President's Blog

The Ethical Bank - where did it all go wrong?

Monday, July 15, 2013

The following article appeared in the summer edition of Croner’s Environment Magazine as my penultimate contribution to the Viewpoint column on matters related to sustainability policy and practice in the UK.  The article reflects on problems of the Cooperative Bank, a UK national bank with 4.7 million customers and approximately 2% of personal banking business in the UK. Here in Canada, the nearest equivalent to the Coop Bank in terms of size and strategy would be VanCity, the values-based, Vancouver credit union.   However, all credit unions in Canada, including those in Cape Breton may find the tale described below somewhat sobering.

After the article went to press, and as a result of a fundamental review of its capital position, the Coop Bank announced that it is going to pursue stock market listing as part of its strategy to rescue its business model by raising £1.5 bn from capital markets – probably in October 2013.  The impact on the bank’s cooperative principles remains to be seen.

The recently announced black hole which seems to have opened up in the balance sheet of the UK Cooperative Bank provides a stunning example of what happens when corporations lose sight of their fundamental values. 

Appointing 30 year veteran of HSBC Niall Booker to clean up the mess, new Cooperative Group Chief Executive Euan Sutherland said: “The Co-operative Bank has a strong future. We will build on our strengths as a member-owned Bank, with a loyal customer base and an ethical heritage.”  Except that the Cooperative Bank is not member-owned in the strict sense - it is the financial subsidiary of the Cooperative Group.  And I suspect that the bank has a decreasingly loyal customer base given the newly acquired junk status of its debt – particularly among local authorities which need to follow strict investment rules and those pensioners and bond holders who are about to get a financial haircut.

So where does that leave the ‘ethical heritage’ of the bank, and indeed of the sustainability credentials of the Cooperative Group itself?  Here I am pleased to add some historical context.

In the late 1980s and early 1990s a group of interesting folk used to meet together under the auspices of an American organisation - the Social Venture Network.  We would meet in interesting locations around the world and we would talk about reinventing capitalism, in a post-hippy, West Coast US kind of way.    We believed in a ‘double bottom line’, later to be brilliantly trumped by John Elkington’s ‘triple bottom line’, and we would all feel good about changing the world through maximising the consumption of Rainforest Crunch Ice Cream (RIP 1996) and Banana Hair Conditioner (recently restored).

Once we got over the hand-holding and chanting in circles, some fascinating projects were launched.  From a European sustainability and CSR perspective these included the inception of AccountAbility (in Lucca, Italy).  Business for Social Responsibility (BSR), that powerhouse of global CSR consulting, was born out of SVN in 1992. Leading lights included the wholly decent and admirable SVN co-founders Josh Mailman and Wayne Silbey, Ben Cohen and Jerry Greenfield, and of course Anita and Gordon Roddick (on whose coat-tails I would travel).  Dutch cooperative bank Rabobank and ethical bank Triodos were frequent attenders.

An occasional and somewhat studious observer of these exotic gatherings was one Terry Thomas (now Baron Thomas of Macclesfield CBE).  Having joined the Coop bank in 1973 as a marketeer, Terry led the opposition to the bank being sold for a song by the Cooperative Wholesale Society (CWS)  and later embarked on his audacious ‘ethical banking’ policy.

The rest of the CSR world stood back in amazement as Terry’s sleepy little bank, much loved by local trade union branches and left-leaning local authorities, got religion on CSR.  Full page ads began appearing in the quality press promising never to lend cash to arms manufacturers, third world tyrants and animal testers.  British Aerospace, the Iraqi leadership and L’Oreal were no doubt suitably mortified about being denied corporate banking facilities by the Coop, but ordinary individuals loved it.  By the end of the decade the Coop was the leading player in numerous initiatives in sustainable business and had even outpaced Body Shop on sustainability reporting.  Most importantly of all, the Bank’s market share increased and retail customer service was discovered, the Coop becoming a pioneer in telephone banking, complete with authentic regional accents.

Fast forward to 2009 and the merger with fellow mutual Britannia which led to enormous IT integration issues.  And then to April 2013 and the abandoned takeover of 632 Lloyds branches in a deal that the Financial Times estimated would require a £1 billion increase in capital.  And now to the reported £1.8bn black hole in the balance sheet.

Claiming no prescience, back in October 2012 I was shocked to hear former CEO of the Cooperative Group Peter Marks effectively eschew the democratic principles of the movement at an international gathering in Quebec City.  Whilst the rest of 2000+ delegates - and even management consultants McKinsey - were celebrating cooperation as the business model of the future, Marks introduced a jarring challenge to delegates to effectively become more business-like or go the way of the dodo.

So now it seems that being more business-like has not necessarily helped the Coop bank or its stakeholders, including the Coop Group.  As the Group reestablishes its principles and begins to reinsert them into its banking subsidiary, I can recommend a little book by one Thomas, T J (2008). It is called An inclusive community with integrity and it is published by the Stanhope Memoir Club.  We must wish the Cooperative Group well in its journey of autopoietic rediscovery; the cause of sustainable and socially responsible business requires nothing less than a full recovery.