Former credit union CEO Maurice Smith shares what causes credit unions to fail and lessons leaders can learn from credit union failures.

When “C.U. on the Show” guest Maurice Smith was a kid, his father encouraged him to read the newspaper every day and pay particular attention to the stories centered on failures, such as a company going under or a leader making a fatal organizational mistake. Why? It created a roadmap of what not to do. 

Today, after a 43-year career serving credit unions, half of which as CEO of Local Government Federal Credit Union, Maurice is a self-proclaimed student of failure. Recently retired, he now consults with credit unions, sharing leadership approaches and lessons learned that help proactively eliminate risks and focus on aspirational planning. Maurice is also an inspiring speaker, author, attorney, and board director renowned for his thought leadership on uncovering disruptive trends and imagining new opportunities.

As a returning guest on the show, Maurice shares some of the best advice he received in his career, why he believes most failures are rooted in poor corporate governance, and why he thinks studying failure can not only help protect credit unions but preserve the credit union movement.

What Causes Credit Unions to Fail?

In the current economic climate, credit union leaders face challenges related to inflation, rising interest rates, and other factors that may affect their ability to meet client needs and survive in the industry. After four decades of leadership, Maurice has seen it all, from five recessions and market fluctuations to the pandemic. While failure is inevitable, according to Maurice, by understanding the root of how failure occurs, credit union leaders can better identify the warning signs that warrant making a positive course correction.

What Executives Can Learn from Credit Union Failures

After studying failure through resources such as NCUA reports, legal cases, and mergers, Maurice believes most mistakes are foreseeable and preventable. As a CEO, he also sought advice from former CEOs on both sides of the failure and success equation. Like annual checkups with a doctor, he explains how leaders can begin to recognize the symptoms, behavioral patterns, and common themes that may lead to failure and mitigate those risks while having an eye toward the future. However, he explains annual strategic planning isn’t enough. With the pace and frequency of change the industry is experiencing, he encourages leaders and boards to have ongoing discussions that proactively monitor signs of failure.

How to Thrive Amid Credit Union Failures

He also recommends leaders lean into what makes credit unions unique, such as providing creative solutions, close member and community connections, and resiliency no matter the circumstances. When organizations steer away from these values, Maurice says, it could affect their future and the credit union movement.

Stream the episode to hear more valuable insights from Maurice’s illustrious career, including:

  • Why he believes every board request should begin with “yes”
  • Why he says poor corporate governance is a common theme in credit union failures
  • His thoughts on the declining number of credit unions and how consolidation may affect the future of the credit union movement

Hear the full conversation now.

Maurice Smith is not affiliated with or endorsed by ACT Advisors, LLC.

Audio Transcription (pulled from the podcast)

Doug English  (00:00)

My guest returning on today’s episode is Maurice Smith. Maurice is the almost retired CEO of a billion-dollar credit union. He is an engaging speaker, attorney, author, and board director. He is best known for his thought authorship and novel perspectives where he identifies blind spots, uncovers disruptive trends, and imagines new opportunities. In this episode, we discuss lessons learned from studying failure and how credit union leadership can use those lessons to protect and drive the credit union forward. Maurice, we are delighted to have you join us on “C.U. on the Show” once again. But this time, after 43 years in the credit union movement, I hear you’re going to retire. What are you going to do next, Maurice?

Maurice Smith  (00:51)

Well, thank you, Doug. It’s a pleasure to be here with you, and to engage on one of my favorite topics, and that’s credit unions. So you’re right, I can’t imagine how fast these 43 years have gone by. And so it’s time for a new season for me. And so, from our previous conversations working with Navigate Forward it’s helped me think about what the new episode is going to be. So I will practice law part time. I will spend some time maybe hopefully seeking engagements with some colleagues and other institutions that could use my services and experience but probably more importantly, my wife says we’re going to have fun whether I like it or not. So we have plans to do some traveling and see some of the world and hopefully learn how to have fun after four decades of working. 

