LENEXA, Kansas – U.S. Central is proposing a change to its boardstructure that adds more corporate CEO seats while still givingnon-corporate CU members a voice. Some of the largest corporateshowever want corporate CEOs to make up the entire board. They arealso questioning whether some U.S. Central products are bringingthe corporates' corporate too close to natural person creditunions. Corporate credit union CEOs will be taking up this issue atthe Association of Corporate Credit Union's Annual meeting beingheld in Louisiana on Oct. 13-14. “U.S. Central is reaching its 30thbirthday next year. From time to time it's going to need to take astep back and look at the board organization. Our board reallylooked at this during our planning session this July,” said U.S.Central President/CEO Dan Kampen. Currently the board is made up ofnine members elected by the membership. Five of the directors areClass A directors who are required to be either corporate creditunion CEOs or COOs, or corporate credit union directors, typicallyCU CEOs, COOs or CFOs. Right now all five of the Class A seats areheld by corporate credit union CEOs. They are First CarolinaCorporate CU's David W. Brehmer, Mid-Atlantic Corporate FCU's EdFox, Iowa League Corporate Central CU's Tom Kuehl, MinnesotaCorporate FCU's Lew Lambert, and Mid-States Corporate FCU's DavidPreter. The four other seats are broken into three classes. Thereis one Class B director spot who must be a corporate credit uniondirector. Currently it is Paul Mayotte, president/CEO of JeanneD'Arc CU. Next are Class C directors who represent other members ofU.S. Central, such as leagues, associations, CUSOs, Canadiancorporate CUs, and others. Currently CUNA EVP and COO Pete Crearand Ohio CU System President/CEO Paul Mercer hold these seats.There is also one Class D director who must be an officer ormanager of a natural person credit union and a Kansas resident. Thecurrent Class D director is Robert W. Thurman, CEO of Credit Unionof America. U.S. Central directors serve for three-year terms andthere are no term limits. Kampen said U.S. Central has come up witha proposal to revamp the board that calls for increasing it by twofor a total of 11 directors. Under the proposal, seven board seatswould be held by corporate credit union CEOs (the COO option iseliminated). Those seven seats will be broken down into three tiers– large, medium, small – based on the capital (Member CapitalShares and Paid-in Capital) those corporates have with U.S.Central. Three of the CEOs will come from the large tier, one eachfrom the medium and small tiers, and there will be two at-largeseats. The remaining four seats will be similar to what they arenow, two seats for other non-corporate CU U.S. Central members andtwo corporate credit union directors (credit union CEOs) – the COOoption again has been eliminated. Also, the requirement for oneKansas resident on the board will be eliminated. The proposalincludes term limits of three consecutive three-year terms.However, after being off the board for two years, a director couldreturn. This proposal does two obvious things: gives corporatecredit union CEOs more seats and gives the corporates with thelargest stakes in U.S. Central more seats. Some corporates haveother ideas about how the board should be structured. The CEOs ofthe nation's four largest corporates – WesCorp, Mid-States, Empireand Southwest – authored a paper that looked at U.S. Central's rolenow and in the future as well as its board makeup. The paper wasauthored by the CEOs but written by an outside consultant. In thepaper, the CEOs propose that U.S. Central move to a seven-personboard consisting solely of corporate credit union CEOs. The seatswould be divided into three asset classes, as well as one at-largedirector. Each asset group would elect two from their group to theboard, and the at large director would be elected by all of thecorporates. The paper also recommends that U.S. Central set termlimits of three consecutive three-year terms. Empire CorporatePresident/CEO Joe Herbst credits U.S. Central for moving quickly ona possible board restructuring, but believes that making the boardlarger is a mistake. “It should be a smaller board that can reactmore quickly to the changing times,” he said. The problem with U.S.Central's proposal is though it's a bigger board, there's still thesame difference – four seats – between the corporate credit unionCEO seats and the non-corporate CU seats, said Herbst. Herbst alsobelieves since corporates make up the bulk of U.S. Central'sassets, they should occupy all the board seats. Herbst said thereare other ways to bring in the views of the non-corporate CUmembers, such as committees and advisory board members. Whencorporates and the leagues were separated by NCUA, which also putCUNA at more of distance, the need for the non-corporate CU boardseats was lessened said Herbst. Kampen however wants the board toreflect all segments of the membership. “Any board should berepresentative of their entire membership. We are the oneinstitution where all the business components for the industry canhave membership and come together. They range from CUNA, NAFCU,CUNA Mutual and the Leagues. Payment Systems for Credit Unions is amember, as are the corporates up in Canada,” said Kampen. Brehmer,who is on the board, didn't want to say too much about U.S.Central's specific proposal but believes all of