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Filene Report: Are CUs Measuring Right Performance Indicators?
MADISON, Wis. (5/24/13)--Key performance indicators (KPIs) such as return on assets, net promoter score and loan to assets, are used by credit unions because they are the easiest to measure, aggregate and compare, according to a new paper from the Filene Research Institute. However, they do not address credit unions' identity crisis--the need to form and describe a business model that is different from noncooperative financial institutions.

The report, "An Examination of Key Performance Indicators Reported by Credit Unions In North America," surveys the key performance indicator practices of 23 medium to large U.S. and Canadian credit unions.

Most credit union managers are so devoted to their established KPIs that they don't stop to imagine what metrics are right for measuring a credit union's values and its value to members, said the report's author Daphne Rixon, associate professor and executive director, Centre of Excellence in Accounting and Reporting for Cooperatives, Saint Mary's University, Novia Scotia, Canada.

"Even though credit unions measure these and other common financial indicators, something is missing from a cooperative that obsesses about financial metrics while ignoring other important points," Rixon wrote. "Credit unions have to consider strategy, regulation, their own users, and industry benchmarks. But what about community engagement and social responsibility? What about engaging stakeholders, not just shareholders? What about meaningful reporting to shareholders and stakeholders?"

She offered several suggestions:

  • Address the identity crisis. Credit unions live many of the seven cooperative principles, but sophisticated and unsophisticated credit unions alike struggle to measure and, equally important, report on activities that are fundamental to cooperative credit unions.
  • Develop appropriate benchmark data. With confusion about how best to make comparisons, credit unions are left with measuring and comparing only financial results. Rixon recommended creating national committees (in Canada and the U.S.) to investigate and sponsor no more than 10 KPIs and calculate methodologies for each. She also recommended a two-year pilot with anonymous reporting from a cross section of credit unions to gauge the effectiveness of the KPI system.
  • Encourage stakeholder engagement. Rixon encouraged credit unions to get beyond "tokenism" at annual general meetings and in board elections. Incentivizing member and employee groups (beyond the board) to actively participate in setting strategic priorities would lead to more authentic involvement.
  • Monitor the International Integrated Reporting Council (IIRC). IIRC is an international group that is already working on KPIs that would apply well to the varied priorities of credit unions, Rixon said. The IIRC's pilot project concludes in 2013; credit unions should note the results and consider adopting or modifying the suggested KPIs for their own use, she said.
To download the report, use the link.

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