Governance Lessons From the U.S. Central Failure
A little over a month ago, the NCUA unceremoniously brought to a close the four-year saga of the failure and conservatorship of U.S. Central, the one-time $52 billion corporate credit union. After 35 years of high performance as a central player in the credit union system, the institution ceased to exist. How did this happen and how can we apply the lessons?”
Explanations for U.S. Central’s failure are legion: misguided managers, weak regulators, irresponsible rating agencies, nonsensical accounting rules, unscrupulous mortgage brokers, sinister investment bankers, unbridled government-sponsored enterprises and greedy residential real estate speculators. Some mention federal policy imperatives promoting universal homeownership. If Wall Street’s best and brightest missed the housing bubble warning signs, it’s no wonder U.S. Central missed them.
Effective governance is one key to reducing the effects of cognitive biases. Boards and CEOs should recognize that judgments, decisions and recommendations of even experienced and competent managers can be flawed. With healthy and constructive skepticism, robust discussion and analysis, and a culture of candor and openness, organizational leaders can improve decision-making by asking questions that seek to check the inevitable flaws in managers’ thought processes.
Organizational leaders should have a checklist of questions intended to examine whether and to what extent managers are knowingly or unknowingly motivated or affected by cognitive traps. Formulating the questions in advance of a meeting will help ensure that the leaders are not swept up in the process or tempted to go with the flow.