A pitiless Financial Times editorial, implicitly praising ‘clear-eyed, profit-maximising hedge funds’, opened yesterday:
“The Co-operative Bank is a misnomer and its celebrated ethical policy a modern invention. The venerable Manchester-based bank is not a mutual owned by its own customers. Its policy of forswearing investments in conscience-pricking activities such as genetic engineering and fossil-fuel extraction dates only from 1992.
“Adversity has now obliged the Co-op bank to discard many cherished and time-hallowed traditions. Forced to restructure after a mishandled merger with the Britannia building society exposed a £1.5bn hole in its balance sheet, the bank and its parent, the Co-operative Group, have accepted far-reaching changes to its ownership and governance. A majority of the equity will now be controlled not by the mutual society but by clear-eyed, profit-maximising hedge funds . . .”
Readers will note that it points out that the Group’s stake – expected to be about 30% and financed by the sale of its insurance arm – ‘cements the ethical policy’. Written into its articles, this is unchangeable without a 75% vote in favour.
How long will this last with hedge funds in control?
Jo Bird suggests a course of action which would leave hedge funds owning an almost worthless bank, bereft of customers.
The writer remembers being impressed by this able young co-operator when she met her years ago. Read Jo’s remarkable profile here.
She writes in the latest issue of the Co-operative News:
Richard Bickle (Letters, October 8) suggested “an alternative reconstruction of the Co-operative Bank as an IPS with transferable share capital of £1.5 billion with £500 million subscribed by each of the Co-operative Group, other cc-operative enterprises, and individual members”.
On paper, this is not too fanciful. Recent experience within the Co-operative Movement shows that significant share capital can be raised from shareholders using the IPS legal form. The Co-operative Group boasts more than 7 million members, and the Bank claims 4.7m customers.
Given the right offer, 556,000 people could probably be mobilised to invest the average of £900, thus raising £500m in capital.
The Cc-operative Movement has another model of harnessing support within a plc. Supporters Trusts successfully organise football fans to own shares and have seats on the Board of a larger plc. This model works even in a sector littered with companies that would be given junk status by Moody’s rating agency.
However, I could not support these models for the Bank’s future, because of continuing governance disasters at the Cc-operative Bank.
- There is a lack of transparency about any governance remit for the independent review, chaired by Sir Christopher Kelly.
- Members remain uninformed about almost every aspect of decision-making in the Co-operative Group and Bank.
- There is little confidence in the Board, given their failure to perform their responsibilities and hold senior management to account.
- There is no visible change to a corporate culture of ‘fat cat’ executive pay, large pay differentials and payouts.
The Save the Co-operative Bank petition on Change.org has been signed by hundreds of co-op members who “shall not remain customers of the Co-op Bank unless a proposal is made to return the bank to 100% member ownership and control”.
A collective switch?
If governance lessons are not applied, perhaps the next best course of action would be a collective switch.
Together, we could move our money to (or create) a bank or building society more willing and able to be ethical, transparent and accountable. The Co-operative Movement would then gain significant control over a financial institution – and we would have the satisfaction of leaving capitalist hedge funds owning an almost worthless bank, bereft of customers.
Proposals for a Quaker Bank have also attracted interest; both would steer clear of the so-called ‘clear-eyed, profit-maximising hedge funds’.