Conference 7.286::dcu

884.0. "Director Paul Kinzelnam writes in Credit Union Times" by WLDBIL::KILGORE (How about those DCU 3Gs!!) Wed Oct 05 1994 14:09

    
    The following has been posted at thr request of the author.
    
    Bill -- co-moderator DCU
    
    --------
    
From:	US2RMC::"[email protected]" "kinzelman_paul"  5-OCT-1994 12:44:42.02
To:	wldbil::kilgore, (Bill, Kilgore)
CC:	
Subj:	for posting in the DCU notes file


"One volunteer's view on issues surrounding Digital CU"
	-"Credit Union Times" for Sept 21,1994, page 7
	-by Paul Kinzelman

[Unfortunately, they cut a few items from what I originally wrote. I
skimmed the article manually and put [] around the sections I found
that they cut from my original.]

With the articles about the invalidation of our election this year,
the Digital Credit Union (DCU) finds itself yet again in the news
spotlight. I would like to give my individual perspective because I
think the same issues could be relevant at other credit unions. I also
believe that DCU is a microcosm for what is going on in some larger
organizations.

I would like to first emphasize that the financial health of DCU is
not in question. The new CEO, Chuck Cockburn, continues to make
dramatic progress toward financial health and in giving the credit
union a sense of organization so lacking even previous to the
discovery of the fraud. The conflict is over the direction of the
credit union.

On the surface, the primary issue of the hotly contested election is
checking account fees on small accounts. In my opinion, the credit
union instituted the fees primarily based on the financial cost of the
small checking accounts without adequately considering the members'
feelings. These accounts can also be viewed as representing an
untapped business opportunity.  Perhaps members favor the concept of a
free checking account in spite of the overhead of carrying low-balance
checking accounts.

To me, there is no right or wrong answer. Free "unprofitable" checking
accounts are an expense that all the members subsidize.  [I feel
strongly that the issue of checking account fees is global and that the
members should be allowed to choose this particular issue.]

However, the checking account fee issue has become the lightning rod
of a number of philosophical issues about the managing of the credit
union.  To fully understand the issues at hand, one must look at the
history of DCU because I believe some of the issues are similar to the
issues of a few years ago.

BACKGROUND

Three years ago, the CEO (Richard Mangone) was discovered to have
defrauded DCU of about $18,000,000. The responsibility for not
detecting the fraud can be spread around among the board of directors,
the NCUA, and the auditors.  However, the members share some
responsibility because we did not pay enough attention to how DCU was
being run. We constantly re-elected incumbents who had the word
"financial" and "high level Digital (the sponsor) manager" in their
background. [The cost of our misplaced trust was high.  Given Digital's
(the sponsor's) recent financial results, one may question Digital's
ability to make competent management decisions.]

Almost three years ago, when the entire board resigned and the two
incumbents who chose to run again were defeated, the membership
elected a coalition board. The new board was a coalition in the sense
that three of the new members of the board worked as high level
managers for Digital, and were directly supported and endorsed by the
previous board and the sponsor.  The other four new members were
engineers and financial analysts opposed by the previous board and the
sponsor.

I believe I was elected on the basis of my desire to ensure DCU's
communications with the membership are straight and honest, and to
represent members rather than to make decisions for them. My primary
goal was to redesign the bylaws to make the board of directors more
accountable to the members. My philosophy is simple and all my
decisions concerning the credit union flow from these principles:

[Please indent these items]
    1) Decisions made in public, or at least available for public scrutiny
    tend to inherently have integrity without formal oversight. On the
    other hand, decisions made in private often leave significant
    questions unanswered even if oversight is employed. [Therefore,] all
    minutes and other information should be available to any interested
    member to the maximum extent possible within the law.

    2) People should work in a system that holds them accountable for
    decisions. One necessary form of accountability for a good manager
    (and director) is direct, personal contact with people that feel the
    consequences of their management decisions. [If managers sit in an
    ivory tower and make decisions without this direct contact are by
    definition are out of touch with reality. At best, these managers are
    merely useless. At worst, they are dangerous to the health and goals
    of the organization.]