Doug English  (01:43)

Well, I think you’ve got the moves, Maurice. I think you’re going to have fun, and you’ve got a wonderful wife to help lead you in that direction. In today’s discussion, I want to talk a bit more about the work you’re planning to do and your passion in driving and supporting the credit union movement. Obviously, in the last couple of years, there have been incredible challenges, an incredible pace of change in the entire financial industry—maybe we’re going to have a recession, massively rising interest rates and inflation. What should credit union leaders do in times like these?

Maurice Smith  (02:24)

You know, Doug, I think credit union leaders do what they always have done. I have the advantage of having worked in the credit union movement for four decades. And throughout my career, I think, Doug, I’ve seen just about everything there is to see. I’ve seen five recessions. So unless we’re in a recession now, I won’t have seen my sixth one. I have seen rising rate environments, I have seen inverted yield curves. I have seen the economy go up and down. I’ve seen trade imbalances. I think I’ve seen just about everything an economy can throw your way. Except I have not seen a depression. Nor have I seen negative interest rates in this country. This is our first pandemic. So that’s a new one for me. But what gives me hope, and what credit union leaders focus on all the time, is the resilience of the movement of our institutions to be able to meet whatever challenges come our way. So we have colleagues here in our office who’ve never seen a rising rate environment throughout their entire career. And so as we think about where mortgage rates are today, I’m reminded that my first mortgage loan, as a young loan officer, the loan my wife and I received to buy our first home, the rate was 14%. And we were happy to get it. And so even though the economy changes, the world changes, and the environment becomes challenging from time to time. We have been through this before. And it’s the purpose of credit unions to meet the needs of our members, no matter what the economy throws their way. So I think our leaders are focused on the things they’ve always focused on: how do we take care of our members today but also have an eye toward the future? And how do we adjust to the challenges that will arise?

Doug English  (04:26) 

And the future is coming at us at an increasing pace, right? That’s the challenge. And I know I think historically, credit unions used to engage in strategic planning on just an annual basis, right? How have you seen that change over your career? 

Maurice Smith  (04:46)

We had that practice as well, Doug. It felt more like a checking the box exercise, that in the fall of the year, we will gather the board of directors and the executive team of the credit union. And we would have an executive board planning session to talk about the future, we would map out what we want to try to accomplish, we would sort of reminisce about what occurred throughout that year thus far. But the world started spinning faster. And we realized annual planning sessions were just not cutting it. So we started doing semiannual planning sessions meeting twice a year. Last year, we met three times, and maybe four times this coming year, depending on what the new leadership wants to do, as I’m heading into retirement. And so it’s awfully difficult for us to predict what an economy or society, member needs, and competition is going to do 12 months out; it’s so fluid. So I’m finding many credit unions are looking for more and more opportunities to set aside the day-to-day operations and think about the future and be more aspirational about their planning. And once a year is not enough time now, not the frequency for them to have that conversation.

Doug English  (06:01)

And thank you for that. I know in your work consulting with credit unions in their strategic planning session or sessions they’re having you have taken an approach I hadn’t heard before, which is really focusing on the failures that have occurred in and around the industry. So tell us a little bit about how that work goes. And then how do you learn the lessons from failure and use them to protect and drive the credit unions forward?

Maurice Smith  (06:33)

Thank you for that question, Doug. So I am a student of failure. And I come at this from different perspectives. So first of all, if you have a conversation with me for any length of time, my father’s name is going to come up, the person who I loved and adored, we lost to cancer some years ago, but his voice still echoes in my mind. So my father would read the newspaper, yes, they had paper newspapers back then. And he would read it every morning from the front cover to the back. And he said, Maurice, read the paper every day. He said look at the good news stories, the successes and things like that. He said those stories are fine to read. But pay particular attention to the stories about failure, a company that has gone on the rocks, a leader or an executive for a corporation who’s made a fatal mistake, someone in society who’s done something bad, he said, pay very close attention to those failure studies. Because of what they’ve done, these stories will give you a roadmap of what not to do. So failure is inevitable in business. And some organizations, some companies, some businesses just don’t make it. Our responsibility as leaders and executives of our credit unions is to ensure we are not on that list of failures. So as I talk to credit union leaders about the organization, I think about failure and success as a binary question; you either can be successful or you’re going to fail. To avoid failure, we have to understand how it occurs. So when I speak to the credit union leaders and/or their board of directors, I point out to them how failure occurs, what I have observed over the years, what the practice of law can instill in us to watch out for these potholes in the road. And to the extent we can ensure the credit union is a going concern, it will exist in the future, then that tells me success is assured. So I focused on the failure side of the equation first. Let’s go ahead and mitigate this, sort of move all of those opportunities out of the way, then we can think aspirationally about what the credit union should be accomplishing.

