Technology Credit Union (Tech CU) Annual Meeting (2018)

All of us suspect financial institution executives are SOBs, but most of them have the decency to act dignified in public. Not San Jose, California-based Tech CU. The annual meeting on April 25, 2018 was a doozy, with Mical Atz Brenzel, the Chairman of the Board, getting angry while flubbing questions and President and CEO Todd M. Harris making comments that unknowingly contradicted his colleague. 

The spread for members, which will be noteworthy later.

I might have crossed a line by saying a "monkey" could have run a bank in the last four years because of record-low interest rates, but financial institutions, as stewards of our assets, are supposed to be conservative creatures able to withstand criticism, especially from their members. If you're part of an institution that refuses to stress-test its culture, you're going to have problems eventually. If you're part of a financial company so tone-deaf it decided to convert its member-based structure into a corporate banking entity without adequately vetting the move with its own members, humility ought to be your motto thereafter. Well, not if you're Tech CU. 

Regarding the failed conversion: "'Our members have voted and overwhelmingly indicated their preference to remain a credit union' ... there are no plans for executive departures as a result of the vote..." [Emphasis added.] In a nutshell, the same failed managers at the helm of a debacle so bad it will be part of an MBA textbook someday are still guiding the ship. They also seem convinced cultural cracks in their hull concealed by consecutive years of ultra-low interest rates are evidence of their own deft maneuvering. 

At least one of their own slides at the annual meeting indicates otherwise. One showed a loan-to-deposit ratio of 60% in 2013 that jumped to 87.79% in 2017. In other words, Tech CU, right after botching its conversion, might have taken a too-conservative approach with its loans, only to right its sails through low interest rates to a more balanced portfolio. 

In another example of hubris gone wild, Todd Harris said he was pleased with Tech CU's solar loan program, which has "12% national market share." I'm not an expert on solar power, but I know many solar companies and consumers rely on direct or indirect subsidies, and those subsidies can change overnight. In other words, the loan portfolio CEO Harris highlighted as part of his successful management might be its most risky. 

Update: seen in Singapore business newspaper, December 17, 2018

I was the only person at the meeting who asked questions or made comments. I mentioned being locked out of my ATM account while traveling internationally and being asked to call an American-based number, which anyone with travel experience knows is problematic. I suggested a simple solution involving secure email or secure messaging on the app. (How this team will screw up such a simple suggestion is an event I eagerly await.) 

I also asked why publicly available quarterly reports aren't available on the credit union's own website. Here's where it got really interesting, and by interesting, I mean shameless. Todd Harris told me Tech CU wasn't a public company and follows laws applicable to credit unions, which don't require making reports more accessible to members by putting them on its own website. 

No results found on gov website. It's a lil' clunky.

Let's back up a minute. No one is disputing these quarterly financial reports are available on some strange government agency's website. 

Found it!

No one is disputing these documents are harder to find if not disclosed directly on Tech CU's own website. No one is disputing greater transparency helps build trust, or that trust is important when competing for customers giving you money for safekeeping. Everyone agrees complying with a minimum standard in ways that reduce transparency isn't helpful to gaining clients or confidence. And yet, here we are, with Tech CU's management fighting to do as little as possible when it comes to transparency and simple convenience for their members. 

It gets even worse, especially if you, like me, believe banking culture is one factor in evaluating a country's ascent or descent. Most companies have rules relating to shareholder meetings that limit cranks, but they're written tastefully or at least in ways circumventing an accusation involving East German artillery. Here, Tech CU, blind to its cultural deficiencies, managed to outdo itself once again. Its rules for the meeting are so subjective and overbroad, they provide total control over any kind of direct questioning deemed unpleasant. From number 6 in "Rules of Procedure and Conduct of the Annual Meeting":

The Chancellor, er, Chair or the CEO will stop discussions that are: 

* irrelevant to the business of the Credit Union or the conduct of the operations;
* derogatory references that are not in good taste; 
* unduly prolonged (longer than two minutes); 
* substantially repetitious of statements made by other members; or 
* related to personal grievances. 

Remember: we are discussing a client-facing institution. If a member had an issue with an employee at a specific branch and wanted to alert the board in person at the annual meeting--the one and only time a year any member may do so publicly--the board doesn't have to listen. It could deem the comment a "personal grievance." Or perhaps it's derogatory or not in good taste. Who knows? Anything goes, comrade. 

