Remember the name Andrew Regan? Let me remind you that he was the City-backed entrepreneur who in 1997 attempted to take over CWS (what is now the Co-operative Group) at the height of the carpet-bagging frenzy over building society demutualisations. Aided by information fed to him illicitly by two coop senior managers (both later imprisoned) Regan might very nearly have pulled off his coup. But the cooperative movement got its act together and fought back. The end result, if you like, was Coop 1, City 0.
There will be those in the City and Wall Street who are discussing now whether this is the moment for the rematch. Weak companies attract predators and the Co-op Group is undoubtedly weakened by recent events. I talked recently in a blog about those ideological enemies of the cooperative business model who are gloating at the Group’s current misfortunes, but here I am not so much concerned about the gloaters as about those dispassionate (and more dangerous) money-merchants, those who will be looking without emotion at the Co-op Group’s balance sheet and seeing a business – or rather a conglomerate of businesses – which they believe could be made to be much more profit-generating. They will see a business generally underperforming and not necessarily well managed, with excess fat which can be stripped away. (For ‘excess fat’ read, among other things, all those idealistic member-relations people and those innumerable area meetings for members and those worthy grants to organisations like Co-operatives UK and the Co-operative College).
In other words, don’t believe for a moment that private equity and hedge funds will stop at the Co-op Bank. The Group is potentially an even bigger prize.
What might the tactics be? The Co-op Group’s complicated internal structure makes a building society-style demutualisation via a hand-out of ‘free’ shares to members very difficult if not impossible to achieve (although I fear that most of the seven million individual members of the Group would just at the moment seize such an offer if it were ever to be tabled).
Rather I think we can anticipate a long game being played. I think we can expect some of the Group’s businesses (funerals… pharmacy… farming…) to be targeted. Remember that there is a precedent: the Group has already sold majority ownership of the Co-operative Travel business and brand to Thomas Cook. (Actually, it may make strategic sense to separate some of these businesses from the core retailing business. But if that is to happen I would want to see the movement campaigning for the new businesses to be structured for the long-term as new autonomous cooperatives, not as short-term cash cows for private equity.)
But the core retailing business will be being sized up, too. The Bank disaster will leave a long wake stretching several years hence, and the Group could be further weakened not only if its trading performance stays poor but also by Bank-related litigation.
So what is the response? Firstly, I’d suggest, there is a need to look to ways to strengthen member engagement and stronger levels of accountability within the Co-op Group. The governance structures may need to change but the aim must be to become more cooperative and democratic, rather than the opposite. Let’s borrow from Garibaldi and the Italians and campaign for our own cooperative Risorgimento.
And secondly, I’d suggest, there needs to be urgent work to develop major new financial instruments for larger cooperatives, accessing pools of capital which, whilst still expecting a return on investment, would be more sympa to the whole idea of values-driven cooperative enterprise. If there is a need once again for significant capital in the UK cooperative movement, the instruments and the capital must next time be ready and waiting.