2014 marked, I think, 25 years since I began writing regularly for Co-operative News. But this anniversary escaped my attention as I had many other things to occupying my mind during the year. Let us start with the positives – and speaking personally, there were several in 2014.
As a result of this column, I met more co-operative activists over the past 12 months than at any time since the 1980s, when I was employed as a co-operative development worker in Leicester. I began 2014 with an event that achieved a strong re-affirmation of co-operative principles, speaking at the Ways Forward 1 conference. Later in the year I was happy to support Ways Forward 2, and I now look forward to attending Ways Forward 3 in January 2015.
During 2014, I was also able to talk to, meet and discuss the state of the sector with activists at the Society of Co-op Studies AGM and other events. Those conversations made it clear to me there is no united voice among committed co-operators about the state of the movement, or how the movement should respond to the crisis at the Group.
While some people who rose through the old democratic centralist system of Group elections have continued to defend its operations, solely blaming the Group’s executives for the financial mess, others have recognised the need to reform corporate governance to create a system of genuine democracy.
But I have met no one, with a history in the movement, who supported Lord Myners’ proposals for the Group to adapt a Nationwide Building Society-style of elections to the board, in which the lay voice is barely heard and the board is, in essence, unchallenged.
Anyone who wants to understand the true depth of the crisis at the Group should read Sir Christopher Kelly’s review, depressing and disturbing as it is. And to fully appreciate why the Bank got to the point it did, watching the recordings of evidence to the House of Commons Treasury Select committee is instructive. The sight of Peter Marks (chief executive of the Co-operative Group 2000-2013), Neville Richardson (former chief executive of Britannia, chief executive of the Co-op Bank 2009-2011), auditor KPMG and investment bank JP Morgan all deny responsibility for the collapse of the bank would surely lead the gullible to accept it was merely a matter of fate, in which no one was to blame.
This year I have seen at close hand some exciting examples of a new wave of co-operatives, such as Village Greens and FC United, both of which are located in Greater Manchester and benefited from the Co-operative Enterprise Hub. Sadly, the Hub was one of the victims of the cuts arising from the financial near-meltdown at the Group. It would be wonderful if other, stronger, co-operatives could step into this vacuum in 2015.
We have also seen an emerging sector of energy co-operatives, forged in part through the community shares structure. However, energy co-ops are now at risk from an over-zealous approach by the Financial Conduct Authority to police co-operative principles by seeking to impose a draconian limit on the amount of interest that can be paid to investors.
Another positive development in 2014 has been the re-emergence of building societies as leading providers of mortgages. I hope that in 2015 some of the mid-tier building societies can grow – organically and sustainably – to provide more strength and breadth in the sector. We need societies to offer a real alternative in the financial services industry to fill the gap formed by the demutualisation of the Co-operative Bank.
But we cannot gloss over the scale of the disaster that we have lived through during 2014. Not only did the Co-operative Bank collapse, it now trades under a misleading name – as does Co-operative Pharmacy and most of the Co-operative Travel brand. Very serious strategic errors by past executives and boards of the Group and the Bank meant that drastic action had to be taken to keep the two organisations trading. That has led to the Bank being owned by investors and the Group selling off Sunwin and its Pharmacy and Farms businesses – and being less accountable to its members than it was before.
Meanwhile, the ‘joint venture’ with Thomas Cook – into which the Co-operative Group’s version of Co-operative Travel was inserted – has its own problems. A boardroom conflict at Thomas Cook led to the departure of the highly regarded chief executive Harriet Green.
The collapse of the Bank came at a particularly bad time for the Group. It had been saddled with unaffordable debt through the thoroughly ill-advised acquisition of Somerfield. And the value of past deals was written down just when competition in the grocery trade had reached an all time high.
What, then, for 2015?
My hope is for something approaching a revolution at the Financial Conduct Authority. Firstly, it should adopt a realistic approach and allow energy co-operatives to offer market-based returns. Secondly, it needs to initiate a reform of the way that financial institutions contribute to the Financial Services Compensation Scheme – so that charges are based on risk profile, not the level of savings an institution holds.
Thirdly, I would like the FCA to work with the other regulator, the Prudential Regulation Authority, and the co-operative movement to establish a more effective and sympathetic approach to the regulation of mutuals. We need much greater protection of the use of the name ‘co-operative’ in registered names and as trading brands. And we need greater intervention where co-operatives and mutuals fail to uphold their founding values.
That intervention is also required where co-ops and mutuals adopt trading practices that are unsustainable or involve excessive risk. This is very different to the FCA’s existing attitude of requiring even a small building society to, in effect, adopt the same structures of corporate governance as those of a massive bank. And I continue to worry about the credit union sector – there have been too many failures.
Despite questions over the future funding of the Co-operative Party, I hope that Co-op MPs will address these various regulatory issues enthusiastically inside the House of Commons and elsewhere.
Perhaps, in contrast to 2014, 2015 will be a year of triumph. Many young adults who witnessed the global financial crisis – and suffered the consequences – have come to the view that we need a different form of economic organisation. Some are looking to form workers co-ops, others are establishing housing co-operatives.
It is possible to create a new wave of co-operatives, despite the trauma of the near collapse of some of the oldest. To do this, we need to recognise the mistakes of the past. Hiding from the truth is no solution. Let us pledge as we enter 2015 to reflect, learn and re-commit our movement to the principles of democracy, accountability, openness, equality, fairness and sustainability.
In this article
- Business models
- Christopher Kelly
- Co-op Bank
- Co-operative Bank
- Co-operative Pharmacy
- Cooperative banking
- energy co-operatives
- energy co-ops
- Financial Conduct Authority
- Harriet Green
- House of Commons Treasury Select Committee
- investment bank
- JP Morgan
- Nationwide Building Society
- Neville Richardson
- Peter Marks
- Society of Co-op Studies AGM
- The Co-operative Bank
- The Co-operative Group
- Thomas Cook
- United Kingdom