Getting your credit union’s board onboard with CUSOs

As volunteers, credit union board members willingly give of their time, talent, and support. Their selflessness and dedication are living examples of the “people helping people” mantra of the credit union industry.

Of course, anytime you bring a group of individuals together for a shared purpose, you will have different backgrounds, life experiences, and in many cases, comfort levels when it comes to considering new ideas, investments, services, and technologies. This can be especially true with boards and credit union service organizations (CUSOs).

Over the past two decades I’ve been involved in developing partnerships between credit unions, entrepreneurs, and ultimately, CUSOs. Educating sometimes skeptical board members about the CUSO process is often critical to the success of the deal. These are Capstone’s key learnings when advising credit union leaders and boards:

• Do your homework: As a board member, you owe it to your credit union to be as informed as possible about the people and organizations with whom you might be doing business. Conduct your research from a variety of sources ahead of time and don’t be afraid to ask questions.
• Stay in your lane: The role of the board is to govern; the role of the CEO is to manage. Board leadership and oversight are essential but be wary of overstepping boundaries and getting in the way of your executives. Not only can this cause unnecessary friction, it can derail the process altogether. The best practice is to have quarterly CUSO updates and an annual review with the leadership team.
• Diversification and Investing 101: If you have a specified amount of funds that you want to put to work in CUSOs, follow the same common-sense rules that you would for investing your personal funds. Put some serious thought into your CUSO investment strategy (yes, you need to have one). To mitigate risk, make CUSOs just one part of a diversified portfolio.
• Know your one reason why: As you consider adding CUSOs to your credit union investment strategy, think about creating a “roadmap” based around the primary reason you want to pursue this course of action. Is it to gain non-interest income? Do you want a new recurring revenue stream? Will this ultimately benefit your members by expanding the breadth of your products and services?
• Have an exit strategy before you start: My team and I always recommend when planning your CUSO investment strategy that you ‘keep the exits’ in mind from the very beginning. Make sure you have an operating agreement that contains options detailing how you, and others on the CUSO cap table, get in or out.

In a financial marketplace that becomes more competitive with each passing day, CUSOs can provide credit unions with the ability to achieve goals that seemed unreachable just a few years ago. By educating boards early in the process, as part of a leadership driven plan for proactive growth through CUSO investment or acquisition, you make a reality out of the belief that success is best when shared.