“Stakeholder Capitalism and Credit Union Strategy” by Jeff Rendel, Certified Speaking Professional
Stakeholder capitalism (and strategy) has come up a lot in recent credit union strategic planning sessions. It’s the latest phase in the evolution of the eras of capitalism (managerial, shareholder, customer). Stakeholder capitalism and credit union strategy are two distinct concepts that share a common focus on inclusivity, sustainability, and long-term value creation. While stakeholder capitalism supports the idea that businesses should consider the interests of all stakeholders, credit union strategy revolves around serving the needs of its members and the broader community. However, many credit unions are aligning with stakeholder capitalism principles to enhance their strategic approaches.
Stakeholder capitalism, as a model, highlights the importance of businesses going beyond their shareholders and considering the interests of numerous stakeholders, including employees, customers, suppliers, local communities, and the environment. It acknowledges that balanced growth and profitability are attainable by creating value for all stakeholders rather than focusing exclusively on maximizing shareholder wealth. “It’s a natural fit for credit unions, given our broader purpose and responsibility to our ‘well-defined’ community,” shared a $1 billion Southern California credit union CEO.
We know that credit unions prioritize the financial well-being of their members since, after all, the members own the credit union. They are guided by principles that include democratic control, member participation, social responsibility, and concern for the community. Credit unions exist to provide affordable financial services and promote financial inclusion. Their primary objective is not to generate profits for external shareholders but to meet the needs of their members and contribute to the economic development of the communities they serve. So far, so good.
Many credit unions already build principles of stakeholder capitalism in their strategic plans through member value and community impact. They enhance member value by offering competitive financial products and services that prioritize the needs and partialities of their members. They emphasize customized member service, low fees, competitive interest rates, and innovative digital solutions.
Credit unions have a significant positive impact on the communities they serve. They support local businesses, contribute to economic development, and address social issues through community outreach programs. They offer financial well-being initiatives, affordable housing programs, scholarships, and grants to support education and entrepreneurship. By actively engaging with community challenges, credit unions are promoters for positive change and strengthen their reputation as accountable financial institutions.
Stakeholder capitalism and credit union strategy share common goals in creating value for several stakeholders and promoting long-term sustainable growth. Credit unions, with their member-focused approach and commitment to community development, are well-positioned to align with the principles of stakeholder capitalism. By enhancing member value, investing in human capital, and making a positive community impact, credit unions can play a vital role in driving comprehensive and sustainable economic progress.
“How to Create a Stakeholder Strategy,” an article in the May-June 2023 edition of the Harvard Business Review described several experiments and statistical analyses regarding stakeholder models and strategy. It established that investments in customer value had the greatest impact on other stakeholders and on net value creation, while investments in local communities had the least impact and longest lags. Statistically, the optimal mix of investment was 30% to customers, 25% to employees, 20% to shareholders, 15% to suppliers, and 10% to communities.
After reviewing these investment percentages, several high-performing credit unions made comparisons to their strategic areas of focus. In general, these credit unions discovered that their percentages were similar, when accounting for the fact that members are both customers and owners. The breakdown of strategy? 50% to members; 25% to staff; and, 25% to community. More specifically, the breakdown in objectives was equal among four parts: new markets and members; existing members and service; talent development; and community commitment.
“This fourfold approach to strategy has helped us build a culture that embraces the stakeholder model,” shared a nearly $1 billion Dallas, Texas area credit union CEO. “It keeps our conversations, priorities, and actions focused on growth, service, people, and community. Like any strategy, it ebbs and flows, but we see the sustainable results that benefit us most – member growth, loan growth, core deposit growth, net worth growth, and return on equity. As a result, we have high member retention, low employee turnover, increased member confidence, and outstanding public perception and recognition in the community.”
“Our strategic priorities focus on four key areas: 1) New members and markets (including geographic reach, lines of business or CUSO development; and products and services); 2) Outstanding experiences for members (digital, branch, and engagement); 3) Leaders at all levels (best place to work, talent development, and university partnerships); and, 4) Community leadership (contributions, hands-on service, and civic leadership). We found this well-adjusted approach serves the people that benefit most from the credit union.”
There are many interdependencies among stakeholders at your credit union. Members drive business, experiences drive loyalty, staff excellence increases member trust, community activity builds awareness, SEGs add continuity for growth, and the list goes on. Does your credit union’s strategy address major stakeholders and how their success in interacting with your credit union creates long-term success? As you refine and enhance your strategic plan, consider the stakeholder model and all parties’ contribution to value. Like the credit unions described above, and more with the same model, concentrate your strategic areas of focus on the real drivers of sustainable financial success – new business, loyal business, outstanding leadership, and the value of your brand in the communities you serve.
© 2023 by Jeff Rendel. All rights reserved.
Jeff Rendel, Certified Speaking Professional and Principal of Rising Above Enterprises, works with credit unions that want entrepreneurial results in sales, service, and strategy. Each year, he addresses and facilitates for more than 100 credit unions and their business partners.
Contact: jeff@jeffrendel.com; www.jeffrendel.com; 951.310.7275 (mobile)