U.S. Central'smembers should be represented with corporates having the mostrepresentation. One area where Brehmer disagrees with the U.S.Central proposal and the paper by the four largest corporates isthe enactment of term limits. “I just never liked term limits foranything except maybe the presidency. It's basically saying thatvoters don't have the ability to make a tough decision, and you canwind up kicking out very good, committed folks,” said Brehmer.There is a flip-side however. He said without term limits it'sharder to get everyone who is interested in U.S. Central governancea chance to serve. Brehmer said only in the last three years or sohas there been substantially more interest in serving on the U.S.Central Board, while in years past there were a fair share ofunopposed races. VolCorp President/CEO Bruce Fahnestock believesexpanding the board to add more corporate seats does make sense. Hefeels however that it must be done so as to give the smallercorporates, who rely a lot on U.S. Central, a chance atrepresentation. “You have the smaller corporates who may have 100%of their money in U.S. Central. Their 100% might not be close to alarge corporate's 50%, but they obviously are putting a lot oftrust in U.S. Central and should have a voice,” he said. Keep AwayFrom Natural Person CUs One clear message coming out of the paperauthored by the four largest corporates was their desire to ensureU.S. Central does not market directly to natural person CUs. Theysay there have been some cracks in that philosophy recently. “Someof U.S. Central's new products, such as the TransferableCertificate, feature Natural Person Credit Union investment dollarson its balance sheet – even though the product is sold through thecorporate network. This breaks new ground and sets an unwantedprecedent,” the report states. Fahnestock said he's heard thisbefore and it will probably never completely go away, but it'sunfounded. “You'll always have people who think they're going afternatural person credit unions, but the bylaws don't allow it and theleadership does not want that,” said Fahnestock. Kampen said U.S.Central knows exactly who it serves. “Our policies make sure we runall our products through for board approval and profitabilityrequirements. I think where this issue comes in is areas wherecorporates are competing with each other. Our role has not changed.I don't anticipate it changing. Our job is to aggregate at thenational levels,” said Kampen. There is clearly product overlap inthe network. U.S. Central offers online services via CorporateNetwork eCom that some corporates offer on their own. It's also nowstarting to overlap with broker/dealer services. A number ofcorporates have signed on with U.S. Central's ISI broker/dealersubsidiary, while other corporates have started their ownbroker/dealer subsidiaries. In the paper, the four corporatestouched on their uneasiness of U.S. Central using capital from itsentire membership to fund products only some corporates are using.“U.S. Central should utilize only the capital of those corporatesthat are interested in creating, developing or using a givenproduct as opposed to using the capital provided by everyone tofund the activities of a few,” the paper stated. The fourcorporates also express concern about U.S. Central having too highof a profile. “Expanded marketing through trade show booths andpresence at Natural Person Credit Union conferences indicates amove toward broader acceptance of U.S. Central as a direct productand service provider. U.S. Central should not use corporate capitalto fund these and other activities to promote directly to naturalperson credit unions,” the paper stated. At CUNA's recent FutureForum, U.S. Central sponsored a number of events. Kampen howeversays U.S. Central isn't invisible, but not high profile. He saidU.S. Central is very well known on The Street as a fairly largeinvestment house. Because of its large settlement function in thecredit union industry, the general CU community is of course awareof U.S. Central. But he maintains U.S. Central is not trying toreach out to natural person credit unions through high-profileefforts. The four corporates also took issue with a component ofU.S. Central's 2003-2005 business plan that calls for partneringwith corporates to target a sales effort to the largest 300 creditunions to sell them U.S. Central's payment and technology services.“This should be a component of the corporates' strategic plan andnot a goal for U.S. Central,” the paper stated. A U.S. Centralspokesman said the message it is pushing is cooperation, not goingdirect to credit unions, and according to that same business planU.S. Central and corporates have to “cooperate in new ways tojointly grow the Corporate Network's overall share of credit unionbusiness.” U.S. Central also has to be aware of what's happeningwith natural person CUs said Kampen. Case in point, the ratesituation as it affects mortgages. “I think a major issue right nowis tightening of liquidity and rising interest rates. There are alot of mortgages on balance sheets that weren't there before,” saidKampen. Those loans were booked in a low rate environment and asrates rise credit unions will need help reducing the risks to theirbalance sheets. Kampen said this is an issue corporates will befacing, thus U.S. Central has to be prepared [email protected]

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