Doug English  (09:02)

So in your work with credit unions, what are the signs you see when you become concerned that an individual or an entity might be headed in the wrong direction toward failure?

Maurice Smith  (09:13)

Oh, Doug, I could go down that rabbit trail for a long time. So in many instances, when we see an organization fail, it was predictable and foreseeable. So lately in the news has been the failure of FTX, this crypto currency exchange. And so when I look at the news accounts, assuming them to be true, about how corporate governance was exercised at this corporation, 

it’s no wonder, there’s no surprise that they ended up where they are today. So let’s focus on credit unions and why would a credit union fail? So NCUA produces what is called a material loss review. And it’s conducted by the Office of Inspector General. So when a credit union fails, this is not a merger, this is a liquidation. NCUA has come in to take over. They basically write an epithet, a post-mortem on why did we have to go in and what happened. And sometimes these reports are critical of the management team or they’re critical of the board. In some cases, they are critical of the NCUA examiner who did not spot the trouble spots in the beginning. And so by reading those reports, you get a sense of a theme of what happens with failure. And in nearly every instance, it’s been a failure of corporate governance of the board doing what is reasonable for a board of directors to do, and also for a management team performing its reasonable responsibilities as well. So I mentioned earlier that I am a lawyer. And so the practice of law gives me the opportunity to read court cases on other failures, corporations, sometimes individuals, sometimes governments—what happened—and there’s common themes to the failures. So if you understand what the symptoms are, then if you find yourself, your personal staff, or your credit union as a corporation showing these symptoms, these problematic symptoms, then you get this canary in a coal mine warning that wait a minute, we’re heading down this dark path. It doesn’t work out well for most people who head down this path. So my role is when someone asks me to help them think about strategic planning, I say, okay, let’s eliminate all the risk. And let’s try to dispense with all the kinds of things that will create failure; then we can talk about the success side of things, then I find that to be a healthy conversation for the institution, because it doesn’t do you any good to be aspirational if at the end of the day you’re heading toward a waterfall.

Doug English  (12:07)

Yeah, I think that’s a really important aspect of it. It’s not like you’re coming into the engagement with an organization under the idea that, okay, we’re going to engage together and study failure and just look at failures. And what a great feeling you’re going to have after we did that all day. What I’m hearing you say is, the idea is that you’re a student of failure so you know and identify what the behavior patterns are that would tend to lead a credit union toward failure and you seek to eliminate those things. And then I assume, really focus on the aspirational outcomes. Is that right?

Maurice Smith  (12:53)

Absolutely. So Doug, when you read someone’s failure story, whether it’s a corporation or whether it’s an individual, it’s important to try to get to the source of the failure. So let’s say you happen upon a story. And let’s use a tree as a metaphor. And if someone falls off the branch of the tree, is that where a failure occurred? Perhaps the failure actually occurred when they actually climbed out on that limb before they reached that branch. Well, maybe the failure occurred when they climbed up that trunk of that particular tree, maybe the failure occurred when they decided to go into the forest; when did it happen? So what news accounts will often give you is just to protect this particular end to a journey. And if you think 

about how did we get here, you start reverse engineering the transactions that led to falling off that branch. And inevitably, it will come back to this was a corporate governance failure, where the board members or the directors or the leaders of the organization did not apply their responsibility under a duty of care or their duty of loyalty or the fiduciary responsibilities we have to act in what the court says is a reasonable way. And I know it seems kind of nerdy to have these kinds of conversations. But if you get the basic blocking and tackling of corporate governance down, some of the harder decisions you have to make later will become much easier for you. And then we don’t find ourselves on the branch someday.

