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Exploring Cooperative Management

This cooperative management brief has two goals: to clarify the management challenges facing credit unions as cooperatives, and to suggest ways that credit union leaders can use the cooperative structure to enhance the value they offer to members.

Executive Summary

What do Finnish and Italian grocers, a defunct Fortune 100 agriculture services firm, and credit unions have in common? They are all cooperatives. The grocers are noteworthy for growing market share in a cutthroat retail market, Farmland Industries (the erstwhile Fortune 100 example) didn’t manage its phenomenal growth well, and credit unions—well, credit unions can learn a lot from these and the other cooperative examples in this report.

As North American credit unions navigate the ongoing shift from instrumental lenders that wrote loans when nobody else would to competitive firms that have to win business in a market saturated with financial options, the cooperative basis can be either a drag or a competitive advantage. This brief illuminates both sides of that picture.

What is the research about?

Credit unions are cooperatives, of course, but what does that mean in practice? On the one hand, a credit union looks a lot like any business in that it needs revenue to exceed expenses, members must be well cared for, and employees must be paid. But in very interesting ways, a cooperative is not the kind of business that most of the business world understands. Its equity is dispersed and often inaccessible to its member-owners, creating value is not as simple as maximizing profits, and value itself is often measured (rightly or wrongly) in noneconomic terms.

This brief is a foray into these interesting differences, an attempt to spark conversation among boards and managers about the ways that a credit union should mirror traditional businesses and the ways that it needs to think differently and deeply about the differences. The treatment here is not comprehensive; instead, it is probing in its exploration of the possible themes. Use it as an idea document, and if you’re intrigued, follow the source notes for more.

What are the credit union implications?

This report also addresses the challenges that credit unions, as cooperatives, face in a competitive environment: serving stakeholders instead of shareholders, appropriate management incentives, member engagement, limited market opportunities, and, most fundamentally, the ownership of capital. But the report doesn’t just dwell on challenges; it finishes with a handful of interesting cooperative ideas and a section dedicated to the ways a credit union should operate differently from its non-cooperative competitors.

This report is sponsored by CO-OP Financial Services.