A. Philosophy Re: Collaborations
Collaborations are an essential element in the operations of the Credit Union. Collaborations enable the Credit Union to be able to provide services more efficiently and effectively and to provide valuable financial services to members that cannot be offered through the traditional credit union model. To optimize the benefits of collaboration the Credit Union will first look to determine whether a service solution is provided by an existing collaboration. If an existing satisfactory existing collaborative solution is not available, the Credit Union will determine if a new collaboration can provide the service solution. If a new satisfactory collaborative solution is not possible, then the Credit Union will consider a service solution without collaboration.
B. Background and Purpose
The purpose of the CUSO Investment Policy is to provide guidance to the Credit Union in considering, selecting, implementing, monitoring and managing collaborations in order to enhance the success of the collaborations. Collaborations that provide services to the Credit Union are considered Service Providers and will be subject to the Service Provider Policy. There will be some overlap in the Service Provider Policy and CUSO Investment Policy but the CUSO Investment Policy is intended to cover the considerations associated with the decision to make a CUSO investment.
C. Definitions
1. Collaboration Manager: A vice-president level senior staff member, appointed by the President, who reports directly to the President and works with the staff and board to help identify, select, implement, monitor and manage all of the Credit Union’s collaboration relationships under this CUSO Investment Policy and the Service Provider Policy.
2. Collaboration Partner: A party with whom there is a co-ownership of a CUSO or who acts in concert with the Credit Union in a joint venture. The Collaborative Partner may or may not be a credit union or CUSO.
3. Subject Matter Expert: The Credit Union staff person that is knowledgeable about the subject matter of the collaboration in question and works with the Collaboration Manager in identifying, selecting, implementing, monitoring and managing the specific collaboration. There will be a specific Subject Matter Expert for each collaboration depending on the service provided by the collaboration. The Collaboration Manager shall appoint the Subject Matter Expert after consultation with the President.
4. Service Provider: A third party service provider which may or may not be a credit union or CUSO.
D. Goals of Collaborations
1. To leverage economies of scale, lower operational costs, increase efficiencies and/or provide greater staff expertise.
2. To manage the costs and risks of new operation and financial services by sharing them with Collaboration Partners.
3. To provide non-traditional financial services to increase non-interest income and service opportunities to members.
4. To provide an entrepreneurial culture to foster greater growth opportunities.
5. To provide additional career paths to attract and retain valuable staff members.
E. Considerations in Determining Collaboration Opportunities
1. In selecting Collaboration Partners, the Credit Union shall consider the following factors:
a. Does the Collaboration Partner have goals compatible with the Credit Union’s goals?
b. Does the Collaboration Partner have a compatible risk tolerance for the business risks associated with a collaboration?
c. Does the Collaboration Partner have successful experiences with other collaborations?
d. Do the Credit Union staff and board have a good relationship with and trust in the Collaboration Partner’s staff and board?
e. Does the Collaboration Partner have the financial ability to meet its commitments of the collaboration?
f. Does the Collaboration Partner have the full support of its board and staff to meet its commitments?
g. Does the Collaboration Partner have the ability to make timely decisions?
h. Do you trust the Collaboration Partner to timely meet its commitments?
i. Does the Collaboration Partner have an entrepreneurial culture?
j. Is the Collaboration Partner open to new solutions to achieve its goals?
2. If there are preferences with regard to the geographic location, size or other characteristics for a Collaboration Partner in a particular collaboration, these should be identified.
3. When co-investing with others in CUSOs, the Credit Union shall establish its goals for the collaboration which could include:
a. Production of minimum levels of non-interest income over time.
b. Establishing greater member service penetration.
c. Lowering operational costs.
d. Increasing efficiencies and expertise of services.
e. Attracting and retaining staff.
