A website by Liz Warren
Dedicated to scrutinizing the governance of our Credit Union, and protecting our
collective wealth from uncooperative self-
Threats to Coast Capital’s Members
Previously I outlined various threat-
Between 2006 and 2011, the Board increased its own total pay by 29.6% (on average) each year, as follows:
Year Total Compensation
This brought their total compensation to 205% that of the Vancity Credit Union, the most comparable credit union in BC.
$750,517 – the total paid to all Coast Capital directors in 2011.
$366,382 – the total paid to all Vancity directors in 2011.
For details, see Coast Capital Compensation Watch’s website.
The rationale for these pay increases is that the Board wants to expand nationally, and they want to be paid an amount comparable to their desired peer-
The Remuneration Philosophy in 2007 put them on a path to national-
“… director remuneration at Coast Capital should be lower than that of public companies of similar size and/or complexity, yet higher than that traditionally paid to cooperatives: the highest quartile for cooperatives but no higher than the lowest quartile for comparable public companies.” [Underline added]
The modified 2014 Remuneration Philosophy allows even more upwards flexibility:
“… Director remuneration will be proportional to a consistent peer group of Canadian financial services institutions of similar size and complexity. … As Coast Capital Savings operates within a complex national financial services sector, the scope for comparators within the peer group is national. The comparators include financial services institutions of similar size and complexity including: credit unions, trust companies, insurance companies and banks. …” [Underlines added] [See 2014 Special Resolutions Booklet p. 15]
In the business world, growth is generally a sign of success. This is certainly true for a company that wants to bring its innovative product or service to as many customers as possible; growth brings greater riches to the company’s owners. However, a credit union (or any consumer co-
A credit union can grow in various ways:
An excellent reason to favour growth is that it brings economies of scale. An increased number of members means that the organization’s fixed costs (e.g., administrative overhead; software development) are spread out over a greater number of members. (Fixed costs are costs that don’t increase as new members join the co-
The perils of geographic expansion are discussed in the next section. Expansion into new product lines is a topic for future discussion.
There is a simple (and unstated) reason why directors and management of a credit union (or any business) to argue in favour of growth: career advancement and personal success. Nothing is more satisfying and lucrative than for this small number of people to preside over a larger and larger empire. However, from the point of view of credit union members, these are poor reasons to expand the business.
Geographic expansion refers to the growth of the credit union by opening branches in new territory (or by acquiring other credit unions that have branches in new territory).
As with growing the membership base within the local community, geographic expansion of the membership base can bring with it economies of scale—but not as productively, because new expenses are incurred, like new branches and additional overhead staff.
The fundamental problem with expanding to new communities is that it reduces the autonomy of each individual community, playing into the hands of the newly created regional authority. It’s okay for a co-
Principle #6 of the seven internationally accepted Co-
We should not give up our local structures (like Coast Capital) by growing them into regional structures. We already have regional structures—Central credit unions—which serve a different purpose entirely. It doesn’t make sense for a co-
Some kinds of growth can be good for a co-
National expansion is the most extreme form of geographic expansion, and is a correspondingly extreme threat to the autonomy of individual communities of members.
In 2010, the Canadian federal government enacted legislation (as part of the Bank Act) aimed at providing a national framework for credit unions. The purpose of these new laws is to allow credit unions to behave like national banks, while still being owned by members (on a one-
National expansion is a poorly motivated means of growth for a credit union because it is an attempt to unify communities that certainly have different interests and priorities, and who cannot possibly convene in meetings to accomplish anything together. It serves the careers of the directors and the managers better than it serves the members.
Advocates of national expansion will argue that it’s necessary or desirable for credit unions to be able to compete with the national banks. This is unpersuasive. If people need a national bank, they can certainly apply for an account at one. Credit unions should focus on winning their own game, which is to serve community interests, and to empower communities to make decisions autonomously regarding their financial institution.
In May 2014, Vancity Credit Union announced a decision not to expand nationally, with some encouraging statements: “Our work is grounded in the local economy,” “our democratic form matters,” and “by remaining a provincially regulated credit union, we believe we can retain our independence.” However, even expansion throughout the province serves to dilute the membership’s control in favour of the directors and management.
