Commenting on comments

There are two comments to my post on Saturday on the Phone Co-op AGM which (because of the way WordPress tucks them away in the left hand margin) you may miss.

The first is from Amanda Davis, who has had problems leaving a comment due to the adverts which WordPress imposes, which of course I have no control over. I have wondered for some time whether the adverts are an issue, and whether I should get them removed (the only way to do this, of course, being to pay WP extra money myself). I already pay WP for the bibbyoncooperatives.org domain, and am loath to contribute too much more to a US multinational, but if people feel this is a problem or if the adverts (which I don’t see) are inappropriate or offensive, then please let me know.

The second comment is a very interesting one from Martin Meteyard, about the nature of members’ capital in the Phone Co-op and whether it should be treated as risk capital or simply some form of quasi- building society savings.  Martin raises a highly significant question and one which as he says the recent debates at the Phone Co-op haven’t brought out. The question needs discussing.

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Co-op capital: the Phone Co-op looks to its own members

I’ve been reading the half-yearly report just published by the Phone Co-op, and see that they report that they now have capital of £5.9m invested in the business belonging to their 10,000 or so members. “As has been the case for many years, the Society has no borrowings and continues to finance all of its operations from retained profits and the share capital provided by members,” the report says.

The Members’ Capital shown on the balance sheet is partly made up of accumulated dividends, but also reflects the Phone Co-op’s proactive approach in seeking direct investment by its members in the cooperative business. It’s an interesting example of Co-operative Principle 3 in practice.

(Can’t remember which principle that is? The answer is here).

Another cooperative bank demutualisation

Vivian Woodell of the Phone Co-op has drawn my attention to a news report of the proposed stock market flotation and demutualisation of a small cooperative bank in Melrose, Massachusetts (here). You’ll see that Vivian has also added his own comment on the webpage, making the point that “the fundamental purpose of a shareholder-driven business is to make money for shareholders, whereas the purpose of a co-operative is to serve its members”.

Capital has been identified by the International Co-operative Alliance as a key issue for the global cooperative movement to debate, and the ICA’s absolutely right.  We have lost too many cooperatives (especially financial and agricultural cooperatives) over the years to the private sector because traditional equity capital seemed to be the only new source of capital on offer.  We need some innovative solutions for capital for coops, including taking a new look at the opportunities for member-provided investment capital.

Ways forward for Britain’s coop movement

I’m pleased to hear that around 140 people have booked in for this Friday’s conference, called by Co-operative Business Consultants following last year’s Co-op Bank debacle to discuss – as CBC puts it –  “Ways Forward for the Co-operative Movement”.   This is a potentially important initiative, and the high level of attendance suggests that there are plenty of activists determined to prove that there’s life in the old coop dog yet.

I’ve been working this morning on the short presentation I’ll be making to the workshop looking at member capital.  Co-operative capital is, as you’ll know if you’ve been following my blog, one of the issues I consider most important for the coop movement to address, and I just hope that people don’t see the word ‘capital’ in the programme and feel that this session is not for them.

The conference is in Manchester, the city which has over the past century and a half hosted many of the most significant events in the UK coop movement’s history.  This could be another one.

I’ll be contributing a report to The Guardian’s social enterprise hub afterwards and will post a link here.

One hedge fund takes the money… as another one arrives

Today’s Financial Times reports that one of the US hedge funds involved in the Co-operative Bank restructure, Aurelius, has already sold almost all its stake in the Bank (don’t get too excited, it’s gone to another hedge fund, Perry Capital).  The cooperative world has frequently talked of the short-termism of the capital markets and here, it would seem, is a text-book example.

The FT dedicates a whole page to the recent story of the Bank and the Co-operative Group, a generally very fair feature which assesses what has been happening and why.  The paper also reminders its readers of recent difficulties among other cooperatives, including (as I’ve reported here) Rabobank.  FT journalist Patrick Jenkins quotes a Moody’s analyst Carola Schuler who puts current problems at cooperatives down to two core causes, corporate governance and capital allocation.

Actually, I think, Moody’s analysis is absolutely right.  The FT doesn’t go on to add (but I will) that both issues have already been identified as key issues in the International Co-operative Alliance’s current strategic work agenda.

Heart attack: how the UK coop movement’s most important institution could be at risk

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.

£5m invested by members in holiday cooperative business

It may not be as much as a billion Canadian dollars (see my blog yesterday about the capital raised by the Canadian bank Desjardins from its members), but it is worth pointing out that the hundred-year-old British cooperative HF Holidays recently reached the milestone of £5m in share capital, doubling the money its shareholder members (34,000 of them) have invested in their cooperative business over the past four years.

I enjoyed reading the account of HF’s lively AGM this year, which attracted about two hundred people. I particularly enjoyed the report of the Q&A session which included the following:  “Barbara Tucker of Muswell Hill, London had written asking that the photo of the Chief Executive Brian Smith in the members’ news be used to promote holidays, as he looked healthy and happy.”

Actually Brian Smith has now retired and HF has a new chief executive in Jim Forward.  Let’s hope his time in post is a healthy and happy one for the cooperative.