    [In my opinion, Judge Young's lenient treatment of Mangone after
    Mangone was found guilty on all counts is a good example of what
    happens when accountability is lacking.  In spite of Mangone's history
    of traveling and spending excessively in violation of court orders,
    excessive gambling, and ties to organized crime, Mangone was virtually
    allowed to roam free. As a result, Mangone failed to appear at his
    sentencing and is now at large.  Now, due to one person's
    unaccountable decision, Mangone is at large. Until he is found (at
    additional cost to taxpayers), the credit union is denied the
    possibility of restitution.]

    3) Credit union members are *owners*, not customers or marketing
    targets, and do not want to be insulted by slanted statements,
    marketing pablum, and content-free "happy news". [The feeling of
    ownership is essential for any credit union to retain
    members. Individual owners who choose to get involved should be
    actively encouraged and must feel that their opinions make a
    difference.]

    4) News as close as possible to the source of an event is more
    reliable than news from somebody with a vested interest in how the
    news is reported.  [For instance, I consider the report I received
    electronically from a resident of Waco TX about the David Korresh
    standoff as more reliable than the reports I read in the mainstream
    news media.]

    5) To be useful, a board must contain members with diverse
    backgrounds. Furthermore, a board should not be allowed to designate
    permanent successors and to have issues voted at annual meetings
    without pro and con arguments being heard.  [I have seen corporate
    boards violate this latter principle at every election.  Do you know
    any stockholders' meeting whose votes are not just rubber stamps of
    the wishes of the board? What is the added value of having annual
    meetings at all?]

    6) The extent to which mindless bureaucrats control an organization is
    proportional to the decay of an organization.  Bureaucrats make
    decisions to minimize their workload and to optimize sterile numbers
    as opposed to making decisions that remain true to the original
    purpose of their organization. [Furthermore, bureaucrats are willing to
    sacrifice individuals for what they perceive is the good of an
    organization. The sacrifice of individuals negates one of the reasons
    for the existence of an organization - the growth of the individuals.
    In my opinion, a good example of this decay and managerial retribution
    against individuals is the recent disastrous history of the sponsor,
    Digital Equipment Corporation, and other large corporations.]

THE BEGINNING OF THE NEW BOARD

During the first year, the board had many spirited discussions, but I
feel the result was decisions, that, to a large extent, satisfied
everybody. More importantly, we unanimously passed a number of bylaw
amendments designed specifically to address the abuses employed by the
previous board in an attempt to retain control of the credit union.

By contrast, the former board attempted to hide their poor
decision-making and to prevent members from discovering just how the
credit union was being run.  The proposed bylaw amendments were
written specifically to address what I perceived as an abuse of the
former board we actually experienced trying to oust the former board.

Unfortunately, I think that many people who did not experience the
campaign almost three years ago do not understand the need for the
bylaw overhaul. Not only did the NCUA reject all but one of our bylaw
changes, but Mike Welch, in his poorly researched column entitled "A
Bill of Rights only an anarchist could love" (Feb 10, 1993 CU Times),
clearly did not understand the need for the amendments. [Shouldn't a
good writer check out his facts before putting fingers to a keyboard?]

Mike saw a preliminary copy of the bylaw amendments and a few of them
have been modified slightly, but each one is important to protect the
rights of the owners from a bureaucracy who had forgotten just who
their superiors are.  Let me take each example [as criticized by him]
and explain.

BYLAW CHANGES

1) "... to prevent confusion between the duties of the CEO and the
chairperson of the board." This change mainly clarified the confusing
uses of the term "president" in the standard bylaws. [Mike and even the
NCUA agreed with this non-standard change.]