Doug English  (13:59)

I read the credit union trade magazines, and I would tell you I don’t often see stories of failure. Obviously, the press likes to write about bad things, right, and the bad news sells. But I see a lot about mergers and it seems like one after another of smaller credit unions folding into a larger one, and I assume that wouldn’t be defined as a failure. But how would you imagine your consulting work helping you deal with that situation where they maybe need to reconsider their direction? Because that’s a tough one, right? 

Maurice Smith  (15:21) 

It’s incredible. It’s extraordinarily so. So first of all, we can’t look at a merger transaction from a distance and know whether it was a success or failure. The merger is a transaction only. But what led an institution to head down a merger path could be various stimuli that created that opportunity or that lack of opportunity for them. So there are instances where a credit union will merge with another one because they’re looking for ways to expand their ability to serve their membership, and it’s very aspirational and it’s a productive transaction. Occasionally, there are mergers where the institution is failing. And basically the merger is a life raft to be able to necessitate the services to the membership. So for those instances a credit union merges, ceases to exist. And they’re going to be resolved by some institution. And it was a shotgun wedding, they did not want to go through with this, it was not their choice. And I think it’s important to understand what led them to that outcome in the beginning. And if we understand that, and we understand what the symptoms are, if we start exhibiting those symptoms ourselves, either as individuals or as a corporation, we get a warning sign. Okay, wait, maybe we should stop and think about this. I get my annual physical with my doctor. And he checks my cholesterol and heart rate and all kinds of different ways he pokes me. And I imagine the reason why he does that, because if he sees I’m exhibiting some symptoms other people have exhibited and it did not work out so well for them, he has an opportunity to say, Maurice, what you’re doing here isn’t going to be healthy for you in the long term. So let’s talk to you about some of the risks you are taking. I think the same thing can apply for credit unions and leaders as well.

Doug English  (17:22)

Do you have any stories you could share with our listeners about some examples of these sorts of things, of ways that could have been foreseen, that were not foreseen, anything come to mind?

Maurice Smith  (17:38)

Yes, so let me share with you my trepidation about failure. Maybe that’s not the right word but mostly my fear of failure when I became a CEO 22 years ago. So it was in late 1999, the board of directors of LGFCU, Local Government Federal Credit Union, asked me to be the incoming CEO; my predecessor was retiring. And the first thing I thought is I would very much like to not screw this up. So I can’t be too philosophical about that. I just want to get it right. So I took it upon myself to call about five or six CEOs of credit unions I knew personally and had high respect for. And I believe they were doing a good job. And I asked them, “Would you give me some advice? I’m new to the role. I don’t want to make a mistake. Tell me what I should do.” And so they gave me a series of advice that was consistent among all the various conversations we’re having. I then took it upon myself to call four CEOs who I knew relatively well, who I hadn’t heard or knew had been fired from their job as a CEO of a credit union.

Doug English  (18:57)

You knew four people who had been fired from CEO jobs? 

Maurice Smith  (18:59)

I did. Maybe it was luck of fate here, or I just hung out around the wrong people. I don’t know what the reason for it is but I called them at home. And I asked them to give me advice on what not to do. One hung up on me but three had a conversation with me. And they said things like, Maurice, never get too far ahead of your board of directors. Don’t hide information from your board. Because if you surprise them too many times, that doesn’t work out well for you. Never get in the position where you think you’re smarter than your board. Because that’s going to reflect and is going to show in your dialogue, your presentation to them, and how you respect them or don’t respect them. Be transparent with your colleagues, your staff members, make sure your door is truly open to members to come in, to challenge you, to question your decisions. And what I took from that is if we ever get to the point that the folks around a leader can’t question them, then who’s to tell the emperor when he doesn’t have clothes on? And so I will let anyone challenge me and question decisions I’ve made. It could be the landscape person, the administrative assistant, the janitor, the executive vice president; if you have a challenge to me on some decisions I’ve made, bring it to me. One or two things are going to happen out of that conversation. I’m going to either be found to be wrong and you’ve given me a gift of an opportunity to do a course correction or I’m going to find out that wait a minute, I’m on the right path, and I have an opportunity to convert you and change you to a different way of thinking. So have these conversations with individuals who succeeded and didn’t succeed. I’ve continued to have those over the years when someone would give me an audience and allow me to ask them a few questions. And I will do that today. Even with just one week to go in my employment, I’m still learning. And I still want to hear from individuals who have something to give to me; that’s going to make me a better person overall.

