By Kim Sponem
A "sabbatical" in historic times meant a "rest from work," but today the term has come to mean an extended absence taken during an individual's career in order to achieve something. Sabbaticals are common in the world of academia and among many international companies, but sabbaticals are not often used as a tool by domestic companies, especially smaller regional organizations. So a year ago, when I set off on a 3 ½-month sabbatical to Australia for our credit union, in a way I was blazing new territory.
My sabbatical was a strategic move to prepare for what might become the future of our industry. It also was a perfect opportunity to leverage the "cooperative spirit," the philosophy of sharing information that remains alive and well.
Australia was the chosen location, as it is arguably 5-10 years ahead of the U.S. credit union movement in terms of both competitive forces and regulatory environment. Australian credit unions operate in what really amounts to bank-like conditions: They are taxed, their interchange income on debit and credit cards is significantly less than what we see in the U.S., and there is one regulator to oversee both banks and credit unions.
Also, the Australian market has undergone massive consolidation, resulting in four major banks, a few regional banks and mutuals (credit unions and building societies similar to our mutual savings banks). Interestingly, Australian credit unions do not consider themselves not-for-profit; they view profitability as very important to their sustainability. They also pay their board members and some are pursuing outside ratings from S&P.
I started my sabbatical in Sydney where I worked with ABACUS, CUNA's Australian equivalent. There I learned about the history of Australian credit unions, and changes in and the evolution of the regulatory environment. I met with APRA and ASIC, the two primary regulators, and several credit union CEOs in the area. I also met with Cuscal, the primary corporate. I was greeted with wonderful Aussie hospitality; this is another wonderful piece of the credit union movement in Australia.
The second part of my sabbatical was in Melbourne. I worked at mecu, a $2.4 billion credit union with branches all over the country and a compelling value proposition based on protecting the environment and contributing to a more sustainable society. Arguably, mecu is one of the top 10 best-run credit unions in the world, and boasts an operating expense ratio under 2 percent plus 93 percent member satisfaction.
I was made part of the mecu senior management team, which gave me the opportunity to attend various management meetings, board meetings and a board planning session; run a project; go to industry conferences; and visit with several CEOs in the area. mecu has a strong community presence, allowing me to also meet with several nonprofit community leaders.
I learned many lessons from my experience in Australia. On a personal level, my three children who went to school in Melbourne, and my husband, who transported us around, were enriched with several life-altering perspectives which, over a credit union adult beverage sometime, I would be happy to share with you. On the business side, here are the key lessons I learned:
- In the midst of sweeping industry changes, credit unions that respond proactively in terms of fee changes and repositioning in the marketplace, and that make the tough staffing and branch decisions, will survive.
- Great service by itself is not enough of a value proposition. Credit unions must carve out a target market with a corresponding, compelling value proposition—beyond service—to survive and thrive.
- Profitability, operating expense management and growth need to be a greater focus for credit unions in the U.S. In Australia, CEOs would tell me that explaining away a high operating expense ratio as due to "serving their members" is just a cop-out for weak management not willing to make the tough decisions.
- Pay attention to assets-to-full-time-equivalents. Staffing is one of our greatest expenses; a credit union must ensure it gets the most out of each staff position.
- Watch the expense-to-income ratio. Cover costs through your spread. Fee income should become your profitability—not the way you cover your costs. Close unprofitable branches quickly. Australian CEOs explained that after credit unions merged, the CEOs then had to close branches and reduce staff to get the assets-to-FTE ratio in line. Ironically, had the prior CEOs done this, some mergers may not have been necessary.
- Preserve our separate regulator and income tax status. APRA, the prudential regulator in Australia with oversight over the smallest of credit unions up to mega banks, informed me it does not distinguish between banks and mutuals, nor does it care if consumers have a choice of the two types of entities with which to do business. As we all know, there are big differences between the needs of small credit unions and mega banks and between banks and credit unions in general.
I encourage you to take the leap of a sabbatical sometime in your CEO or senior leadership career; it is a perfect chance to leave your comfort zone and open your mind to a whole different perspective. The important piece to remember is that you are there to learn, not share your opinions or your way of doing things. It is about listening, asking questions, and being open to other ways and perspectives.
The end result for me was an experience that will last a lifetime.
Kim Sponem is CEO/president of $1.57 billion Summit Credit Union, Madison, Wis.
