Outside the marginals

a commentary on the politics that followed the UK 2010 & 2015 elections

Managing Mutuals

The current furore over the management of the Co-op (Bank) is raising a number of questions – some mischievously. The Co-op is not the only mutual so should not be used as an example to damn all enterprises that do not conform to standard corporate structures.

Standard corporate structures like to see a division between “Chairman” and “Chief Executive” – and well-known “conventional names” have been criticised for not following this pattern. The Co-op bank has followed this pattern – but has been heavily criticised for its choice of chairman.

We need to split this criticism:

  1. Criticism for appointing a “non-banker”
  2. Criticism for appointing an apparently flawed individual.

The division of duties between a “Chairman” and a “Chief Executive” can be thought of (generalising) as a division between external focus and internal focus. The chief executive concentrates on “running the organisation” and for a bank, it is probably a good idea if your chief executive has banking experience. The chairman has to deal with external stakeholders. In the case of “conventional” banks the major stakeholders are often other financial institutions and again it is probably a good idea if your chairman has experience that helps him relate to those stakeholders – so usually you want a chairman with financial experience. But the Co-op bank has (until now) been a wholly owned subsidiary of the Co-operative Group and again the argument that your chairman should be able to relate to those stakeholders – the Co-op Group – stands. The Co-op Group includes on its board directly elected co-op members. Not your normal institutional shareholders!

(The additional role that the chairman serves – of acting as father-confessor to the chief executive, needs some commonality of background. So in the case of the Co-op group this ability has been lost – in favour of having a chairman that can relate to the main external stakeholders. The “lost” role can be served by non-executive directors.)

So I think the criticism in respect of appointing a “non-banker” is not justified.

Appointing a flawed individual is a bit more difficult. When recruiting you try to make discreet enquiries to see if there are any skeletons – but not always effectively. In addition people are often coy when giving references for fear of being sued – so if nothing that was proved illegal had happened, nothing will be reported. (Having, say, inappropriate images on your work laptop would not necessarily lead to a successful prosecution under say the misuse of computers act. Any organisation that found one of its members indulging in such behaviour may well be happy for that person to depart without the publicity of a trial.) I would imagine that people would also be very careful of suggesting anything untoward about a Methodist minister. So is this criticism mainly informed by hind-sight? Perhaps we expect the FSA to have had NSA like surveillance abilities to sort out the frailties of character of people proposed for high office in banks.

Unlike other mutuals (such as the John Lewis Partnership or the Skipton Building Society), the Co-op is also traditionally a political organisation – which has made its problems the excuse for some clumsy mischief-making. Commercial loans and donations to the Labour party are no more exceptional than commercial loans and donations made by more conventional corporates to the Conservative party.

I fully expect to hear some conservative (Grant Shapps being the prime suspect?) trying to suggest at the next election that the fate of the Co-op is a good reason as to why the Labour Party cannot be trusted with running even a whelk stall. He will be relying on us forgetting the likely politics and political links of some of the other banking failures that have cost us (the tax-payers) so much. And yet the Co-op failure will probably not cost us tax-payers anything!

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