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10/06 Building Trust, Creating Value and Leveraging Community Capital: The Future of Credit Unions in Ontario Presentation to Association of Credit Unions of Ontario AGM & Conference—―The End of Complacency‖ Toronto, June 2, 2008 Dr. Kurtis Kitagawa Principal Research Associate Education and Learning The Conference Board of Canada kitagawa@conferenceboard.ca 10/06 Who We Are and What We Do ● ● ● ● ● We are Canada’s foremost independent, not-for-profit applied research organization We help build leadership capacity for a better Canada by creating and sharing insights on economic trends, public policy issues and organizational performance We are affiliated with The Conference Board, Inc., which serves some 3,000 companies in 67 nations Annually, Conference Board publications elicit over 2,000 media articles and generate more than a third of a billion media impressions Registered readers of Conference Board materials on our official website total more than 150,000 10/06 10/06 10/06 Outline        Introduction: Trust, Value and Community Capital The Changing Face of Canada Trust Betrayed: The US Credit Crisis The Credit Union Movement in Ontario: Current Realities Opportunities for the Future Discussion Questions What We Heard www.conferenceboard.ca www.conferenceboard.ca 10/06 Outline  Introduction: Trust, Value and Community Capital www.conferenceboard.ca www.conferenceboard.ca 10/06 Trust…   is the basis of credit keeps you in business 10/06 Value…    is what you offer to your customers is what your customers perceive can be the basis of client attraction and retention 10/06 Community capital…    is the good will and rapport you have with your customers depends in part on bonds between and among community members needs to be continually nourished, refreshed or ―topped up‖ 10/06 Outline  The Changing Face of Canada www.conferenceboard.ca www.conferenceboard.ca 10/06 Canada’s Economic Potential  Aging population will drive changes in the economy Supply constraints on labour already here Immigration will become increasingly important for population and labour force growth    Economic growth will slow despite strong productivity gains www.conferenceboard.ca 10/06 Decomposition of Potential Output Growth 2001–05 2006–10 2011–15 2016–20 2021–25 2026–30 Potential Employment Capital Stock Total Factor Productivity Potential Output 0.8 1.1 1.0 2.9 0.8 1.4 0.8 3.1 0.5 1.2 0.8 2.6 0.4 1.1 0.8 2.3 0.3 1.1 0.8 2.2 0.2 1.1 0.7 2.0 Sources: Statistics Canada; The Conference Board of Canada. 10/06 Population Distribution by Age, 2015 600,000 500,000 400,000 300,000 200,000 100,000 0 00 05 10 15 20 25 30 35 40 45 50 55 60 65 70 75 80 85 90 95100+ Sources: The Conference Board of Canada; Statistics Canada. 10/06 Participation rate by age group (percentage, 2005) 90 80 70 60 50 40 30 20 10 0 15 to 19 20 to 24 25 to 54 55 to 64 65 and over Source: Statistique Canada. 10/06 Labour Force Participation Rate (percent, 1985-2030) 68 67 66 65 64 63 62 19 85 19 90 19 95 20 00 20 05 20 10 20 15 20 20 20 25 Sources: Statistics Canada; The Conference Board of Canada. 20 30 10/06 Labour Force Growth (per cent change, compound annual growth) 2.0 1.8 1.6 1.4 1.2 1.0 0.8 0.6 0.4 0.2 2001-2005 2006-2010 2011-2015 2016-2020 2021-2025 2026-2030 Sources: Statistics Canada; The Conference Board of Canada. 10/06 Unemployment Rate Canada 2000–08 8 Natural Rate about 6.0% 7 6 5 00 01 02 03 04 05 06 07 08 Sources: The Conference Board of Canada; Statistics Canada. 10/06 Labour Force Growth to Slow Drastically Beyond 2010  Already at the point of transition between a world of excess labour supply and a world of excess demand for labour  At the macro level, adjustments are limited, supply constraints will hinder growth At the firm level, competition for skilled labour will be omnipresent  www.conferenceboard.ca Growth in Industrial Composite Average Weekly Wage versus CPI (per cent change) 5.0 4.5 4.0 3.5 3.0 2.5 2.0 1.5 1.0 0.5 0.0 2000 01 02 03 Average Weekly Wages CPI 10/06 5.0 4.5 4.0 3.5 3.0 2.5 2.0 1.5 1.0 0.5 0.0 07f 08f 04 05 06f Source: The Conference Board of Canada; Statistics Canada 10/06 Private Non-Farm Productivity (per cent change, compound annual growth) 2.2 2.0 1.8 1.6 1.4 1.2 1.0 0.8 0.6 0.4 0.2 1988-90 1991-95 1996-00 2001-05 2006-10 2011-15 Sources: Statistics Canada; The Conference Board of Canada. 