Lessons to be learned from the Co-operative Bank crisis

Changes with the Co-operative Bank could prove to be an incentive for the whole movement, according to co-operators at an open conference in Manchester, organised by the Co-operative...

bank-conference-round-upChanges with the Co-operative Bank could prove to be an incentive for the whole movement, according to co-operators at an open conference in Manchester, organised by the Co-operative Business Consultants, who met to discuss the implications of the challenges faced by the Bank. Speakers analysed existing financial co-operatives and looked at new strategy options for banking and insurance within the movement.

Panellists touched upon a series of issues related to the banking crisis, in particular the role of democracy within co-operatives, the need for organic growth and co-operative education – and the future of the Co-operative Bank itself.


Conference delegates widely agreed on the need to redefine what democracy means and what mechanisms were needed to empower members. Referring to the Bank crisis, Vivian Woodell, chief executive of the Phone Co-op, said members should take this opportunity to strengthen the Group, rather than feel defeated.

“There are lessons to learn from the wider co-op movement. The problem is not that we have too much democracy, but that the democratic structure isn’t working,” he said.

He argued the Group should consider turning its regions into independent societies, adding that evidence proved regional independent societies were more successful.

“Members should have higher expectations of how the business is managed. We all share responsibility and we need to accept this,” he said. He also encouraged members to speak up about the problems within the Bank and the wider Group: “You become complicit if you keep your head down.”

Peter Couchman, chief executive of Plunkett Foundation, which supports the growth of village co-ops, said there was a danger of focusing on what went wrong rather than learning from mistakes. Citing the organisation’s founder, Horace Plunkett, he warned about the menace of big co-ops becoming soulless corporations.

He said that individual wrong doings were not the only problem within the movement, but rather the culture that enabled that. He called for a federation of aggressive co-operators, arguing that at the moment, “co-operators are far too nice to each other.”

Members need to challenge each other more to increase accountability, thinks Mr Couchman. “The fundamental aspect of democracy is that it exists to meet the needs of the members and we have lost the mechanisms to do that,” he said.

Contesting the decision to take over Britannia in 2010, John Mann, Labour MP and member of the Treasury select committee, agreed members should have had a greater say in the process.

“Whatever model is used, if it does not enable members to have a say when important decisions are taken, then that democracy is worthless,” he said.

Some conference delegates suggested the movement needs a Co-operative Act to guarantee members democratic control of their societies. Patrick Gray, president of Midcounties, agreed: “As members, we need the right to go to court to demand to take control of the executive.”

However, Bob Cannell from Suma Wholefoods Co-operative believes a Co-operative Act could prove problematic for successful worker co-operatives like Suma, arguing that the Act “might not enable members to do what they want within their co-operative”. He also warned about the danger of having “minority worker owned public sector spin-outs that are not mutual, but called mutual.”

Organic growth

Another speaker at the conference, Frances Coppola, former banker turned financial writer, said co-operatives should commit to organic growth by attracting new members, rather than by a list of acquisitions. She argued co-operatives should be kept small enough so that members exercise control, but not too small because very small co-operatives are risky.

“In a co-operative model the moment you start diluting your capital you are on the path to losing control of your organisation. You need to think very carefully about whether the co-op should be growing,” she said.

Edgar Parnell, who has spent his lifetime working in co-operatives, agreed with Ms Coppola on the need to focus on attracting more new members: “The Co-op should not have customers, but members and prospective members. To do that, people have to first understand the co-operative model.”

Financial journalist Paul Gosling also believes the Bank’s attempt to get bigger and bigger led to the current crisis. He argued that had the bank not tried to mimic big corporations and focused on organic growth, it would still be owned by a mutual.

Another keynote speaker at the event, Dr Iain Macdonald, former director general of the International Co-operative Alliance, admitted that democracy was far from perfect not only within co-operatives, but also within local authorities and trade unions, mainly because it was based on democratic representation.

In Germany, some co-operatives are required by law to enable non-member employees to have a say in how the business is run. “It’s time we gave our workforces the same kind of say.”

Dr Macdonald, who has extensive co-operative development experience at international level, highlighted the fact that while co-ops make great contributions to the global economy, they are a tiny political player.

He also encouraged co-operators to learn from other international co-operatives. “The UK is insular within the co-op movement. There are examples of co-ops run hugely better than the Co-op Bank – we should be speaking to them.”