2) "... establish a process by which any member may propose business
for the annual meeting." We were told by the former board that we
could not propose any business at the annual meeting. I felt that not
allowing owners to propose any business was contradictory to the
philosophy of the credit union or any other democracy, for that
matter. To date, not one person has taken advantage of this
"invitation for chaos" as Mike described it. [On the contrary, our
process allows for the orderly proposal of business in writing well
before the meeting. The bylaw allowing members to call a special
meeting is a far more significant "invitation for chaos" (as Mike puts
it) but that rule has not been abused either.]

3) "...establish a process by which a member may cause DCU related
information to be mailed in a DCU quarterly mailing to the membership
at a reasonable price."  During the campaign, a senior level VP of
Digital did cause Digital to pay for a mass mailing of a solicitation
at a cost of $25K. This was a small amount for Digital. We challengers
did not have similar financial resources [and therefore the playing
field was hardly level].

This amendment currently requires a person to gather 500 signatures
and to pay up to $2K to add an additional sheet to a normal DCU
quarterly mailing. I feel that these requirements are sufficiently
stringent to prevent frivolous mailings. [But if somebody is serious
about wanting to notify the membership, the process is financially
within reach for a small group of committed members. Also, the mailing
cannot be in support of a specific candidate for the board and so must
address issues.]

This amendment is further necessary because the Credit Union, under
the former board, sent out mailings to the membership that were
distortions of the truth or insulted members' intelligence. At the
time, our access to the membership was limited to the minority of
members having access to electronic mail and to word of mouth.
My all-time favorite example of misleading information is an annual
report stating that the net income of $0.3M was a "performance
increase". We had difficulty getting a copy of the previous annual
statement reporting the net income as $3.3M - quite an impressive
"increase".

4) "Any member can make a recording of any annual or special meeting
of the members." As a result of the electronic network dissemination of
what was really happening at DCU, many members from across the country
became very interested in the special meeting concerning fees and the
removal of the entire board. [The board at the time did not allow any
recording devices. A member who is logistically prevented from being
present for a meeting should be able to see and hear the meeting for
himself rather than by relying on possibly slanted third party reports
or credit union news.]

5) "Reducing the number of signatures for a petition candidate for the
board from 500 to 200." The 500 (the maximum number allowed by the
NCUA) signatures was quite a task for a candidate to gather in the
allotted time without help. [It appeared to me that the signature
quantity was put in place by the previous board to make it as
difficult as possible for a potential candidate to oppose the status
quo. I felt that a requirement of 200 signatures would enable a
candidate to show sufficient commitment without being an unreasonable
burden.]

6) "Not allowing incumbents to be called incumbents". This is true
only when the candidate was appointed to fill a vacancy. We discovered
that the previous board had filled a vacancy shortly before an
election so that the appointee could run with the label "incumbent" so
that members would not know that the candidate had never been
elected. As far as I know, in the history of DCU an incumbent has
never lost to any challenger until two years ago.  [But it shouldn't
take a major fraud and cover-up to give a non-incumbent a chance.  I
felt that the label of incumbency in the case noted above was a
deliberate attempt by the board to "endorse" a hand-picked member. The
board should have allowed the membership to vote directly for a
candidate to fill the vacancy. I think the membership has a right to
know that a particular candidate was never elected by the membership
at large to help reduce "philosophical inbreeding" of the board.]

7) "Allowing any member to see the general session minutes of board
meetings so they can see how each board member voted on every issue."
What could be more absurd than a board being able to deny a
voter/owner from finding out how s/he has been represented in a
democratic society? [Merely knowing votes will be public can do more to

make representatives more responsive to voters than any amount of
regulations.  People in general are apathetic enough that when a
member actually wants to know more about an organization, s/he should
be encouraged.]  I'm almost embarrassed that I have to state the
obvious. How can we know whether a Board member deserves re-election
if we cannot see their positions and voting record.

8) "Setting up an appeals process for any member denied access to
non-confidential credit union records." Again, members are owners. An
owner who cares enough to try to find out how well his/her
organization is being managed should be encouraged to do so.  [During
our campaign to oust the board two years ago, we had major opposition
from the credit union when we wanted to see the auditor's notes
accompanying the annual statements.  What major corporation can hide
these notes which in some cases are as important as the financial
sheets they are explaining?]

