A view from the States on the Co-operative Bank/Group affair

There may be some who read this blog, particularly from the UK, who would prefer not to be reminded of the Co-operative Bank and Co=operative Group meltdown of 2013-2014. However it is important that the lessons from this affair are properly learned, both by the coop movement in Britain and elsewhere in the world.

A useful aide memoire of the whole sorry business, including key dates and events, has just been written by US-based coop writer David J. Thompson in the magazine Cooperative Grocer.  It’s worth a read.

Coops and capital: keep the fire bucket at hand

I think this may be an appropriate moment to repeat a comment from George Jacob Holyoake, one of the pioneers of the British cooperative movement, which I admit I’ve quoted a number of times before.  Holyoake, who was making the Inaugural Address at the 1887 Co-operative Congress, said this: “The co-operator is not against capital. Capital is exactly like fire – an excellent servant when it warms the inmates, but a bad one when it burns down the house.”

Capital remains a knotty problem for cooperatives, and indeed it is one of the five issues identified as needing attention in the International Co-operative Alliance’s current strategic plan. The ICA has a high-level ‘Blue Ribbon’ commission investigating the topic, and the commission has now published a new report The Capital Conundrum for Co-operatives. It’s worth a read.

Here’s the start of the report’s preface, which very much echoes Holyoake’s 1887 comment: “Capital is necessary and desirable for co-operatives, because it enables us to conduct business, grow, and meet the demands of our key stakeholders. At the same time, unlike other enterprises, co-operatives’ Principles and structure exhibit a profound guardedness and unease about capital and its power.”

The new ICA report is a series of separate essays from across the cooperative movement (both sectorally and geographically). There are some interesting discussions of the appropriateness or otherwise of cooperatives accessing standard equity capital by establishing plcs which they part-own, a model which has been common recently for some agricultural coops and indeed in banking. The problem with this approach of course is that it creates a wedge which investors can use, so that what was once a cooperative business can quickly be lost to the movement. (Cue a reference here to recent developments at the UK’s Co-operative Bank).  I am pleased to note that the report includes some voices warning of the risks of this practice, the first time for many years I’ve seen this view prominently expressed in the coop world.

There’s an essay I particularly like from two authors working for The Co-operators insurers in Canada, and I will end this blog with a quote from their conclusion “The thesis of this article has been that co-operative capital is inherently incompatible with investor-owned capital, and that there is an abundance of co-operative capital available to support co operatives. The real issues, however, relate to the Co-operative Principle of Co-operation among Co operatives and how co-operatives may be empowered to access the co-operative capital that is available.”  There are, as they say, both ‘capital needy and capital rich’ cooperatives: there must be mechanisms in place to enable them to cooperate together and realise the capital resources which, collectively, are held within the movement.

The report is at ica.coop/en/media/news/new-report-capital-conundrum-co-operatives (Actually, the link wasn’t working today, but I’ve sent an email to the ICA to tell them, so hopefully it will be soon).

Hmm… Co-op Bank joins as member of Co-ops UK

An upbeat – and therefore brave – press release today from Co-operatives UK, announcing that the Co-operative Bank has now been admitted as one of its members.

Co-ops UK’s Ed Mayo is reported as saying that his organisation is “working closely with The Co-operative Bank through this period of substantial change and [is] pleased they are joining in with the wider co-operative movement through their membership”. The Co-op Bank’s Niall Booker proffers: “Co-operative values and ethics are at the heart of our bank. While much has changed, our commitment to this has not.”

The Bank is of course now only minority owned by the Co-operative Group, and it wasn’t long ago that Ed Mayo was publicly suggesting that its continued use of the name ‘cooperative’ would be problematic. There’s been considering rowing-back from this stance since then, but there does remain a legitimate question to be asked as to whether the Bank is really still within the cooperative fold.

My own view? Personally I think it isn’t.

Co-op Bank to shed its Unity Trust link

I’ve mentioned previously that the Co-operative Bank has been a minority shareholder in Unity Trust, the trade union bank which it helped set up thirty years ago this year.

Another part of the fall-out from the Co-op Bank debacle is that this 26.7% stake in Unity is now to be sold.  Unity put out a short press statement on Tuesday about this:  “Discussions are at an early stage and any decision on a changed ownership structure would be subject to regulatory approval,” it says. Unions have the option to acquire the Co-op’s shares in Unity first, before they are disposed of more publicly.

Unity does not provide retail banking for individuals but it does a useful job as bankers not only for unions but also for a wide range of charities, local authorities and community organisations.  My experience of them has generally been positive: helpfully, they were early adopters of an electronic equivalent to the standard ‘two signature’ rule for cheque signing, so that charities and other organisations with this rule in force can make payments on-line.

Ways forward for Britain’s coop movement

I’m pleased to hear that around 140 people have booked in for this Friday’s conference, called by Co-operative Business Consultants following last year’s Co-op Bank debacle to discuss – as CBC puts it –  “Ways Forward for the Co-operative Movement”.   This is a potentially important initiative, and the high level of attendance suggests that there are plenty of activists determined to prove that there’s life in the old coop dog yet.

I’ve been working this morning on the short presentation I’ll be making to the workshop looking at member capital.  Co-operative capital is, as you’ll know if you’ve been following my blog, one of the issues I consider most important for the coop movement to address, and I just hope that people don’t see the word ‘capital’ in the programme and feel that this session is not for them.

The conference is in Manchester, the city which has over the past century and a half hosted many of the most significant events in the UK coop movement’s history.  This could be another one.

I’ll be contributing a report to The Guardian’s social enterprise hub afterwards and will post a link here.

Ethics and the Co-op Bank

Organisers of the Save Our Bank campaign to keep the Co-operative Bank ethical, which is being led by the Ethical Consumer magazine (itself a cooperative, of course), last week met with the Co-op Group’s chief executive Euan Sutherland. The campaign issued its latest online newsletter last Thursday.

My own view is that, with the capital restructure and the arrival of the hedge funds, the Co-op Bank will be well outside what could legitimately be called a cooperative business so in that sense the moment to ‘save’ it has passed. But nevertheless it is clearly valuable to pressure the bank to retain an ethical approach to the banking business. We need to remember though that (even given recent media attention) its reputation as an ethical bank is currently the Co-op Bank’s USP so it is hardly in the investors’ own interests not to support it, at least with lip-service.

Perhaps the most interesting discussions within the Save Our Bank campaign, I think, are around the possibilities of future re-mutualisation.  I would be delighted to see this, although realistically I think you have to conclude that the prospects are currently very distant.  But this links directly to the issue of suitable cooperative capital instruments for cooperatives, which I have been banging on about endlessly in recent months and which I will seize this moment to mention yet again.

One hedge fund takes the money… as another one arrives

Today’s Financial Times reports that one of the US hedge funds involved in the Co-operative Bank restructure, Aurelius, has already sold almost all its stake in the Bank (don’t get too excited, it’s gone to another hedge fund, Perry Capital).  The cooperative world has frequently talked of the short-termism of the capital markets and here, it would seem, is a text-book example.

The FT dedicates a whole page to the recent story of the Bank and the Co-operative Group, a generally very fair feature which assesses what has been happening and why.  The paper also reminders its readers of recent difficulties among other cooperatives, including (as I’ve reported here) Rabobank.  FT journalist Patrick Jenkins quotes a Moody’s analyst Carola Schuler who puts current problems at cooperatives down to two core causes, corporate governance and capital allocation.

Actually, I think, Moody’s analysis is absolutely right.  The FT doesn’t go on to add (but I will) that both issues have already been identified as key issues in the International Co-operative Alliance’s current strategic work agenda.