Commenting on comments

There are two comments to my post on Saturday on the Phone Co-op AGM which (because of the way WordPress tucks them away in the left hand margin) you may miss.

The first is from Amanda Davis, who has had problems leaving a comment due to the adverts which WordPress imposes, which of course I have no control over. I have wondered for some time whether the adverts are an issue, and whether I should get them removed (the only way to do this, of course, being to pay WP extra money myself). I already pay WP for the domain, and am loath to contribute too much more to a US multinational, but if people feel this is a problem or if the adverts (which I don’t see) are inappropriate or offensive, then please let me know.

The second comment is a very interesting one from Martin Meteyard, about the nature of members’ capital in the Phone Co-op and whether it should be treated as risk capital or simply some form of quasi- building society savings.  Martin raises a highly significant question and one which as he says the recent debates at the Phone Co-op haven’t brought out. The question needs discussing.

Co-op capital: the Phone Co-op looks to its own members

I’ve been reading the half-yearly report just published by the Phone Co-op, and see that they report that they now have capital of £5.9m invested in the business belonging to their 10,000 or so members. “As has been the case for many years, the Society has no borrowings and continues to finance all of its operations from retained profits and the share capital provided by members,” the report says.

The Members’ Capital shown on the balance sheet is partly made up of accumulated dividends, but also reflects the Phone Co-op’s proactive approach in seeking direct investment by its members in the cooperative business. It’s an interesting example of Co-operative Principle 3 in practice.

(Can’t remember which principle that is? The answer is here).

Another cooperative bank demutualisation

Vivian Woodell of the Phone Co-op has drawn my attention to a news report of the proposed stock market flotation and demutualisation of a small cooperative bank in Melrose, Massachusetts (here). You’ll see that Vivian has also added his own comment on the webpage, making the point that “the fundamental purpose of a shareholder-driven business is to make money for shareholders, whereas the purpose of a co-operative is to serve its members”.

Capital has been identified by the International Co-operative Alliance as a key issue for the global cooperative movement to debate, and the ICA’s absolutely right.  We have lost too many cooperatives (especially financial and agricultural cooperatives) over the years to the private sector because traditional equity capital seemed to be the only new source of capital on offer.  We need some innovative solutions for capital for coops, including taking a new look at the opportunities for member-provided investment capital.

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.

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.

Heart attack: how the UK coop movement’s most important institution could be at risk

Remember the name Andrew Regan?  Let me remind you that he was the City-backed entrepreneur who in 1997 attempted to take over CWS (what is now the Co-operative Group) at the height of the carpet-bagging frenzy over building society demutualisations.  Aided by information fed to him illicitly by two coop senior managers (both later imprisoned) Regan might very nearly have pulled off his coup.  But the cooperative movement got its act together and fought back.  The end result, if you like, was Coop 1, City 0.

There will be those in the City and Wall Street who are discussing now whether this is the moment for the rematch.  Weak companies attract predators and the Co-op Group is undoubtedly weakened by recent events.  I talked recently in a blog about those ideological enemies of the cooperative business model who are gloating at the Group’s current misfortunes, but here I am not so much concerned about the gloaters as about those dispassionate (and more dangerous) money-merchants, those who will be looking without emotion at the Co-op Group’s balance sheet and seeing a business – or rather a conglomerate of businesses – which they believe could be made to be much more profit-generating.  They will see a business generally underperforming and not necessarily well managed, with excess fat which can be stripped away.  (For ‘excess fat’ read, among other things, all those idealistic member-relations people and those innumerable area meetings for members and those worthy grants to organisations like Co-operatives UK and the Co-operative College).

In other words, don’t believe for a moment that private equity and hedge funds will stop at the Co-op Bank.  The Group is potentially an even bigger prize.

What might the tactics be?  The Co-op Group’s complicated internal structure makes a building society-style demutualisation via a hand-out of ‘free’ shares to members very difficult if not impossible to achieve (although I fear that most of the seven million individual members of the Group would just at the moment seize such an offer if it were ever to be tabled).

Rather I think we can anticipate a long game being played. I think we can expect some of the Group’s businesses (funerals…  pharmacy… farming…) to be targeted.  Remember that there is a precedent: the Group has already sold majority ownership of the Co-operative Travel business and brand to Thomas Cook.  (Actually, it may make strategic sense to separate some of these businesses from the core retailing business.  But if that is to happen I would want to see the movement campaigning for the new businesses to be structured for the long-term as new autonomous cooperatives, not as short-term cash cows for private equity.)

But the core retailing business will be being sized up, too.  The Bank disaster will leave a long wake stretching several years hence, and the Group could be further weakened not only if its trading performance stays poor but also by Bank-related litigation.

So what is the response?  Firstly, I’d suggest, there is a need to look to ways to strengthen member engagement and stronger levels of accountability within the Co-op Group.  The governance structures may need to change but the aim must be to become more cooperative and democratic, rather than the opposite. Let’s borrow from Garibaldi and the Italians and campaign for our own cooperative Risorgimento.

And secondly, I’d suggest, there needs to be urgent work to develop major new financial instruments for larger cooperatives, accessing pools of capital which, whilst still expecting a return on investment, would be more sympa to the whole idea of values-driven cooperative enterprise.  If there is a need once again for significant capital in the UK cooperative movement, the instruments and the capital must next time be ready and waiting.