After my final "monkey" and "low interest rates" comment, plus the fact the Bay Area had seen large inflows of private and public investment in the past four years, making it virtually impossible for Bay Area banks to fail, Mical Atz Brenzel launched into some angry gibberish. Still trying to temper her arrogance, I slipped in a question about whether any banks in the Bay Area had gone bankrupt in the last four years, to which she initially stood, jaw agape. After avoiding my question, she tried arguing banks don't really fail any more, they're absorbed into larger banks, which of course had nothing to do with my actual question. (I don't know of any Bay Area banks or credit unions requiring government intervention in the last four years to prevent bankruptcy, but if you do, please enlighten me.) 

Not satisfied with looking like a loon, Brenzel then argued lower interest rates made it more difficult for Tech CU to do well. I asked, "Are you denying lower interest rates encourage banks [and CUs] to make more loans [and therefore higher profits]?" It took her a few seconds to accept this Economics 101 fact, after which she advanced a spiel about Tech CU having to compete with numerous financial institutions in the Bay Area and still doing well. I let her have the last word, saying, "We'll agree to disagree." 

As I got up to exit the meeting room, a belligerent Todd Harris, a bowling ball of a man, approached and told me I was "frustrated." He continued trying to score points by telling me I mistakenly used the term "bank" instead of "credit union" in my comments. Pleased I'd gotten a Tech CU executive to mention a term relating to its largest management debacle without a sense of irony, I explained I wasn't frustrated, but we'd get to see how good he and the team really is over the next four years as interest rates rise. In addition, I told him his colleague can't argue that Tech CU's management did well because it successfully competed with numerous banking institutions, including public ones, while he favors a transparency standard far below all the public banks against which he's allegedly competing. As I left, I noticed employees bringing juices and mineral water into the meeting room, giving themselves a much better selection than offered to their own members. 

Tech CU's management didn't listen to their members in 2012, and they're still not listening. Worse, they're getting upset at a member trying to remind them to do exactly what a bank or credit union ought to do in an era of rising interest rates: be humble.

© Matthew Mehdi Rafat (2018)

Bonus: Gloomy Sunday (1999) is Netflix CEO's Reed Hasting's favorite movie. Consider the conversation below in light of Tech CU's Rules of Procedures and Conduct of the Annual Meeting: 

Schnefke: "But we must be careful not to stray too far outside the law." 

Hans: "Of course. But the beauty and vibrancy of the law lies in its flexible boundaries." 

[Two Nazis in Hungary around 1939 discussing their future.] 

Downtown SJ

In City Hall, there is a model replica of the city of San Jose. I've spent most of my last eight years working in this particular slice of San Jose.

Union Influence

Scott Herhold, on San Jose's public safety unions and the financial strain they cause:

[What kind of city is San Jose?] Is it the one that gave police a series of nice little pay boosts after 9/11, bumps that take the average wage to more than $114,000 after five years on the job?

Is it the one that, thanks to an arbitration system it agreed to in the 1980s, is paying cops and firefighters 90 percent of their salary as a pension after 30 years?

In the past nine years, driven by public safety, the city's employee costs — wages and benefits — have increased by 64 percent. That's roughly 7 percent a year. I know I haven't done as well.

Wow. Interesting article.

Eric Savitz Reports on San Jose's Commercial Office Vacancies

From Eric Savitz's facebook feed on January 18, 2010:

Anyone need 44 million share feet of office space?

As the San Jose Mercury News reports, nearly 20% of Silicon Valley’s commercial office buildings stood empty at the end of 2009 - the worse vacancy rate in at least 15 years. And the situation is expected to get worse in 2010.

Grubb & Ellis predicts that the office vacancy rate this year will hit 22.4%, up from 19.1% at the end of 2009. The vacancy rate for R&D buildings is expected to his 18.5% this year, up from 17% at the end of last year.

The average monthly rent for Valley office space is expected to drop to $1.87 per square foot in the second half of this - down 28% from the $2.58 level at the end of 2009.

Good news if you need office space; not so good if you happen to be a landlord.

It looks like the recession is slamming Silicon Valley, but this city always bounces back. Also, I don't think this recession has hit San Jose as hard as the last one. When the internet bubble burst, my commute to downtown San Jose seemed like I was going through a highway ghost town. These days, I still contend with plenty of traffic. If things get really bad, I will notice traffic declining, and traffic has remained steady for the past five months.

Public Pensions: Rotting from Within

With all the talk about earnings per share and future profits, it's easy to forget that a country's stock market won't experience a bull market if the country spends more than it collects. This is the basic law of business, and it doesn't change just because government is involved. One area that needs a closer look is public pensions.

Pension Tsunami is a website about public pensions, and it's definitely worth a look. Here is one recent article on San Jose public pensions, focusing on police officers and firefighters. (The San Jose Mercury article contains the chart posted above.)