My favorite example of DCU's past practice of overly ambitious
restricting of information was from after the notification of a
special meeting was mailed out almost three years ago. I asked DCU the
size of the meeting room. I was told that the information I requested
was confidential strategic DCU information and could not be given out.

9) "The bylaws would require a secret ballot vote for any motion to
remove any member of the board of directors or management." During our
campaign to remove the previous board, credit union employees appeared
to be caught in the middle of the campaign.  Some DCU employees became
afraid of what might happen if we "took over". At the special meeting,
the vote was public. Credit Union employees wishing to vote against
the board in opposition to their president who strongly endorsed the
board, had to stand up in full view of their supervisors and the
president. How many employees would have the courage to do that? A
secret vote would allow employees who opposed the board to vote their
conscience without fear of retribution.  [Needing to explain the need
for a secret ballot is again almost embarrassing.]

Mike then closes with "Transferring even some of those [BoD and CEO]
rights to members is opening wide Pandora's box." But the members are
owners. An owner of an establishment should be able to determine how
well subordinates (the BoD) are doing their job. Normally, all is fine
and I truly hope that none of the bill of rights rules need be
exercised. But questions can arise about whether the BoD is acting
competently. [Members should not only have a right to personally
determine whether the BoD is competent, but also have the tools
realistically needed to remove incompetent members.]  Is this anarchy? 
Hardly. I'd call it plain down-to-earth common sense in a good
all-American democracy.

[THIS WHOLE SECTION WAS CUT DOWN TO "CUT TO HERE"]
One amendment Mike did not mention, but I will explain anyway, is the
one requiring changes to certain of the bylaws to be done only by a
vote of the membership. Without this amendment, all the other changes
are meaningless because, as we saw almost three years ago, policy and
bylaws can both be changed at the whim of the board.  At about
midnight after the special meeting almost three years ago, the board
convened a special board meeting to vote to change the bylaw special
meeting requirements from 200 signatures to the 5000/2000 standard
number. We found out about this change several months later only after
purchasing the minutes of their meetings.  So, the purpose of our
non-standard amendment was to make sure a board in the future could
not remove the hard-won members' rights. I, as a member, would feel
better merely having the Bill of Rights in place.

THE NCUA

The NCUA will probably tell you that the purpose of the board is to
represent the members and the board should decide everything. But
then, in my experience, the NCUA is merely another bureaucracy
primarily interested in supporting the status quo. Three years ago,
when the Mangone fraud was becoming apparent, the DCU board at the time
attempted to minimize up the magnitude of the fraud, and the NCUA was
completely useless in helping to level the playing field.  The NCUA
doesn't understand the power of incumbency in being able to control
and slant information and that information is power.

The NCUA initially rejected all of our changes (except for #1), saying
that our amendments should be policy.  We appealed to the NCUA and the
NCUA has now grudgingly accepted about half of the non-standard
amendments and rejected the essential amendment requiring a vote by
the membership to change the bill of rights. The best they allowed us
to do was to require notification of the membership prior to changing
any of the bylaws or policies affecting members' rights. What has the
NCUA learned from the near catastrophe at DCU?

CURRENT ISSUES

Over the last year, the coalition of the board changed from being 4:3
to being 2:5 in the area of member communications - the two engineers
vs the 5 managers and financial analysts. I find the credit union is
again communicating poorly with members.  I (part of the minority)
find myself apologizing to members who contact me about some of the
mailings of the credit union, sent out because I was outvoted.

I also believe that the basic clash in philosophy over fees and
communications is now between "bureaucracy-based" and "member-based"
management. Bureaucracy-based management tends to make decisions which
seem to make sense in the sterile environment of the board room and
the bottom line, but lose their attraction (at least to me) when seen
in the light of how the decisions affect members.  In my opinion, the
board makes decisions based on their view as to what is in the
members' best financial interest. Wouldn't it be better sometimes to
ask the membership? We've now taken steps in that direction but I
think we started late and have a long way to go. After all, members
are the fundamental reason why the credit union exists in the first
place.

