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<p>Unfolding details involving the likes of Enron, Global Crossing, and Andersen are making headlines on a daily basis. No wonder that the subject of possible and actual conflicts of interest and management and governance malfeasance is top of mind throughout every industry these days. As a close observer of the credit union scene for over 30 years, I would like to think that the type of negative news that is rocking the accounting and management ranks of major firms and corporations could never occur anywhere in the credit union industry. But are there instances in the credit union industry, past and present, that might in fact serve as illustrations of walking a fine line rather than toeing the line, or worse, being out of line? Credit union boards and staff have always needed to be especially careful. They can never forget that they are supposed to represent the best interests of all members of the credit union rather than, for example, a brother-in-law in the real estate business with a piece of property to sell that would be perfect (brother-in-law’s words) for a new branch office for the credit union. The price? Oh don’t worry, it will be fair. Can’t happen? It has, and on more than one occasion over the years. At least one CEO lost his job over such a situation when the seller of property at an inflated rate turned out to be a close relative. One board member was asked to resign for first not disclosing a similar connection and then, even after it was uncovered, still pushing the idea. Most boards quickly quash such proposals for what they really are, a conflict of interest. But not all. Then there is the current all-out push by the banking industry to get directly into the real estate business. First the bank will sell you a house and then make you the loan to pay for it. It doesn’t take a genius to figure out all the possible conflicts such a cozy arrangement could bring about. Suffice it to say that it wouldn’t be long before the typical customer became the loser. Back to credit unions. Some CU board members make their living as consultants. They look to their credit union for lucrative business deals, contracts, and retainers, even ones that require full board approval. Most are told no way for obvious reasons. But some do get them. PR firms, law firms, recruiting firms, office supply firms, tech firms, and yes, accounting firms are engaged by credit unions despite a direct board connection. The credit union has left itself wide open in such cases. At the national level, who can forget the built in conflict of interests that existed when state league CEOs also served as CEOs of corporates. League and corporate boards were interlocking. Corporates paid a management fee to the league. Overlapping staffs and facilities resulted in some rather interesting accounting. One league CEO told me, when former NCUA Chairman Norm D’Amours began his successful effort to eliminate this conflict of interest, that he strongly opposed not being able to be a dual CEO. “My corporate title puts an extra $34,000 in my pay envelope every year,” he explained. On a personal note, that situation always reminded me of how CUES was run before I became its CEO in 1971. My predecessor reported both to a CUNA staff person and his elected board of directors, an impossible situation. The staffer would order him to do one thing while the board instructed him to do something else, often at the same time. This obvious conflict hurt CUES members and contributed to getting the CEO fired. Also at the national level, what about all those endorsement schemes so prevalent among state and national CU trade groups? On the surface, such groups are supposedly providing a service to their members by evaluating competing products and services, then recommending the one that’s best. Best for who? The member? Or the trade group that collects a fee from the chosen few? Several vendors, not endorsed by choice, told me it quickly comes down to whoever will pay the trade group the most gets the nod. What conflict you ask? Then there is the very touchy subject of credit union consultants who provide a variety of supposedly unrelated services to credit unions. For example, if a firm conducts a search and recommends a candidate who gets the CU CEO job, is it logical to assume that that same firm, if it provides auditing or consulting services, has a leg up in securing additional business from the new CEO whom they just placed? Something to think about? The hiring of certain speakers and the sponsorship of high-profile platform presenters also can raise an eyebrow or two in credit union land. Why has a particular speaker been given a key program slot? To advance a cause? As payback? Because he or she will mouth the party line as directed by the trade group CEO as instructed? Does he or she have something to sell that will benefit the meeting sponsor? All questions that might uncover a conflict of interest. Certain credit union leaders also need to be cautious about accepting board positions on outside groups, especially those looking to increase their share of the credit union business pie. Will a vote yea or nay as a board member of one group actually help or hurt another group for which an individual works or also serves in a voluntary capacity? If there’s any good that could come out of the Enron et al fiasco, it might be that there already appears to be a greater awareness, including in the credit union industry, of what constitutes a conflict of interest and how important it is to avoid it at all costs. Comments? Call 1-800-345-9936, Ext. 15, or Fax 561-683-8514, or E-mail [email protected]</p>

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Peter Westerman

Credit Union Times

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