10/06 International Immigration Canada 1964–2020 (000s) 400 350 300 250 200 150 100 50 0 19 64 19 68 19 72 19 76 19 80 19 84 19 88 19 92 19 96 20 00 20 04 20 08 20 12 20 16 20 20 Sources: The Conference Board of Canada; Statistics Canada. 262,000 in 2005 10/06 Stock of Temporary Workers Canada 1996–2005 (000s) 150 140 130 120 110 100 90 80 70 60 50 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 Sources: Citizenship and Immigration Canada. 10/06 Destination of Immigrants Entering Canada (principal applicants and dependents, 2006) Number 106,251 38,899 35,058 11,254 6,636 5,960 CMAs Toronto Vancouver Montréal Calgary Ottawa–Gatineau Edmonton Per cent 41.0 15.0 14.0 4.0 3.0 2.0 Total—6 CMAs Total Canada 204,058 258,101 79.0 100.0 Sources: The Conference Board of Canada; Citizenship and Immigration Canada. 10/06 Rethink the Workforce: Older Workers  Improved immigration alone will not be enough Need to retain and engage older workers Strategies needed to attract older workers and encourage more gradual transition to retirement – human resource policies – workplace design – production processes    Fundamental changes required to: www.conferenceboard.ca www.conferenceboard.ca 10/06 Unemployment Rate - Alberta (per cent) 12 10 8 6 4 2 1980 1985 1990 1995 2000 2005 2010 2015 2020 2025 Sources: The Conference Board of Canada; Statistics Canada. 10/06 Employment (000s) Gap = 332,000 in 2025 Sources: The Conference Board of Canada; Statistics Canada. 10/06 Conclusion • Immigrants and attracting and keeping older workers are critical sources of talent for business (and government too) • Investment in technology also critical • Markets will adjust to workforce shortages via higher real wages and changes to investment plans Conclusion: Don’t wait – start moving today! www.conferenceboard.ca 10/06 Outline  Trust Betrayed: The US Credit Crisis www.conferenceboard.ca www.conferenceboard.ca 10/06 U.S. Existing Home Sales and Prices (millions, $) 8.0 7.5 7.0 6.5 6.0 5.5 5.0 4.5 'Jan07 'jan04 'jan05 6-Jan apr apr apr apr oct oct oct oct jan jul jul jul jul Sales avg. price 230 220 210 200 190 180 170 Source: National Assn. of Realtors. 10/06 House Price Index (S&P Case Shiller 20-City Index, per cent change) 17 13 9 5 1 -3 -7 -11 -15 '2002 '2003 '2004 '2005 '2006 '2007 '2008 Source: BCA. 10/06 Rising Negative Equity (share of mortgages in negative equity position, 2006) 60 50 40 30 20 10 0 '2006 '2007 '2008 '2009 Source: BCA. Estimated Loan Defaults (billions) 280 240 200 160 120 80 40 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 10/06 2009 Source: BCA. Foreclosures Surge (thousands, SAAR) 1900 1700 1500 1300 1100 900 700 500 2000 2001 2002 2003 2004 2005 2006 2007 10/06 2008 Source: Moody’s Economy .com. Shaky U.S. Mortgage Debt (trillions, debt outstanding as of 07Q4) 1.4 1.2 1 0.8 0.6 0.4 0.2 0 Sub-Prime Alt-A Jumbo IO 10/06 Source: Moody’s Economy.com 10/06 Characteristics of Sub-Prime Market    25 % of total mortgage debt outstanding Mortgages for people with spotty employment and poor credit records No down payments • Low ―teaser rates‖, 40-50 year terms • ―No doc‖, ―Liar‖, Ninja‖ loans • The American dream? www.conferenceboard.ca www.conferenceboard.ca 10/06 Financial Crisis in August    Huge mortgage related losses Loans dispersed around the world……nobody knows where Buyers disappeared…impossible to sell MBS • Contagion caused all investors to pull back • Central bank intervention www.conferenceboard.ca www.conferenceboard.ca Short Term Interest Rates Tumbling (federal funds rate, %) 5 4 3 2 1 0 aug sep oct dec jan 10/06 mar Source: FRB. Yet Mortgage Rates Remain High (30-year conventional mortgage, %) 6.5 10/06 6 5.5 5 18-Jan 25-Jan 1-Feb 8-Feb 15-Feb 22-Feb 29-Feb 8-Mar Source: FRB. 10/06 Doomsday Scenario    House prices tumble by 30% wiping out $4,000 billion in household wealth 10 million households end up with negative equity and walk away Losses spread to credit card holders and auto loans • Meltdown of commercial property market • Bankruptcy of a large commercial bank www.conferenceboard.ca www.conferenceboard.ca 10/06 Doomsday Scenario Cont.    