Over the last decade, Filene Research Institute has published five research studies to help the credit union system gain perspective on the topic of Corporate Social Responsibility (CSR)— alternatively described as Sustainability or Social Impact. Most recently we published a rigorous documentation of credit union philanthropic efforts in a report entitled Amplifying Social Impact: The State of Credit Union Giving by my talented colleague Elry Armaza. In the coming months, Filene will also launch a 5-year Research Center of Excellence on Community Social Impact.
In the most recent research project, Armaza reviews aggregate philanthropic data made available by credit unions with assets of $500 million and over (as of December 31, 2018), through their websites, annual reports, impact reports (where available) and IRS 990 data. He reports the following:
- Approximately two-thirds of credit unions share giving and impact statistics publicly;
- Known average charitable giving is equivalent to 1.5 basis points of average assets or 1.68% of net profits (2018) which is roughly on par with outside industry giving;
- Nearly 20% of credit unions provide no focus area for corporate giving;
- Credit unions report being less than satisfied with their impact report tracking record.
These (and other past findings) illustrate credit unions are in the middle of the CSR pack, but the potential for deeper involvement is enormous. In 1926, Edward A. Filene, the father of U.S. credit unions, captured the essence of the opportunity in his book The Way Out, “I think I can truly say that I have always dealt with matters of social justice, cooperation and general welfare, not on the basis of philanthropy or paternalism, but as essential factors in the development of successful business.”
Many credit unions boil down the concept of CSR to a timid, tactical and ancillary activity and may be missing an opportunity for greater impact and leverage.
Flip through the pages of any credit union system or credit union league newsletter and it’s not long before you find it: the big check shot. Held aloft by smiling credit union employees and the check’s grateful recipient. These shots are both heartwarming and discouraging. Sure, those checks are visible proof credit unions are hard at work being responsible corporate citizens. But they also illustrate something else: Many credit unions boil down the concept of CSR to a timid, tactical and ancillary activity and may be missing an opportunity for greater impact and leverage.
If transported to present-day, how would Ed grade today’s credit unions? Without a doubt, he would marvel at our large, growing and financially healthy balance sheet. $1.5+ trillion would be unimaginable to him. However, if you believe (like Filene did) that there is something more to credit unions besides buying money through deposits, selling money through loans and managing the margins, then our founders may have a few critical questions. Ed, short in stature but a giant analytical mind, would cross examine you on the specific, quantifiable activities you are doing with your annual profits.
We only have our founders as guideposts and inspiration. These same assessments have been, and will continue to be asked by your members, policymakers and boards of directors. What follows is an industry wide proposal to prepare your credit union for these growing entreaties.
The Credit Union Tithe
We propose each credit union commit to allocating 10% of budgeted net earnings to authentic CSR activities on an annual basis. Similar to tithing in religious practice, we believe this approach is feasible and beneficial for a number of reasons:
1. Simplifies a core credit union function.
The old maxim, “what gets measured gets done” can be modified slightly to, “what gets budgeted gets done”. For the past decade, Filene has worked with credit unions on developing their internal innovation competency. Credit unions have a strong desire to be more innovative. Our first question to these credit unions is, “So how much have you budgeted for innovation efforts?” Invariably the answer is “we haven’t”. Similarly, credit unions talk about CSR from a broad brush (and positive) perspective, but generally can’t point to a specific number as this activity is spread across the branch network, different functional areas or facilitated by a volunteer group. A 10% allocation of net earnings provides a concise and clear budget for CSR activities that everyone from the board chair to the frontline representative can understand and communicate. Additionally, the fund ebbs and flows with economic conditions: in good times like 2009-2019 the amounts are massive; 2020 not so much.
2. Enables collaboration on an institutional and industry level.
Credit unions love to talk about being part of a cooperative movement. One of the cleverest retorts to this statement is, “Our cooperative movement rarely cooperates, and it doesn’t move very much.” Only a true cynic would hold this statement as fact; however, there is a bit of truth to it. Credit unions (particularly those in the U.S.) find large scale collaboration difficult due to the number and variety of institutions. This approach scales an activity that recognizes the diversity of each institution’s capability, is easy to implement and taken collectively can impart real impact.
3. Identifies measurements of the credit union difference beyond pricing benefits.
Traditionally credit unions point to their pricing advantage as one of their key strategic differentiators. The data supports this assertion with CUNA & Affiliates estimating a $10.2 billion annual benefit to consumers in the form of higher yields of savings, lower interest rates on loans and fewer/lower fees. This big number is a very rational representation of the credit union difference. However, consumers are also activated by non-economic measures, including activities around a firm’s social responsibility initiatives. What is missing is a standard measure of impact across the industry that will move consumers and policymakers. If every credit union were to have taken the 10% pledge in 2019, $1.48 Billion would have been allocated to social impact initiatives.
4. Passes the financially sustainability test.
$1.48 Billion on an annual basis is a lot of money, so how would these types of community investments impact the bottom line? Fortunately, the math is pretty straight-forward: 10% of earnings would simply reduce the credit union system’s net income by 10% per year. Collectively from 1979-2016 this figure would equal $14.205B. If we were to assume (a) no change to the asset mix over this time frame, (b) no impact to profitability over this time frame, and (c) no impact to asset or membership growth over this time frame, the credit union system’s Net Worth Ratio would stand at a healthy 9.79% vs. the actual Net Worth Ratio of 10.9%.
5. Provides a strong tool for public policy discussions.
The U.S. credit union income tax exemption is an important public policy tool and judging by its longevity and bi-lateral support this policy is likely to stay on the books for some time. CUNA & Affiliates, NAFCU and others work tirelessly to illustrate the benefit of this tax exemption to policy makers and consumers alike. The 10% tithe could be another proof point of the credit union difference. In addition to the massive pricing benefits credit unions confer on their members, a 10% voluntary give for social impact initiatives would likely be viewed favorably from a policy perspective. For comparative purposes, financial services firms paid an effective corporate tax rate of just 20.8% in 2016.1
6. Brings credit unions to the top of an emerging best practice in the larger business world.
Just over a decade ago, Michael Porter (a legendary strategy researcher/thinker) presciently concluded, “CSR can be much more than just a cost, constraint or charitable deed. Approached strategically, it generates opportunity, innovation, and competitive advantage for corporations – while solving pressing societal problems.” Ed Filene would likely nod his head and ask business leaders, “what took you so long to figure that chestnut out?” CSR is here to stay; to wit, “In successive polls, run by the Economist Intelligence Unit (EIU) and others, the percentage of managers regarding CSR as a high priority has been steadily increasing2.” Additionally, the number of public and private companies that voluntarily report sustainability initiatives to the Global Reporting Initiative has skyrocketed from 12 in 1999 to over 14,000 today.3
Enjoy my colleague Elry’s report. It is just the beginning of an important conversation for credit unions and the communities they serve.