The Co-op Bank and the Select Committee hearings: could the coop’s democratic governance be the next thing to be lost?

I have been watching television this morning.  More precisely, I have been watching the video feed from the Treasury select committee where former Co-op Group and Co-op Bank senior managers are one by one being hauled up to explain to the MPs what they think went wrong at the bank.  Today it was the turn of former Bank CEO Barry Tootell to face the questions.  Tomorrow the Bank’s former Chair Paul Flowers has his turn.  It cannot be something he is looking forward to.

The videos of past sessions remain available at the website and provide the best evidence yet available of exactly what was happening at the Co-op Bank in recent years. It is definitely worth looking at last week’s encounter with Peter Marks, the Co-op Group’s recently retired CEO, for example, characterised by some acerbic interventions from committee chairman Andrew Tyrie.

One of the lines of questioning pursued today by the select committee was whether the Group’s and the Bank’s corporate governance was up to the job. There was more than a hint (particularly from the Conservative members) that the Co-op’s democratic structures and the role these structures give to elected lay Directors must have contributed to the Co-op Bank’s problems.  To his credit, Barry Tootell today robustly defended the Board composition at the Bank, defending the role of the non-executive directors whom, he said, had both helped and challenged him when he was CEO.  Peter Marks by contrast took a very different position last week, implicitly criticising the Co-op Group’s elected Board and arguing for corporate governance reform (one of the few times he and the select committee seemed in agreement).

It strikes me that it would be compounding a tragedy if, as well as effectively losing the Co-operative Bank, the present crisis was to lead the cooperative movement to weaken its democratic corporate governance structures. The City and its friends have in the past sneered at the role of lay directors (“a plasterer”, “a Methodist preacher”) at the Co-op Bank.  There is, however, no evidence that more ‘traditional’ boards at, say, RBS or HBOS managed their jobs any better.

How to get the balance right in cooperatives between elected non-executive directors and those non-executive directors brought in because of their professional expertise is an important question which I think urgently needs more discussion.  Without this, there will be a risk of a gradual slide towards cooperative boards increasingly made up of the usual type of professional non-exec.  It happened in the building society world many decades ago, and I don’t think it helped building societies remember their responsibilities to their members.


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