Over the past few months Credit Union Times has covered at least five different credit unions at which CEO embezzlement and fraud occurred. These failures of leadership have left in their wake an abundance of angered and disillusioned members.
In fact, in a recent exchange of messages with a member of one of these credit unions, I found a person so disenfranchised due to her experience that she is now a bank customer.
Her perspective, and perhaps also the perspective of many other members and credit union leaders, is that the fault lies with the criminals. I agree, but I also believe another body is at fault: the respective boards of these damaged institutions.
While detecting fraud can be a very difficult task, in the case of every one of these situations the performance of the credit union was so poor relative to the industry that the CEO should have been fired for cause. That these boards condoned such performance over so long a timeframe puts them, in my opinion, as much at fault for the fraud as the perpetrators themselves.
In evaluating credit union health, my firm, Glatt Consulting, uses a 5-point rating system to assess and rate individual credit union financial performance. We look at 11 different metrics, assigning health scores for each metric based on where the metric falls in a set of ranges. Scores of 5 reflect the highest degree of health.
A 0 score reflects the lowest degree of health. In looking at these credit unions through the lens of our scoring system we find that each of them performed well below what we would term an average, healthy credit union. Specifically, over 10 years, the average HealthScore for this collection of credit unions was 1.8 versus the industry average of 2.48 over the same timeframe. This is a significant difference.
The question is, why did these boards allow for such anemic levels of performance? While a skilled fraudster can hide their activities well, none of the CEOs in question were leading healthy credit unions. The financial performance of their respective credit unions was highly visible, in plain sight, in black and white – and not good.
In early January of this year I was quoted in Robert McGarvey's CU Times article titled, "Fire the CEO: When the Time Has Come," as follows:
"It is surprising how infrequently CEOs are let go. Perhaps it should happen more often."
Poorly performing credit unions like these formed the basis of my perspective and were the catalyst for sharing that particular sentiment with Mr. McGarvey.
Yes, the job of a volunteer credit union board member is often difficult, complicated, and thankless. Regardless, a board's responsibility to the ownership for preserving credit union health and sustainability never goes away no matter the complications or the level of appreciation. Firing, terminating, letting someone go – whatever you call it – boards must empower themselves to act in the face of persistent poor performance.
I admit I was not in the board meetings of these fractured credit unions. I don't know for sure what board members were told by the CEO, how financial performance was shared, or what the methods for holding the CEO accountable to results.
I also acknowledge that these were small credit unions and often small credit unions lack solid reporting tools and face challenges maintaining strong checks and balances. But even in offering these plausible excuses for a lack of awareness, it still does not absolve board members of poor governance performance.
What we see in the failure of leadership showcased in the embezzlement cases of these five credit unions is a cautionary tale regarding boards allowing themselves to be ineffective, and their institutions fooled and undermined by exceptionally stupid criminals.