4. The CUSO should be structured in a manner consistent with its goals which include attention to ownership, profit and loss and management issues. Unless there are compelling interests to justify a variance (and there often can be), the agreements should have the following characteristics:
a. The Credit Union shall have management control over the CUSO at least commensurate with its relative capital contribution.
b. Profit and loss should be shared commensurate with the Credit Union’s relative capital contribution and/or patronage component (percentage of business brought to the CUSO).
c. Tax issues and flexibility of structure should be considered in selecting the type of CUSO entity.
d. There should be clear procedures for Collaboration Partners desiring to enter or exit the CUSO.
e. All Collaboration Partners shall be users of the services of the collaboration.
f. There shall be procedures for Collaboration Partners to be compelled to leave the collaboration if they are not fully supporting the efforts of the collaboration.
F. Administration of CUSO Investment Policy
The Collaboration Manager, in conjunction with the designated Subject Matter Expert, as appropriate, shall administer this policy by performing the following duties:
1. Identification of CUSO Collaborative Opportunities
a. Acquiring knowledge of collaboration opportunities.
b. Networking with professional colleagues to determine the experience of other credit unions with collaborations.
c. Bringing to the attention of the senior staff collaboration opportunities, especially those collaborations that will enhance and promote the strategic goals of the Credit Union.
d. Supporting the senior staff and the board in the strategic planning process as strategic direction and service solutions are considered.
e. Identification of operational and regulatory risks associated with the collaboration.
f. Evaluating the potential collaborations in accordance with the issues identified in this Policy.
2. Selection of CUSO Collaborative Partners
a. Administering selection process for collaborations.
b. Coordinating the due diligence on Collaboration Partners and the collaboration under this CUSO Investment Policy and the Service Provider Policy.
c. Determining the value proposition of ownership and will the Credit Union obtain value for ownership? Note that the value proposition could include management control/input, return on investment, reduced expenses, operational control, retention of staff, etc.
d. Determining whether the Collaboration Partners are reliable, responsible and compatible.
e. Determining whether the CUSO has sufficient expertise, resources and business plan to be successful.
f. Determining the consequences if the Credit Union does not participate in the collaboration.
g. Determining if there are any positive or negative effects on the credit union industry posed by the collaboration.
h. Determining if the exit procedures, strategy and cost are acceptable.
i. Acting as liaison between the Credit Union and Collaboration Partners.
j. Presentation of results to staff and/or board.
k. The Board shall approve all CUSO investments.
3. Implementation of CUSO Collaborations
a. Negotiation of agreements with Collaboration Partners consistent with this CUSO Investment Policy and the Service Provider Policy and the needs identified by the Subject Matter Expert.
b. Coordinating the integration of the collaboration with the Credit Union, including the education of the Credit Union’s staff on the purpose and value of the collaboration.
c. Reviewing and recommending to the President the performance incentives to the Credit Union staff to incent them to support the success of the collaboration.
d. Coordinating the resolution of any implementation and operational issues between the Credit Union staff and the Collaboration Partner staff.
4. Monitoring CUSO Collaborations
a. Collecting performance reports from the Collaboration Partner and conducting review sessions with them on no less than a quarterly basis.
b. Providing the performance reports to the Credit Union senior staff and board.
5. Managing CUSO Collaborations
a. Marking recommendations to the President regarding actions to improve the collaboration.
b. Counseling the Credit Union staff and the Collaboration Partner on remedial actions to address issues and, if not satisfactorily resolved, recommend to the President in writing actions to hold persons or organizations accountable.
c. Coordinating the implementation of procedures to manage the operational and regulatory risks
d. Coordination with the Credit Union retained professionals regarding collaborations.
e. Coordinating the termination and transition of collaborations.
f. Documenting all actions taken and the reasons for the actions.
g. Liaison with the credit union regulator regarding the collaborative relationship.
h. Being available to serve on the managing board of the collaboration if the President deems it appropriate.
This is the work product of the law firm of Messick & Lauer P.C. in Media, PA www.cusolaw.com. This Policy is illustrative and not meant to be used without legal review for the specific client situation. You may obtain permission and legal advice in the use of this Policy by contacting us at 610-891-9000 or gmessick@cusolaw.com .