In the CEO’s message of the 2013 Annual Report, Coast Capital CEO Tracy Redies said that members would be consulted before Coast Capital decided to expand nationally. However, be aware that Coast Capital’s statement of purpose is already “to change the way Canadians feel about banking, forever” (emphasis added). On one hand, it’s difficult to take such vacuous fluff seriously, but on the other hand, this statement has been approved by the Board of Directors and is peppered throughout official corporate documents, like the Board of Directors Mandate. In her message, Redies explicitly expressed the organization’s collective “delight” at the “good news” of the new legislation. This is not surprising, since management’s strategic plan of 2010 included “targeted geographic expansion: growing our business outside of British Columbia” (see 2013 Annual Report p. 12), and in 2013 they “established a formal corporate development team with a view to having a dedicated team that we can grow as expansion opportunities present themselves” (p. 13).
More worryingly, nothing in the recent history of Coast Capital Savings demonstrates that the members are capable of having a dialog amongst themselves and making an informed decision about whether national expansion is a good thing. There is no reason to think that the Board will in any way facilitate the expression of dissenting opinions. To the contrary, the entire purpose of this website is to demonstrate that the Board of Directors has seized control away from the members, precluding meaningful member involvement. The government should not permit Coast Capital’s members to vote for such a profound, irreversible change, any more than it permits teenagers to sign a contract.
Imagine that the city of Vancouver were to expand, to incorporate all of Vancouver, Burnaby, and Surrey, so that there was a single City Hall for the entire area. Suppose they then took-
Struggles for power are ubiquitous. In any federation (like Canada and the U.S.), there is a constant struggle for power and money between the federal government, provincial/state governments, and municipal governments. There’s a proper balance to be maintained. No local government should ever relinquish its full autonomy.
The same is true for credit unions. Individual credit unions belong to the local community, and should remain there, rather than expanding to encompass wider territories, causing members to lose their autonomy in the process. (We have the “central” credit unions to handle responsibilities that are best handled at the provincial and national levels.)
Conversion to a chartered bank is a threat to Coast Capital’s members because it represents the complete destruction of the co-
Conversion is the process of turning a co-
There are horror stories about how this has transpired in the United States.1 For example:
Community Credit Union outside Dallas, TX converted to a mutual bank in 2006, and then to a mutual holding company/stock bank later that year. While the board and senior executives have personally made over $26 million by selling their members' institution, more than 98% of the members did not receive a dime in return. Now the bank is run to maximize profits, rather than to serve members with the best rates and services.
Or this one:
DFCU Financial Credit Union in Detroit announced its plan to convert in December 2005. After learning about how the proposed conversion would affect them, a group of concerned members formed DFCU Owners United to inform other members about the conversion. When the credit union's board repeatedly stonewalled the members’ requests for information about how and why they had decided to convert, DFCU Owners United took action. They successfully petitioned to hold a credit union meeting about recalling the board of directors. The directors have refused to hold this meeting, in violation of the credit union’s bylaws, but withdrew the conversion proposal in 2006.
The new Canadian legislation is not oblivious to these problems:2
The proposed regulations contain a series of requirements that must be followed to ensure a fair demutualization process, such as ensuring members are treated equally, mandating a fairness opinion and an independent evaluation of the conversion proposal, as well as restricting management from benefiting unduly from the conversion transaction.
It’s not impossible to conceive of a conversion deal that is in the best short-
It’s not easy to start a new business. This is especially true of a co-
Before we can trust that the federal government is working in the best interest of credit union members, we should, at a minimum, expect them to teach and explain the history and purpose of credit unions, as I have done on this website. Until then, we must work together as members to resist any attempts to move power and control away from the level of the individual community.
[This is a topic for future discussion.]
1 From National Center for Member Trust. “Past Conversions.” Retrieved October 15, 2014.
2 From Osler, Hoskin & Harcourt LLP. “New Proposed Regulations for Federal Credit Unions.” Retrieved October 15, 2014.