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|Articles - March 2011|
|Wednesday, March 02, 2011|
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There is only one state bank in the nation, the Bank of North Dakota. It was established in 1919 to give farmers more control and greater access to capital. Ninety-two years later it has evolved into a 170-employee institution with $4.2 billion in assets and an impressive record of performance. “We’ve had record profits for seven years in a row,” says bank president Eric Hardmeyer.
Hardmeyer has run the bank for the past 10 years. As an indication of the importance of his role, his predecessor John Hoeven left to become first governor and later U.S. Senator.
Hardmeyer explains that the Bank of North Dakota is funded through captive deposits. All taxes and fees collected by state government funnel through the treasury into the state bank, rather than going out to bid with private banks. The state bank uses that money to fund state services and manage a $2.8 billion loan portfolio, partnering with community banks in the private sector to boost agriculture and small business.
If that sounds like socialism, well, it kind of is. And it has worked. North Dakota has the lowest unemployment rate in the nation. Property values did not fall there during the housing crash. The bank transferred $340 million back to the state in dividends over the past dozen years, but has not contributed any money for the current biennium because, amazingly, it is not needed. While Oregon and other states are struggling with billions of dollars in shortfalls, North Dakota enjoys a budget surplus.
Hardmeyer is quick to clarify that he doesn’t recommend that other states try to replicate his bank’s model. Asked what advice he has to offer to states considering it, he says: “You’d better staff it with bankers, not economic development folks. Or else you will have a very expensive, short-lived experiment… The other issue is to make sure you aren’t competing with the private sector.”
Linda Navarro, CEO of the Oregon Bankers Association, says the Bank of North Dakota resulted from a “quirk of history” that has little to do with modern realities. “For most community banks, the crux of their business is commercial lending,” she says. “They are looking for good business loans to make… They just need to make sure the loans can be repaid.”
Bill Humphreys, CEO of Corvallis-based Citizens Bank, says he has studied the North Dakota model and concluded that a state bank would be against the interests of the state and taxpayers. “I don’t see how a state-owned bank could enter the marketplace and all of a sudden start making loans that aren’t being made now,” he says. “Unless they decide they’re going to take on greater levels of risk.”
Humphreys and other bankers point out that one driving reason behind the financial meltdown was loose, easy credit without proper collateral. A state-run bank committed to lending to businesses would “share the consequences of higher risk with the taxpayers,” Humphreys says. “This is not a good time to do this. If you look at the state as a business, they are in such a deficit position that they have no business investing in anything.”
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There’s a fascinating article in the December issue of the Harvard Business Review about a profound power shift taking place in business and society. It’s a long read, but the gist revolves around the tension between “old power” and “new power” as a driver of transformation. Here’s an excerpt:
The authors, Henry Timms and Jeremy Heimans, don’t necessarily favor one form of power over another but merely outline how power is transitioning, and how companies can take advantage of these changes to strengthen their positions in the marketplace.
Our Powerbook issue might be viewed as a case study in the new-power transition. This annual book of lists provides information on leading businesses, nonprofits and universities in the state. Most of the featured companies are entrenched power players now pursuing more flexible and less hierarchical approaches to doing business. Law firms, for example, are adopting new technologies and fee structures to make legal services more accessible and affordable.
This month we also take a look at a controversial new U.S. Securities and Exchange Commission rule requiring public companies to disclose the median pay of workers, as well as the ratio between CEO and median-worker pay.
Part of the 2010 Dodd-Frank financial reform law, the rule will compel public companies to be more open about employee compensation, with the assumption that greater transparency will improve corporate performance and, perhaps, help address one of the major challenges of our time: income inequality.
New power is not only about strategy and tactics, the Harvard Business Review authors say. “The ultimate questions are ethical. The big question is whether new power can genuinely serve the common good and confront society’s most intractable problems.”
That sounds like a call to arms. Or a New Year’s resolution. Old power or new, the goals are the same: to be a force for positive change in the world. Happy 2015!
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