I was a Certified Public Accountant before I went to work in the credit union movement. It always made sense to me when I heard people like Bert Ely say that the mutual form of organization would be eclipsed by the stock issuing corporations. The argument that capital is better employed and better managed when someone owns it is an old argument. The Dean of the Stanford Business School, George Parker made essentially the same argument when he spoke to the CCUL Executive Management Program at Stanford. In fact George wondered how credit unions could succeed without the discipline imposed by the owners of stock equity. I think it is wrong to assume that mutual capital is inferior to stock equity. It doesn’t take much logic to see that the capital employed by Time Warner to buy AOL was badly managed and badly employed. It would have been better to pay out that capital to the shareholders in the form of dividends. In fact the entire story of the roaring 90s will be that corporations wasted their capital on foolish purchases and foolish investments in over capacity. I further believe if the benefits to society and to the members of non-profits were added back to net income it would boost the return on capital far above what for-profit institutions earn. For example: SAFE Credit Union pays its members an above market dividend rate. Credit unions pay higher rates because they are focused on member benefit. Those excess dividends are a return on capital. The same logic applies to lower loan rates and lower fees or free services for which there is no charge. It makes sense that non-profits would earn a higher not a lower return on capital. Non-profits have a singular focus on the member rather than a dual focus (on stockholders first and customers second). Non-profits can take the long view and forego short term results in favor of long term enduring benefits. Non-profit management has fewer incentives to manipulate earnings, mislead investor/owners or gamble on misguided investments in capacity or make foolish purchases. The incentives in for-profit institutions have created a wasteland of mismanagement, fraud and deception. The research I have read from the Filene Research Institute clearly indicates that there is a community wide return on credit union capital. Non-members who do not belong to credit unions are helped by the competitive pressures of credit unions on other financial institutions in communities where credit unions have a significant market share. Loan rates are lower, savings rates are higher in those communities. In our area the non-profit public utility SMUD (Sacramento Municipal Utility District), the non-profit hospitals, and the non-profit Consumer Credit Counseling Service provide similar benefits to the community. They keep prices low and set a higher standard for customer service and corporate ethics. It is dangerous to accept a statement such as Mr. Ely’s statement regarding the advantages of stock equity over mutual equity when the metrics he uses are faulty. We need a better way to measure the return on capital so that we don’t dismantle mutual non-profit organizations that have provided and can continue to provide so many benefits. Henry Wirz President/CEO SAFE CU North Highlands, Calif.

Complete your profile to continue reading and get FREE access to CUTimes.com, part of your ALM digital membership.

Your access to unlimited CUTimes.com content isn’t changing.
Once you are an ALM digital member, you’ll receive:

  • Critical CUTimes.com information including comprehensive product and service provider listings via the Marketplace Directory, CU Careers, resources from industry leaders, webcasts, and breaking news, analysis and more with our informative Newsletters.
  • Exclusive discounts on ALM and CU Times events.
  • Access to other award-winning ALM websites including Law.com and GlobeSt.com.

Already have an account?


© 2023 ALM Global, LLC, All Rights Reserved. Request academic re-use from www.copyright.com. All other uses, submit a request to [email protected]. For more information visit Asset & Logo Licensing.


Credit Union Times

Join Credit Union Times

Don’t miss crucial strategic and tactical information necessary to run your institution and better serve your members. Join Credit Union Times now!

  • Free unlimited access to Credit Union Times' trusted and independent team of experts for extensive industry news, conference coverage, people features, statistical analysis, and regulation and technology updates.
  • Exclusive discounts on ALM and Credit Union Times events.
  • Access to other award-winning ALM websites including TreasuryandRisk.com and Law.com.

Already have an account? Sign In Now
Join Credit Union Times

Copyright © 2023 ALM Global, LLC. All Rights Reserved.