He said the Bank should have had closer links with the European Association for Co-operative Banks,as well as with Jean Louis Bancel of the International Cooperative Banking Association and chair of Crédit Cooperatif.

Also speaking at the workshop, Dave Hollings, consultant and director at Co-operative and Mutual Solutions argued small co-ops also had governance problems. Richard Bickle agreed that the size of co-operatives was not the most relevant issue. “When something goes wrong, people rush to assess it, which means it’s likely to happen again soon. We should start thinking that bad things can be avoided, while making sure we have a structure that is resilient enough to survive,” he said.

Another workshop, focusing on how co-operatives help to build a better world, featured a presentation by Patrick Gray, president of Midcounties. According to Mr Gray, members have played a crucial role in the success of Midcounties. The society set up a number of businesses, currently involved in IT services, energy, nursery and provision of finance mechanisms. Two of these came out of members’ sessions, by identifying areas where there was a market for co-operatives, but which lacked a co-op presence.

“Our experience has been a long-term process”, he said, explaining that members discussed setting up energy co-op ten years ago and looked into the possibility of creating a nursery co-op eight years ago. As well as members’ contributions, collaboration with experts and consultants from outside the movement was also important.

He added: “We’ve got to recapture a situation which existed in my parents’ time. At the moment, most people don’t care about the co-op because they think it doesn’t affect their lives.”

In spite of the challenges faced by the Co-operative Bank, the food business has continued to grow, with convenience stores reporting growth of 5.4% in the three weeks to 4 January. The movement should explore food sector opportunities more, thinks Charlie Clutterbuck, agricultural scientist and research fellow at City University’s Centre for Food Policy. He said co-operatives could be the answer to organising food banks by setting up a different model.


In a discussion around the accountability of governance, Vivian Woodell said good governance examples could be evidenced by transparency, a willingness of the management to accept changes and the existence of a system of checks and balances where everyone was accountable to someone. Willingness to accept changes is important, he explained. Executives should not reject changes simply because they have always done things in the same way.

He said: “It’s not just technical knowledge that is required by the board, but the ability to keep management accountable.

“We have to expect more from people in co-ops. Working for a co-operative is not just about pay; Co-op professionals should also be concerned with co-op principles, and we shouldn’t accept less.”

Mr Woodell also discussed how membership is a resource and should be valued rather than seen as a weight on the business.

Education could play a key role in developing a co-operative culture and forming the next generation of leaders. Delegates expressed concerns over the fact that co-operatives were not included in school curricula. However, Mr Woodell thinks it is far easier for co-operatives to form a new generation of leaders now, than it was in the days of the Rochdale Pioneers, mainly due to technological developments and the ability to reach a wider audience through the internet and social media.

“Good governance is not just about structure and process, it’s also about culture and people,” he said.

At FC United, a co-operative football club set up by supporters in Manchester, the 3,000 members are the most important part of the club, and the drive behind its success. John Nicholson, board member of FC United explained how the club tries to get members involved through an online forum.

He said: “We try to engage people in our own committee structure and also in volunteer activities.

“But it isn’t just about the structure. Of course you need that structure, but that isn’t enough on its own. You need the culture and, in a sports co-op, the understanding of fan ownership. Everybody has to be involved.”

The future

Opinions were divided as to what the future holds for the Co-operative Bank. MP John Mann expressed concerns over the fact that hedge funds might not be interested in co-operative values. He believes the solution to the crisis is to develop a “forward looking, simple business model” while “tearing up the democracy at the top and reforming it in a way that is actually rational”.

While some delegates argued credit unions were the way forward for the co-operative movement, others believed that co-operators should not “wave goodbye” to the Co-operative Bank just yet.

Present at the conference was Rob Harrison, one of the driving forces behind the Save Our Bank campaign and editor of Ethical Consumer magazine. He encouraged customers to speak with a single voice, saying that Co-op Bank customers should not switch accounts, but should continue to put pressure on the Bank to save its ethical policy.

Dominic Hook, national officer for Unite, spoke at the conference on behalf of many employees of the Co-operative Bank represented by Britain’s biggest trade union. He said Unite was concerned about the fact that losing customers might lead to more jobs lost, especially among low-paid staff members. He too was worried that allowing hedge funds to control the Bank would endanger its ethical policy. Another concern was that staff members working for the Bank would no longer receive pensions from the Group. Mr Hook also favours the German model which, he said, enabled workers in enterprises over 150 employees to be represented on the board.

In this article

Join the Conversation