Corporate defaults lead to losses of $250 billion Further collapse of equity markets, failure of hedge funds Drying up of liquidity • Losses of $3 trillion or 20% of GDP force government to nationalize losses • Biggest financial crisis since the 1930s www.conferenceboard.ca www.conferenceboard.ca 10/06 Top Foreign Holders of U.S. MBS (billions) Country Cayman Islands UK Netherlands Luxembourg Germany Japan Jersey Ireland China Canada MBS 72.4 44.1 27 22.4 22.3 19.8 17.4 10.5 9.5 8.4 % of Total US Securities 15 7 9.6 4.1 10.5 1.8 41.4 4.5 1.4 2.2 10/06 Outline  The Credit Union Movement in Ontario: Current Realities www.conferenceboard.ca www.conferenceboard.ca 10/06 Current Realities 2  Questions are being raised about: – Whether smaller credit unions ($50 million dollars) should ―band together‖ or merge with each other to achieve economies of scale – How the bonds of association linking customers to credit unions are changing (credit unions have traditionally built their business on loyalties stemming from ethnic links, corporate bonds, or community ties) 10/06 Current Realities 3  Questions are being raised about: – How to position credit unions as having a stable trust platform from which to advocate – How to do succession planning (including replacing CEOs and brining new board members up to governance level) 10/06 Current Realities 4    In 1990 there were almost 1,000 credit unions in Ontario Today there are about 200 About 400 credit unions in Ontario have disappeared in the last 10 years alone 10/06 Outline  Opportunities for the Future www.conferenceboard.ca www.conferenceboard.ca 10/06 Traditional Strengths of Credit Unions to Build on  Top line strengths – Customer deposits on are insured through Ontario deposit insurance – Strong balance sheets – Credit unions tend to fund their own lending programs – Credit unions have always been risk averse  Transactional strengths – – – – Better rates Lower service charges Better service Profit sharing 10/06 Traditional Strengths of Credit Unions to Build on 2  Credit unions – reflect and define a community – are built on common bonds of association among members (ethnic, corporate, community) – serve their face-to-face members where they reside – take care of their members, so their members take care of them 10/06 Opportunities and Potential Challenges  Opportunity – ―Bulk up‖ – Recapture the ethnic market – Rejuvenate operations with younger staff – Diversify client base – Engage youth and retirees  Potential Challenge – ―Lose your soul‖ – Fail to understand client attractors (e.g., heritage, artifacts, symbolism, language) – Face retention problems related to mobility of younger generation – Lose distinctiveness – Lack resources to be ―all things to all people‖ 10/06 4 Questions 1. 2. 3. 4. What is the market niche that credit unions occupy? What will the credit union of the future look like? How do you get people to notice the difference? What is the strategy of each credit union to get there? 10/06 Four free products from the Conference Board of Canada’s e-library 1. 2. 3. 4. How to Ensure Ethics and Integrity Throughout an Organization Briefing April 2008 Ethics and Compliance Functions: Canadian Corporate Leaders’ Views Briefing September 2007 The Evolving Role of the Ethics and Compliance Officer Report November 2006 Rebuilding Trust in Canadian Organizations Detailed Findings June 2005 10/06 How to get the ethics message across  Why—Clarify organizational objective to be accomplished in getting the ethics message out What—Define the scope of ethics and compliance training, learning and development Who—Identify target audiences and their unique needs Where—Ground ethics message in work contexts of target audiences When—Set out timeframe for learning and follow up on results to overcome obstacles and address gaps How—Chalk-and-talk workshop, e-learning, blended learning      www.conferenceboard.ca www.conferenceboard.ca 10/06 CAUTION!  The best strategies that require management support include: – Modeling ethical behaviour – Recognizing and acknowledging ethical behaviour in staff – Providing a safe and non-threatening environment for employees to understand and practise ethical behaviour in their own roles – Making time to provide feedback on ethical behaviour 10/06 Why—Clarify organizational objective to be accomplished in getting the ethics message out  Raise awareness of the importance of ethics and compliance to the organization and individual effectiveness Deepen understanding of what ethics and compliance look like per role Shape attitudes towards ethics and compliance Change behaviour in relation to ethics and compliance Shift culture from reactive to proactive       Enhance employee effectiveness