£5m invested by members in holiday cooperative business

It may not be as much as a billion Canadian dollars (see my blog yesterday about the capital raised by the Canadian bank Desjardins from its members), but it is worth pointing out that the hundred-year-old British cooperative HF Holidays recently reached the milestone of £5m in share capital, doubling the money its shareholder members (34,000 of them) have invested in their cooperative business over the past four years.

I enjoyed reading the account of HF’s lively AGM this year, which attracted about two hundred people. I particularly enjoyed the report of the Q&A session which included the following:  “Barbara Tucker of Muswell Hill, London had written asking that the photo of the Chief Executive Brian Smith in the members’ news be used to promote holidays, as he looked healthy and happy.”

Actually Brian Smith has now retired and HF has a new chief executive in Jim Forward.  Let’s hope his time in post is a healthy and happy one for the cooperative.

Capital for coops: not a chocolate biscuit

Journalistic integrity demands that I admit to a mistake.  I was wrong when, in my last blog,  I described the new initiative on capital for cooperatives from the  International Co-operative Alliance as their Blue Riband Commission.  Chuck Gould their director-general has put me right.  The ICA have named it their Blue Ribbon Commission.

And when I admitted to Chuck that I wasn’t really any the wiser, he told me that this has traditionally been a US term for a high-level enquiry led by experts.

So I hope that helps put things right. The substantive point remains that this is potentially a very valuable initiative.  See below!


Never another Co-op Bank… can we develop coop-friendly ways to find capital?

So, OK, let’s pretend to turn back the clock and discuss what the Co-operative Bank could have done differently.

More broadly, let’s discuss how a large cooperative organisation that finds itself undercapitalised, for whatever reason, can access the capital it needs in ways which don’t put at risk the key cooperative principle of delivering benefits for members rather than for investors.

It would have been nice to think that other cooperative banks and financial institutions around the world could have stepped in and joined the Co-operative Group as co-shareholders in the Bank.  It didn’t happen, although I understand that the Bank’s then Chair Paul Flowers did have early discussions with major coop banks in both Europe and North America.  For whatever reason, no deals were done and instead the hedge funds came storming in.

But there’s a more fundamental reason why this didn’t happen, and that’s because the international cooperative movement hasn’t really developed yet the sophisticated financial instruments which would enable coops with capital to invest to be able to put their money into coops which need capital – or for that matter how institutional investors such as pensions funds could also invest easily in coops.

The good news is that the International Co-operative Alliance is now taking a serious interest in this issue.  There was an excellent session at the ICA’s Cape Town conference this morning to launch what the organisation is calling its ‘Blue Riband’ commission, specifically to address issues of capital for coops.  The Commission’s Chair Kathy Bardswick (CEO of Canadian insurers The Co-operators) led the discussion, claiming that every coop at some stage of its life needs to find business capital. “How do we ensure that there is reliable and available capital without having to jeopardise the concept of member control?” she asked. She admitted that at the moment there are more questions than answers.

She has some of the best global cooperative talent working with her on the Commission:  Tan Suee Chieh of the Singapore cooperative confederation NTUC Enterprise, Bill Cheney of the US credit union organisation CUNA, Arnold Kuijpers the Director for Corporate Affairs of Dutch coop Rabobank and Monique Leroux of Desjardins (Canada). But Kathy Bardswick also called on the broader cooperative movement to feed in their questions, ideas and suggestions. Already I gather that Co-ops UK may be interested in supporting some serious work in the UK around cooperative capital, revisiting perhaps some of the early research which led to the book Co-operative Capital ten years ago, which you’ll find on my website

The Co-op Bank disaster has surely taught us of the urgency of this issue – but also of the need to address this internationally, rather than at national level. It is too late to save our own Co-op Bank, but not too late to develop innovative capital solutions which could yet ensure that other cooperative institutions don’t end up demutualising.

I have only one question:  why the name ‘Blue Riband’ for this Commission?  Wasn’t Blue Riband a type of chocolate bar?

Sneezing in Manchester: the wider effects of the Co-op Bank’s difficulties

There’s a twitchy feel at the moment around Manchester’s cooperative quarter, where I was this morning.  This is the historic area near Manchester’s Victoria station where many of the most important institutions in the British cooperative movement (including Co-operatives UK, the Co-operative College and the Co-operative Press) have their offices… just down the road from the Co-operative Group’s sparkling (hubristic?) new office block.

The twitchiness comes of course from the Group’s current financial plight, brought about by the capital shortfall faced by its subsidiary, the Co-op Bank. The Bank will be going public soon on the precise deal it is proposing to its corporate and private bondholders.  But there is an expectation that the Group will be entering a period of considerable retrenchment – and that this will directly affect many other parts of the coop movement which directly or indirectly rely on the Group’s support.

This is the drawback of having the ‘one big society’ which the British coop movement talked about and debated for almost a hundred years before finally the Group came together at the start of this century.  When things go well, big can be beautiful.  But having all your coop eggs in one basket means risking much more when things go wrong.  As a senior figure in the movement put it to me today, “When the Group catches cold we all sneeze”.

Talking of the Bank and its need for private capital, Co-ops UK has moved quickly to commission coop historian and academic Johnston Birchall to write a report on experiences elsewhere in the world where cooperatives have brought in external minority investors.  Johnston’s report Good governance in minority investor-owned co-operatives is out today, and looks very valuable.  I hope to read it and offer some comments tomorrow. In the meantime Co-ops UK’s Ed Mayo has a thoughtful blog on the same subject.  Well worth a look.