Forest of Dean & Wye Valley

THE STRANGE CASE OF OUR ETHICAL BANK

In A.Graham on January 13, 2014 at 1:27 pm

Did the Co-op forget its way? by Alistair Graham

As friends will be happy to agree, I’m a firm supporter of the co-operative principle, and indeed the Co-op movement (with a capital “C”). So it distresses me to criticise those within the movement who take their eye off the ball (temporarily at least), and lose sight of what being a co-operator is all about.

I’m talking about the Co-operative Bank, of course, and its current plight. In what seemed to me to be a slightly gloating piece in the Independent on Sunday (10th November), Julian Knight, “personal finance adviser”, declared that “the mutual concept (i.e., the co-operative ideal) is all but dead.” He concluded that “we need a full enquiry into what has gone on at the Co-op.”

Suchan enquiry is already under way.   But perhaps it’s fairly easy to see what went wrong with our bank. Those responsible for running the Co-op Bank on our behalf lost sight of the movement’s goals. Like Icarus, they decided that they could soar into the capitalist heavens – and instead crashed down to earth.

PLAYING WITH THE BIG BOYS:

It all began when the directors decided that they could expand profitably and play with the big boys, by taking over some 600 branches of Lloyds Bank. But then a gaping hole in the Co-op Bank’s own finances was revealed. It was the result of a previous takeover of the Britannia Society, which had managed to lumber itself with toxic debts – which, it seemed had been overlooked at the time of the takeover. This, together with a directive from on high that the Co-op Bank should increase its liquidity levels combined to drive it to the wall.

Inevitably, the media has had a field day with the misdemeanours of former director and non-executive chairman of the bank, the Rev. Paul Flowers. He has been made a scapegoat in all this – though in fact the part that he played has been minor compared to some. Little mention has been made of the Bank’s accountants KPMG, for example, who failed to warn of the black hole in the Britannia Building Society’s accounts. It seemed that they felt it wasn’t within their remit! Or of the former head of the Co-op Group, who was a driving force behind the bank’s bid for expansion.

But now 70 per cent of our bank is to be controlled by hedge fund managers – the enemy which is anathema to the ethos of co-operation. Someone must really be laughing all the way to the bank. Particularly as much of their money is in offshore accounts.

It’s not the first time that the Co-operative movement has faced such a crisis – though it could be the most serious. We could go back to 1997, when an ambitious young entrepreneur called Andrew Reagan persuaded enough directors on the board of the Co-operative Wholesale Society (CWS) to sell all its food manufacturing factories to a company that he headed called Hobsons. He then made a further bid, to take over the CWS lock stock and barrel. If he had succeeded, all its assets would have been snatched from the membership and used for private speculative gain.  But Reagan had over-reached himself , the movement was alerted and his bid failed.

In more recent times, the Co-operative Group hatched a merger of its travel operations with those of Thomas Cook. There were concerns about how such a merger would work – yoking together a “mutual”, owned by its members with a capitalist company owned by shareholders. But the deal went ahead – but then it was discovered that Cooks were in financial difficulties. Incidentally, it should be made clear that our own Midcounties Co-operative Society did not get involved with the deal – and since then has managed to build up and develop its own travel business quite successfully.

ORIGINS OF THE CO-OP BANK:

As for the Co-operative Bank, its history goes back well over a century, when it was founded as the CWS Bank, to serve the Co-operative Movement, its individual societies and later its millions of members. In 1992 it introduced its customer-led ethical policy, which in turn attracted many more to switch to the Co-op.

IDEALS LIVE ON

As for the assertion that “the mutual concept is all but dead”, such a claim denies history, a history that goes back at least to the Rochdale Pioneer in 1844. They were building something new, a counter to the rampant capitalism of the day. They wanted their ideals to permeate every aspect of society, to give people control over their lives – and build a “co-operative commonwealth”.

These ideals are still with us, including the presence of credit unions and building societies. Indeed the Co-operative movement is now worldwide.

As for the fate of the Co-op Bank, a campaign to save it has been launched by the magazine Ethical Consumer. It has been gaining support – and though the disposal of the Co-op Bank to private investors may be a done deal, we should at least ensure that the predators who now own a controlling share know that we’re not taking it lying down. And we should campaign for its return to mutual ownership.

For more details, go to: www.saveourbank.coop

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  1. To my mind, one of the primary problems underpinning the overall demise of the Cooperative Wholesale Society and the Co-op Bank and most mutual is that the members don’t really own and run the business, certainly not in the way the founding fathers envisaged. And the so called democratic checks and balances, in reality just do not exist.

    While the directors might be well intentioned and are nominally in charge, by and large it is the CEO and senior managers who run the show and they tend to be self-serving appointees imbued with the philosophy of the financial services industry and are, with few acceptations, obsessed with growth and as Alistair delicately puts it, they want to “play with the big boys”. Their first priority tends to be their careers, how much they are getting paid, whether their remunerations are in line with the private sector and the size of their golden handshakes and good byes.

    Expecting people like former CEO, Neville Richardson, who resigned last July and walked away with £4.6 million; asset strippers like Andrew Reagan; or accountants KPMG to operate by cooperative principles is about as much good as praying for Tories to be inclusive and compassionate or for the Con/Dem government to stop privatising public services, the NHS, attacking the welfare state and for the political class (Tory, Labour & Liberal) to renounce neoliberalism and promote collective self-help and to govern on the principals of social justice and fairness.

    With 70 per cent of the Coop bank now under the control of hedge fund managers it is unlikely to survive as a mutual never mind as an ethical bank serving is members and local neighbourhood communities.

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