in making ethical decisions Empower employees to make ethical decisions according to a wellunderstood model www.conferenceboard.ca www.conferenceboard.ca 10/06 What—Define the scope of ethics and compliance training, learning and development    Where to find the code of ethics How to interpret the code and apply it to work situations Organization’s expectations re individual employee understanding of, and compliance with, code Protocols to follow in applying code How compliance with code will be tracked     Consequences of not complying with code How e-learning will be assessed; how gaps will be identified and followed up www.conferenceboard.ca www.conferenceboard.ca 10/06 Who—Identify target audiences and their unique needs   As with all learning, different target audiences have different needs Executives, middle managers and front-line employees will need separate, aligned messages, which may need to be delivered in different ways to maximize impact Content needs to be contextualized Follow up needs to be contextualized Compliance tracking needs to be contextualized All messaging needs to be aligned and integrated     www.conferenceboard.ca www.conferenceboard.ca 10/06 Where—Ground ethics message in work contexts of target audiences     Codes of ethics need to come alive for employees so they can live them in their roles Hence the importance of envisaging realistic scenarios Where do you go (who can you call) when you encounter a ―hard case‖? Ensure that e-learning content and experience with regard to ethics are refreshed regularly Consider use of online checklists/logs customized per type of employee to ensure protocols are followed and records kept of decision making process, challenges encountered and actions taken Involve employees at different levels of organization to ensure content is relevant and regularly refreshed   www.conferenceboard.ca www.conferenceboard.ca 10/06 When—Set out timeframe for learning and follow up on results to overcome obstacles and address gaps  E-learning has the virtue of being flexible and employee driven, but parameters have to be set for employees to use e-learning tools, familiarize themselves with posted content and demonstrate comprehension E-learning must include an evaluation component and template for identifying and addressing gaps Process and timelines need to be established for e-learners to receive feedback on their elearning activities and implementing strategies in their work to comply with ethics code Electronic checklists and logs need to be in place to ensure employees transfer elearning to their jobs and so the organization can demonstrate compliance Employees should be notified of planned ethics refreshers and procedures for keeping current     www.conferenceboard.ca www.conferenceboard.ca 10/06 How—Chalk-and-talk workshop, e-learning, blended learning   Different learning approaches may be appropriate for different target audiences Careful planning needs to inform types of approach used, evaluation strategies employed and sequencing of learning activities to maximize impact  Instantaneous electronic feedback is good (e.g., scoring against a comprehension checklist), but ongoing feedback is necessary if the objective is to change behaviour Ongoing feedback might entail a face-to-face debrief with manager (possibly in a group situation); incorporation as a business item in regular performance reviews; individual action plans to address gaps; ―lunch and learn‖ refreshers with an ethics and compliance officer Goal should be to leverage the strengths of different techniques according to their feasibility/suitability per target audience and the principle of using one technique to reinforce another   www.conferenceboard.ca www.conferenceboard.ca 10/06 Outline  Discussion Questions www.conferenceboard.ca www.conferenceboard.ca 10/06 Have you asked your customers what they value about your credit union?  What did they say? What do you believe makes your credit union attractive—even irresistible—to new customers? 10/06 What are the product and service offerings that are important for retaining customers? 10/06 10/06 What is more important to the success of your credit union?  Your physical location or the community your serve? 10/06 How are you reaching out to…   Young people? Immigrants? 10/06 Outline  What We Heard www.conferenceboard.ca www.conferenceboard.ca 10/06 Visit us at www.conferenceboard.ca