[CUT TO HERE]

ELECTION INVALIDATION

Because the current election involves three seats, the majority of the
board could change. DCU did have a few rules in place to ensure a fair
election, but I received a number of indications that the rules were
being ignored.  There were numerous complaints against both sides.
Because of the sheer number of complaints, the Supervisory Committee
concluded that the election had become irreparably tainted. Because
of this, the non-candidate board members voted to invalidate and redo
the election.  [However, this time, we have drafted a comprehensive set
of rules (with input from all the candidates).] These rules should
ensure a fair election and will be vigorously enforced.
[
THE REAL ELECTION ISSUE

DCU employees seem to be treated well, but in my opinion, members are
not treated as owners and that's a tragedy. Isn't "members are owners"
one of the fundamental tenants of the credit union philosophy?

Members who are allowed and encouraged to participate in their credit
union will naturally consider the credit union as "theirs" and be far
more loyal than members who consider their credit union as just
another bank. I feel that DCU has been turning off at least a vocal
minority by ignoring their desire to participate and by poorly
designed mailings.

I submit that a credit union with more concerned and involved members
is a healthier credit union than one with apathetic and unimpressed
members.] The real question is how to encourage members to participate.

SUMMARY

When people in positions of authority ignore the wishes of those they
represent, tragedies happen. If the organization is a country or
nation, the tragedy is called revolution.  If a corporation, it's
called bankruptcy.  [Bureaucracy by definition does not have common
sense and does not listen to the individuals affected by the
bureaucracy's actions. The bureaucracy is too busy vigorously
enforcing the status quo.

However, progress happens by changing the status quo.  Nowadays,
change happens so fast, organizations cannot afford the inertia and
waste of bureaucracy.  Organizations that flow with the rapid rate of
change and change with it will survive and thrive. Organizations that
become entrenched bureaucracies, detached from their members and their
original purpose, will not survive.] How many "blue chip" companies are
now financially on the rocks? My goal is to participate in a thriving
organization servicing delighted members.

"Changes come from the power of many, but only when the many come
together to form that which is invincible... the power of one."
	 -Bryce Courtenay in "The Power of One"


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% From: [email protected] (kinzelman_paul)
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% To: wldbil::kilgore, (Bill, Kilgore)
% Subject: for posting in the DCU notes file
    

re Note 884.0 by Director Paul Kinzelnam:

        That was a powerful letter!

        I can see why a few parts early on were cut, since they might
        be viewed disparaging other named parties.

        On the other hand, I think that cutting the part about the
        NCUA disallowing certain bylaw changes was a travesty.  I
        think the NCUA is one of the parties whose behavior has been
        less than desirable, and such actions by them must be exposed
        (as Paul so well put, such things need to be public or they
        will go unaddressed).

        I would be interested in seeing the column by Mike Welch
        which Paul cites ("A Bill of Rights only an anarchist could
        love", Feb 10, 1993 CU Times).

        Bob

See note 644.  I believe it has the full text of the referenced article

Elaine

> BACKGROUND
> ...
> Almost three years ago, when the entire board resigned and the two
> incumbents who chose to run again were defeated, the membership
> elected a coalition board.
> ...

I don't recall that the board resigned, rather that the call for new
elections which was approved at the Special Meeting effectively
terminated their terms of office when the new board was elected.

-stephen

    
    The 1991 Special Meeting forced all incumbent directors to submit to
    the election process in 1992, regardless of their term expiration.
    
    Five of the incumbent directors (Dan Infante, Jeff Gibson, Charlene
    O'Brien, chairman Mark Steinkrauss and Jack Rugheimer) chose not to
    run for reelection, effectively resigning.
    
    Of the two incumbents who chose to run for reelection (Abbot Weiss
    and Susan Shapiro), neither won a seat.