Doug English (21:28)

The 43 years in the credit union business with 22—half of that—as the CEO. So you’re now the person on the other end of the call, not of the failure of course, but the new CEO at Local Government and other CEOs throughout the country have probably made the call to you for the lessons. You already gave some of them but what other 43 years of learnings have you offered to them that you can share with our listeners?

Maurice Smith  (22:08)

That’s a good question, Doug. So I’ll share a few pointers I’ve passed along to colleagues about what has worked for me. One of the pieces of advice from one of my friends who I believe was a successful CEO was that I had to be my authentic self—don’t act like some other CEO or some other leader because I’m just going to be a second-class copy of that person. Be authentic to myself. And so the way I engage with my board and my team around here is to ensure this is something that’s comfortable for me and hopefully it feels comfortable for them. So we have this principle here that the answer to every question is yes. So if my board should ask me, Maurice, can the credit union do XYZ, the answer’s yes. Can we conquer that market over there? The answer is yes. Can we offer that service? The answer is yes. The answer is always yes. Now, yes often comes with conditions or a proviso. Well, assuming we can afford it, assuming the market will support it, assuming we have the operational competency for it, or assuming we get a statute or regulation changed that allows us to do something. So by starting the answer with a yes on the question, it opens up the opportunity to have a debate and a dialogue about how to make it work. When your immediate answer is no to a question to your board, it forecloses all other conversation, it shuts it down. There’s no opportunity for innovation, for mitigation, for thinking it through, for strategy. No is a period to the debate. I don’t know any boards that want a CEO or leadership team that’s going to always say no to every idea they raise. And sooner or later the board’s going to look for somebody who’s going to say yes to them. So I tell colleagues, start with yes. And talking about the condition it takes to make that effective will always give you a board due respect to honor the question or the suggestion they have and see how you can work it out. Sometimes yes may not come to fruition for 20 years until the technology and the market and regulations and things change. But your board knows you are looking for positive ways to accomplish that. I’ve told colleagues in the past to always be transparent with your board. I am brutally transparent with them. They know what I’m thinking, how I think about matters. I want to know what they think. You know, Doug, my favorite day of the month is board meeting day. When the volunteers who give their time freely come in to take care of business of a credit union cooperative for their fellow members. Right now, I’m getting goosebumps thinking about it, when they come into this place. And they are helping us make the best decisions for their family, friends, and neighbors. That’s a really, really good day for me. I have seen institutions who have failed or leaders who fail because they lack focus about what it is they were to accomplish. I tell new colleagues to be hyper-focused on the purpose of your organization. Distractions pulled the leadership away from the center. And when they do, then that will take you away from what’s going to make you successful in the long term. So to the extent that someone’s willing to ask me for advice, I have lots of advice I would give them. It’s up to them to filter that advice and decide what works for them. And how could that be helpful on their journey.

Doug English (25:58)

I love that imagery goosebumps. Not trepidation but excitement on board meeting day. That could be the outcome for your consulting work. When you’re really aligned with your board, that’s how you’ll feel about board meetings. That’s the outcome. Well, with 43 years in the credit union movement and just tremendous success and legacy and respect throughout the industry, I hope the credit union movement will continue to have you at some of the various educational sessions; maybe you’ll get some of your legal work to provide CE credit for those who need it in the industry—that would be an interesting outcome. And then, of course, your consulting work on board governance can hopefully help credit unions thrive in the future. I know you worry about credit unions, and what the epitaph would read for a credit union if it was to fail. What are your thoughts about that?

