. "We believe the decision to merge should remain with the credit union's board of directors, acting in the fiduciary role to which they were elected."
Bethpage Federal Credit Union President/CEO Kirk Kordeleski also wrote, "Therefore, with no scandal or outcry arising from the large numbers of voluntary mergers that have occurred over recent years, we find the proposed rule to be, while perhaps well-intentioned, unnecessary in view of the proven integrity of the current rule."
Dunn emphasized that under the proposal the agency could ask for more information on a case-by-case basis, which "seems very open-ended, leading some to conclude that NCUA plans to become more heavily involved in the details of merger transactions."
Wescom Credit Union President/CEO Darren Williams agreed, writing, "It would be inefficient, and entirely inappropriate, for NCUA to attempt to second guess the merger decisions unless it plans to usurp this duty from credit union boards altogether."
Dunn added that the merger compensation disclosure should be part of a broader merger review if anything, including hostile takeovers and value of a merger to the members.
If NCUA feels compelled to finalize this regulation, NAFCU said it could support a provision for "merging credit unions to justify and support a material increase in compensation." Berger reiterated, "Given the unique circumstances of each merger situation, NAFCU is strongly opposed to the establishment of a presumptive standard of unreasonableness." He noted that NCUA based its proposal on a 13-year-old rule by the Office of Thrift Supervision, which provided no explanation for its thresholds when it was created.
On the side of the agency, American Bankers Association General Counsel Dawn Causey said her group supported the proposal. "The proposed disclosure and inspection right increases transparency and allows the NCUA and impacted credit union members to make informed decisions on the proposed merger," she wrote. Causey did recommend including preamble language as guidance on justified, material salary increases and that the regulation apply to state charters as well.