The low-down from inside the Co-op Bank

For those interested in the British cooperative movement, the must-see website at the moment is that of the Treasury select committee.  This is where you can access the transcripts (and the video recordings) of the interviews that the select committee is conducting with key past senior managers of the Co-operative Bank and Co-operative Group.

The draft transcription of the encounter last Tuesday with the Bank’s former CEO Barry Tootell has now appeared on the select committee’s website, and together with the interviews with Peter Marks (ex CEO, Co-op Group) and Neville Richardson (Barry Tootell’s predecessor at the Bank) provide a real insight into life at the top at the Co-operative Bank in the past five years.

I have to say that I think Barry Tootell performed very well and I find his account of the merger with the Britannia Building Society convincing.  We now know that the Britannia bequeathed a shed-load of bad debts to the Co-op, but I’m prepared to accept that at the time the Co-op did do the appropriate degree of due diligence.

There’s an interesting comment from Barry Tootell when he was asked for his impressions of the Bank when he first was employed there in 2007.  He replied: ”It was a business that had historically operated with a high degree of competency. I was quite impressed in joining the Co-operative that not only did they have a culture within the business that was hugely collaborative and very , very open and non-political and a great place to work, but also with very high calibre people recruited into some of the key roles. I was quite pleased when I joined the business that they were not — it is a slightly disrespectful view — sleepy and backward looking as I might have thought they were.”

Although the Bank has its own Board of Directors (with five ‘professional’ non-executives) The Co-operative Group, the Bank’s parent, operates with a twenty-member Board directly elected by the Group’s members.  I detect implicit criticism of this arrangement (a cornerstone of cooperative corporate governance)  from some members of the select committee, and it’s interesting that Barry Tootell did not take the easy way out and collude with their criticisms.  Instead he said: “I think we have genuinely benefited from the diverse opinions that we see in our boardroom. We have the represented views of the broader membership of the Group sitting in our boardroom and playing a part in the debate that we have as directors. Whether that be bringing the ethical card to bear or whether that be representing the broader view pf the membership, it is a helpful check and balance to some of the decision-making we have undertaken. I do not think we have fallen short by having that broader democratic representation in our boardroom.”

As I’ve suggested in a previous blog, I have a real concern that the Co-operative Group will respond to its present woes by moving away from member representation in its management.  There may be a battle ahead here.


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.