Banking on the Upsell: Lessons for Credit Unions

Dionne Pohler

Image credit below

Across Canada and the United States, major banks are facing public scrutiny after media reports that employees feel intense pressure to mislead customers in order to meet unrealistic sales targets and avoid losing their jobs. Is this an opportunity for credit unions to show that they treat their members — their customers — differently?

In Canada, employees from all five of the major banks have recently come forward with stories about the pressures they feel from management to upsell financial products and services. Employees have voiced concerns over whether these practices are hurting customers, and some report having lied to customers to meet performance targets set by management.

In the United States, Wells Fargo was investigated by regulators, and sued by its customers, for opening millions of fake customer accounts to earn extra fees and inflate sales numbers. Since 2011, Wells Fargo has fired thousands of employees. Internal documents suggested that employees had been complaining about these practices to managers and executives since 2005.

In theory, credit unions should be less likely to face these types of scandals than investor-owned banks. One reason for this is that banks are subject to the tyranny of the quarter — intense short-term pressure to maximize profits for shareholders — which makes it easy to lose sight of what is in the best interest of the customer. Credit unions are consumer-owned financial institutions governed by boards made up of democratically elected members-owners, which results in no separation between owners and customers. Senior executives in credit unions thus face a different set of objectives and goals than their counterparts at the major banks and can adopt a longer-term orientation.

However, credit union members and leaders should not become too complacent. First, margins in the financial services sector are very thin and there will always be pressure to find new sources of revenue. Second, while the unique ownership and governance structure in credit unions may shape the incentives of senior executives, it is the credit union’s culture that has the most important influence on the behaviour of employees.

Culture is “a system of shared values (defining what is important) and norms (defining appropriate attitudes and behaviors).” Culture is shaped, managed, and leveraged through an important set of people-management practices, specifically: recruitment and selection; socialization, orientation, and training; and the presence of formal and informal rewards.

In many cases, credit unions appear to be doing the right things in managing their cultures to encourage employees to focus on members. In the aftermath of the reports of unethical practices in the major banks, one credit union employee blogged that she had never experienced this type of pressure at her credit union:

“… we also have written in our DNA as a company … a fiduciary responsibility to our members. I’ve never been fired for not closing a sale, I would be fired however for closing a sale without the member’s consent. In the credit union when an employee is under-performing the default response is not intimidation, it’s coaching. Our performance progress is determined not just in numbers but also from our member’s feedback. This is an embedded check and balance that prevents us from losing touch with what their true needs are.”

My own research has highlighted that a focus on the member is indeed embedded in the DNA of many credit unions. Credit unions are not immune to losing their way, however, and leaders must remain vigilant about nurturing and cultivating a member-focused culture.

Credit unions are facing unprecedented regulatory and competitive pressures. In response, as well as to improve member access to services, Canadian credit unions have undergone a series of mergers and are also pursuing strategies to attract new members in new markets.

Traditionally, credit unions were small, community-embedded organizations, where the senior manager and employees knew most members personally. As credit unions become increasingly removed from a geographic community and members begin to feel less connected to the governance of the credit union, the direct connection between employees and member-owners may be weakened.

At the same time, these larger credit unions may begin to adopt “best” practices from other financial institutions to manage their growing, geographically dispersed, and increasingly diverse organizations. Many good people-management practices transcend organizational type. However, some “best” practices, such as recruiting employees based on their technical expertise or previous experience in the financial services industry, can also have the unintended consequence of attracting employees who do not share the credit union’s co-operative and member-focused values. Technical competence and credit union values are not mutually exclusive, and bringing in new ideas is vitally important to foster innovation. However, incoming employees who do not understand the differences between investor-owned banks and credit unions must be carefully oriented and socialized into the unique credit union culture.

Moreover, performance-based incentives are widespread across financial services organizations. While this can motivate employees and reward those who go above and beyond, incentives for meeting or exceeding specified levels of performance — sales targets, for example — may begin to undermine the DNA of a credit union. While monetary incentives do increase employee productivity and enhance the competitiveness of compensation packages, employees may focus on what is measured and rewarded at the expense of important and intangible things that are not. My own research has examined how incentive and reward systems can inadvertently encourage undesirable behaviours. Credit union leaders should pay close attention to the implementation of both formal and informal incentives to ensure that they do not result in unintended consequences. Reward systems should be consistent with a member-focused culture.

As they struggle to adapt to the competitive realities of the current environment, it is perhaps most important that credit union leaders carefully embody the member-focused culture in everything they say and do. Even minor inconsistencies between the values espoused by credit union leaders and their behaviours may result in employee confusion, or worse, justification of unethical practices.

One of the primary sources of competitive advantage for credit unions vis-à-vis the banks is their member-focused culture, which results in a higher level of trust between credit unions and their members. Credit union leaders must continue to closely monitor whether the implementation of innovative approaches to employee recruitment, socialization, and rewards will help them leverage their unique culture for competitive advantage, or put them at risk of undermining it.

Dionne Pohler is an assistant professor at the Centre for Industrial Relations and Human Resources, University of Toronto. She is also a Fellow at the Centre for the Study of Co-operatives.

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