By John Bugalla
It seems obvious the standard operating procedure for most businesses should be to plan ahead before taking action, and forecast situations that might arise so you aren’t surprised in a bad way. But for some reason I can’t fathom, risk management is one area frequently omitted in credit union planning processes, only to rear its ugly head in a crisis.
Here’s a story. In July 2010, the Dodd–Frank Wall Street Reform and Consumer Protection Act was signed into law, and brought the most significant changes to financial regulations since the Great Depression. At that time, I was in a classroom with several credit union folks who took the posture it would have minimal impact on the industry, so they didn’t need to do anything in response until absolutely necessary. Fast forward to July 2012, when credit unions, and their trade organizations, start clamoring for relief from the overwhelming burden and costs of compliance with Dodd-Frank.
The moral of the story is putting our heads in the sand didn’t make the problem go away, and in fact, the lack of anticipation and preparation only exacerbated the negative impact.
Now, let’s consider what is happening with Regulation 704.21, effective April 29, 2013. This important piece of NCUA regulation addresses corporate credit unions and their enterprise risk management (ERM) responsibilities. I’m getting a sense of déjà vu as I see credit unions looking for the easiest possible way to conform to the letter of the law.
Let’s not ignore the spirit of the law and the spirit of risk management. Inherent in the concept of risk management is the element of anticipation, of looking ahead and seeing what’s on the horizon, and being ready to minimize damage. Yes, there is also a damage control element for times when things don’t work out as well as you’d hoped, but that should not be the default position.
As an experienced ERM consultant, my fervent desire is that credit unions would fully integrate anticipatory risk management practices. ERM would have equal weight in strategic plans along with growth. It would be the responsibility of several team members who don’t treat it as a necessary evil, but understand how vital and intrinsic it is to the long-term viability of the organization.
There’s a good reason why expressions such as measure twice, cut once and ready, aim, fire (not ready, fire, aim) have endured over time. They speak to a core value of taking time to do things right instead of forging ahead with action that is not thought out. Credit unions that can apply these principals to their ERM strategies will reap the rewards.
John Bugalla is a Principal of ermINSIGHTS. He specializes in ERM, strategy development, implementation and board level communications.
Learn how to integrate responsible risk management practices into your strategic planning process from Bugalla by attending both CUES School of Risk Management, July 15-16; and CUES Advanced School of Risk Management, July 17-18, in Cambridge, Mass.
