Monday, April 21, 2014

The Co-op crisis and the death throes of 2008

This week I have been mostly getting depressed about the ongoing slow-motion car crash at the Co-op. It's bad enough that one of this country's few major co-operative institutions seems to be imploding, but the coverage in the media has just added insult to injury.

Last week the papers seemed to be falling over themselves to blame the Co-op's shambolic co-operative governance structure for all its failings and insist that it needs to embrace reform. It's as if they've forgotten that five years ago, it wasn't amateurish committees that brought the global banking system to its knees, but plcs which ticked absolutely every imaginable box of 'good corporate governance'.

A particularly infuriating editorial in the FT piously pointed out the Co-op's lack of proper risk management and the fact that board members failed even to understand the risks the bank was running. Although the editorial did go on to say that it would be a mistake to try and turn the Co-op into a plc, that seemed to be based more on a recognition that it would be losing its USP than on any doubts about the obvious superiority of the plc governance model. And yet the failings it highlights are literally the exact same failings identified as contributing causes of the collapse of listed banks. And, despite a growing list of independent reviews, there are few signs that anything much has really changed.

Indeed, when I worked in this field, one of the things that repeatedly astounded me was the sheer complacency of the UK corporate governance community – the speed with which the waters closed over the crisis and the prevailing sense of smug self-satisfaction reasserted itself. In 2010, I was sat in a conference room full of white middle-aged men, all chuntering about how UK corporate governance was the envy of the world, when someone offered without a trace of irony, “We're our own harshest critics.” Honestly, it was an effort of will not to stand up and yell, “Newsflash guys - you're really not!” Taking a leaf out of Bob Diamond's book, it was obvious they'd decided that the time for remorse was well and truly over.

Lord Myners, to be fair to him, was one of the few voices of dissent to disturb this cosy consensus. But I can't help feeling that he sees his review at the Co-op as a laboratory for all his bright ideas about governance reform, which were developed as sticking plasters for a limping plc model, rather than a genuine opportunity to strengthen and rejuvenate the co-operative alternative. He gives the game away in a Guardian comment piece, when he insists that those who say he is trying to impose a plc model "do so to deceive": “On which plc do shareholders sit on the nominations committee, evaluate the board or publicly hold it to account on a quarterly basis?” 

If that really is his defence, it's Myners who begins to look disingenuous: he and his hedge fund, Cevian Capital, have been loudly calling for these measures in a plc context. So, although he may not be turning the Co-op into a plc as they currently stand, he does appear to be turning it into his ideal vision of one. And, while most sensible commentators agree with Myners' diagnosis of the problems with listed companies, it's far less clear that handing more power to shareholders is the solution. Besides, it's very hard to square the idea of turbo-charged shareholder accountability with commitment to co-operative principles.

I should say that I'm by no means an expert on the Co-op's governance structure, and I'm certainly not saying it doesn't need to change. But it is hugely frustrating to see this saga being portrayed as a failure of the co-operative model, when in so many ways, it is really a belated spasm of the 2008 crisis. Just like listed banks, the Co-op over-reached itself, taking on too much risk and pursuing ill-advised takeovers. Just like listed banks, weaknesses in its governance allowed these risks to grow un-noticed. And then Lord Myners is parachuted in to fix it all using solutions he dreamt up in the aftermath of the crash, with listed companies in mind. 

Of course, the irony is that it is precisely the 'never again' mentality produced by 2008's massive bail-outs which has led to the Co-op being allowed to sink or swim – potentially devastating the UK's co-operative sector in the process. And that's the really depressing thing about all this. Because if we want to make our banking system more resilient, we need to strengthen the alternatives to the profit-hungry, risk-loving plc model – not vandalise them.

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