Most people respect police officers and other public safety workers, but there is no reason for any public worker to receive more benefits and a higher salary than the average private sector worker. When government employees receive higher salaries and benefits than private sector employees, private citizens end up protecting and serving the government--an odd reversal. This is because private sector taxes and IOUs (bonds) are used to finance government expenditures, and those monies come from the private sector. If there is an imbalance, government will have to run up deficits to keep paying itself, creating an imbalance that will devalue the currency (due to the need to print more money to pay for the higher-than-normal benefits) or cause inflation. Thus, whenever the people work to serve the government instead of the other way around, fiscal responsibility will not exist.

There's also the small matter that America was created so private citizens would not have to kowtow to kings or an insulated, domineering government. In short, American government was designed to serve non-government citizens. America's founders would probably disapprove of a political system where people work primarily to serve and pay their government.

Even though the evidence favors treating government workers no better than private workers, it will take a massive paradigm shift to educate the public about the danger of excessive government spending/benefits.

First, television glorifies police officers, D.A.s, and other government workers, while accountants and small businesses don't get any airtime. I still remember my CHiPs costume when I was a kid--but I don't remember seeing any bank teller or taxi driver costumes on Halloween. When the average American watches hours of television, public sector workers have an advantage because they are portrayed as more important than private sector workers--even though it's the private sector workers who are footing the bill.

Second, most of the people teaching our children are government workers. As a result, most students spend eighteen years in a system that has no incentive to educate them about the true costs of excessive government spending and exclusive government benefits. This systemic education failure not only aggrandizes teachers' unions, who have no incentive to reform themselves, but also creates a class divide. Rich people tend to send their children to private schools rather than public schools. In addition, many top government workers, including President-Elect Obama, send their children to private schools. When the children of the middle class and poor spend eighteen years in a different system than the children of the rich, class conflict is virtually guaranteed.

This is why allowing parents to have the option of charter schools is so important. With charter schools, public schools have competition--which usually improves performance--and public schools no longer have a monopoly on education. In general, the public opposes monopolies, knowing they typically produce less innovation and high performance; however, when it comes to charter schools, much of the public is against them. This is surprising, because vouchers are the easiest way the middle-class and poor can escape the monopoly of public schools. When the public views teachers' unions as the Microsofts of education and charter schools as the Googles of education, change will happen.

There are simple ways to resolve the problem of entrenched government. One, require all government workers to have medical and retirement benefits only available to private workers. If a 401(k) is good enough for private sector doctors and lawyers, why do D.A.s and teacher get better retirement benefits in the form of guaranteed pensions? If the average private sector worker doesn't get lifetime medical benefits, why should government workers get such an expensive benefit? (By the way, if we actually equalized medical benefits, all Americans would probably get subsidized healthcare coverage.) When government workers have to use the same services as the public, they have more information about how the average person lives and more of an incentive to fix problems.

Two, institute term limits for all government workers. If we have term limits for the president and other representatives, why allow lifetime jobs for other government workers? A reasonable term limit would be 10 to 15 years. After this time period, a government worker could not go into any other government position and would have to earn his keep in the private sector. The knowledge that a government job is not a lifetime position would incentivize the government worker to improve his/her skills for the inevitable day when s/he applies for a non-taxpayer-subsidized position.

In addition, the turnover would be beneficial to the younger population, who could learn significant job skills through government work and then use those skills in the private sector. It would be like having a government-funded apprenticeship, where future leaders would be trained by experienced government workers to serve the public. Experienced government workers would begin training the new crop of workers from Year 13 to Year 15.

Doing it this way, government would be a non-fossilized place. This moderate turnover (as opposed to almost non-existent turnover) would allow new ideas to flourish in government. It is true we would lose skilled government workers to the private sector, but the key is to train newer workers to ensure a consistent stream of skilled government workers.

In the end, if America wants another bull market, it needs to return to budget surpluses. Demanding that our government not spend more than it collects is one way Americans can help get our country back on track.

More on public pensions here.

Santa Clara County's Diversity

I've always thought the best way of learning was to listen to people. Living in Santa Clara County provides many opportunities for cross-cultural education. In my law practice, for example, I've had the opportunity to interact with people from all over the world.

The number of people in Santa Clara County who were born outside of the United States is around 40%. Most cities near ports or oceans tend to attract ambitious travelers, and San Francisco has attracted what appears to be some of the most ambitious Asians, who have brought their cultural values of education and family to California:

SJ Merc on Diversity

California may suffer from inept government--the budget crisis is still ongoing, for example--but the people who live here tend to be open-minded, which allows California government to make mistakes that would not be tolerated elsewhere. It remains to be seen whether California's signature open-mindedness and tolerant attitude will continue its status as a magnet for ambitious immigrants, or whether its high spending will cause a decline in competitiveness.