Maurice Smith (27:10)

I have lots of thoughts on that, Doug. So today, there are approximately 4,900 credit unions in the United States. When I came into the credit union movement in 1979, there were roughly 18,500 credit unions and our peak, at a height, I think was 24,000 credit unions in the early ‘70s. The most we’ve had in the United States. The last time we’ve had less than 5,000 credit unions in the U.S. was 1943. So if we look at just a trend line, we’re heading toward less than 4,000 credit unions someday. And some of the academics will tell you perhaps we may plateau around 3,000 or so; I don’t know that for sure. But to see the decline in the number of credit unions, by the way, which is also happening in the banking industry as well, this is not just a symptom of our movement; consolidation is happening in so many other industries. To me, it takes something away, a little bit from the soul of the movement, when we’ve consolidated the governance into larger institutions. And I don’t mean that to be a criticism of the larger credit unions. But credit union cooperatives, one of the values we have for our membership is for the active participation in the governance of the organization. So I know who the board of directors are, I see them at the grocery store, I see them at church or the local park, they are in my community, they know my community, they know my pains, they know what opportunities exist in my neighborhood. But when the governance of an organization by virtue of its size has moved to some faraway land, I as a member might feel a little disconnected to the active participation in my own cooperative. Maybe that’s progress. And maybe that’s just a natural way consolidation works. But to me, it feels like it takes a little bit away from just that member participation in their own organization. So having said that, then it’s important for credit union leaders today to be mindful of the distance now that’s being created from the policymaking side of the institution and the member side of the institution. The board members don’t live in the communities where their members are, they don’t frequent them at the local high school football game on Friday, they don’t get to see them. So it’s important for boards to recognize we might have some blind spots here toward the members’ needs. And so I’ve encouraged board and management teams to make sure you don’t lose focus on the key stakeholders of your credit union. Engage with them, be involved with them, separate small advisory panels and committees, if you will, focus groups; be overly open to engagement opportunities within them. It’s good. If you do that, a lot of why folks join credit unions to begin with, we’ll be able to hopefully preserve some of that philosophy and some of that culture.

Doug English  (30:37)

Awesome. That is wonderful advice, Maurice, and I want to say thank you for your service to the credit union movement for the last 43 years. I know you’ve made a tremendous difference for a lot of families in a lot of different ways. I think that’s an awesome story in itself. So I guess I’ll just open it up to you for any final thoughts for our listeners about anything else they should think about with regard to failures in the credit union movement with the board governance going forward or the remaining states Maurice has not yet been to.

Maurice Smith  (31:20)

So yes, we have four states to visit. So we’re going to try to get to those by the summer and then we’re going to buy an SUV and take some epic road trips around the country. You know, Doug, people I’ve met around this country, in and outside the credit union movement, we’re all the same, we have the same ambitions and the same drive and the same love. You know, we care for our families, we want a safe neighborhood, we want opportunities to thrive. And we want to be able to practice a discipline that is important to us, we want to matter, we want to be remembered for doing good things in the world. So regardless of what state you’re from, what religion you practice, what culture you identify with, we all want the same thing for ourselves. I can’t think of any other place that sort of engenders that kind of philosophy than the credit union cooperatives that are made up of people. And our whole purpose for existence is to help people live their better lives. I love this business. I have known almost all my life this is what I wanted to do with my life. And to have had an opportunity for 43 years to engage with members, to meet people like you and folks who work in credit unions and trade associations and CUSOs and volunteers and professionals and to be able to be part of this ecosystem to hopefully provide some input, some contributions. It’s been a gift to me, and I am taking way more from it than I have given to it. So going forward, I may be a little bit of an outsider not working for a credit union. But I’m still a member. I’m a member of several credit unions. And I believe I have a voice that hopefully can matter to somebody someday. And if it does, I welcome a phone call to have that conversation to see how perhaps my insight might be useful to help them spot issues that might create challenges for them in the future. And to the extent I can be helpful in the future, I will be someone to beck and call and my door’s open to that. But this has been a dream occupation and a dream lifestyle for me, Doug, and I thank you for the opportunity to allow me to share a few stories with you and your audience.

Doug English (33:48)

Well, thank you, Maurice. It was great hearing from you. And I know that hopefully in retirement you’ll have as much success, doing exactly what you want to do and finding fulfillment from your engagement with credit unions as well as your remaining four states. And then of course, going back and seeing the other 46 states many more times, right? With your epic, epic road trip.

Maurice Smith  (34:20)

Many more times.

Doug English  (33:23)

Awesome. All right, Maurice. Thanks very much. 

Maurice Smith  (33:24)

My pleasure.

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