Apr 11 2014, 6:15pm CDT | by Forbes
A crisis of leadership and corporate governance at Co-operative Group, the UK’s largest mutual business, has been making a lot of people very agitated. It is not just because of a litany of unfortunate events, but because it represents the clash of two worlds. How that clash is resolved will be critical to business, important to the banking sector, and could have a wider impact on thinking on corporate governance today.
Events are fast-moving, and the latest tonight is talk of new investors in the Co-op Bank. But although the financial urgency is about the bank, and much of the drama has been provided by its ex-chairman, the Reverend Paul Flowers, there is more at stake here.
The Co-operative movement , which began in the UK in the mid 19th century in the north of England, was born of a desire for collaboration around the combination of buying power and the control of quality. The Co-operative Wholesale Society of 1863, which came to be known as the Co-operative Group, today claims almost eight million members, 90,000 employees and 4,500 shops. Its website says it has annual sales of more than £13bn.
MidCounties, the largest of the Group’s independent societies, has more than 10,000 employees and revenues of £1.2bn. It has just been recognised with a prestigious 4 star rating in the UK Business in the Community’s annual benchmark of responsible business, the Corporate Responsibility Index (CR Index). It has also been a vocal opponent of plans for governance reform put forth by Lord Myners, the senior independent director on the board of the Co-operative Group, which preceded his resignation.
But the travails of the Co-operative Bank may now be in danger of eclipsing the ethos of the Co-operative as a group endeavour. While banking standards remain under review in the UK, the mood has been turning on the glimmer of economic recovery. There is little indication that leadership at UK banks is going to give in easily on attempts to rein in executive pay and realign reward in the industry, and the Co-op is unlikely to lead reform there. This may well increase the ‘disconnect’ between the Bank and the values of the Co-operative Group as a whole.
Abandoning the banking side would not be a quick fix either, for many reasons. Today the Co-operative Group suspended a board member whose accountancy qualifications turned out to be erroneous, reinforcing the impression of sloppy corporate governance throughout in terms of the accountability of decision making, as well as a seriously flawed appointments process.
But what the Co-operative Group does next will be worth watching. It says it accounts for some 80% of the total co-operative movement in the UK. Although there is no direct link between its members and the Quakers, there is an echo when it comes to an ethical approach to business, formed of collaborative intelligence. It has been said that it was that ethical approach which gave Quaker retailers competitive advantage over rivals because their customers “knew they were not being ripped off and didn’t have to haggle to get a fair price.”
The Quakers are linked with UK banks, such as Barclays plc and Lloyds Bank (now Lloyds TSB), with Friends Provident, (Friends Life) the life insurance company, and other businesses. In the US, law firm Duane Morris and Cornell University are among those with noted Quaker links. Both campaigners Greenpeace and Amnesty International, have Quaker origins.
It is surely no coincidence that the ethical approach identified with the Quakers- and inextricably woven into the co-operative movement- has had good success in the performance of businesses, and is being looked at anew today as business seeks to reconnect with the society it serves.
There is evidence that there must be something to it in the US, where the Quaker Oats company founded in the late 19th century still uses the image of a traditionally dressed Quaker on its cereal boxes – although its website makes it clear it’s a spurious connection. “Both former owners, Henry Seymour and William Heston, claimed to have selected the Quaker name as a symbol of good quality and honest value” it says.
It is all about the creation and preservation of reputation over time.
The co-operative movement in the UK, like the Quakers, is born of a desire for consensus and collaboration in the search for a better future. As such, it is not surprising that Lord Myners’ initial proposed governance reforms were rejected, as they were possibly just too far apart for consensus. It is said that the Quakers did not decide by vote- they kept on discussing the issue until there was a unanimous conclusion.
While it may be too much to hope for unanimous conclusions, boardrooms are designed to work best on consensus.
These days they also operate in a media spotlight, and those who are bankers and other ‘high-flyers’ are more comfortable often in its glare than those who just want to ‘get on with the job.’ It is just another factor to bear in mind in the continuing tale behind the scenes at the Co-operative Group, where ‘ordinary folk’ meet ‘so-called City grandees.’
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