The Co-operative Bank and Mutual Misunderstandings

23 November 2013 | News

This week’s news about the former Chair of The Co-operative Bank has shone a spotlight on the leadership of mutual organisations.  But much of the comment has conflated the personal antics of one individual with a wider failure in mutual governance.

This is misguided because it does not properly take account of the particular nature of The Co-operative Bank’s structure and how it differs from most other mutuals.

The first thing to say is that The Co-operative Bank is not a co-op – rather it is a subsidiary company of a co-op.  This is important because its sole shareholder (currently) is The Co-operative Group.  The Co-operative Group itself operates a democratic governance structure that is common to UK consumer co-ops, with directors elected to the board from its consumer and corporate members. Consumer members are ordinary individuals, but corporate members are themselves businesses, and typically will nominate their chief executives to the Board.  So although dominated by lay members, The Co-operative Group automatically has business expertise on its board with five of the directors themselves chief executives of independent co-operatives.

The board of the Bank is structured differently and today has five independent professional non-executive directors (IPNEDS) in addition to one nominated from the Group Board plus the Group Chief Executive. Since the summer, when the former chair stepped down, the Board has been chaired by one of the IPNEDS, who has significant banking expertise. Much of the commentary on The Co-o Bank’s structure has missed these facts and is critical of a system that has already been reformed.

More widely, it’s also important to note that the structure at The Co-operative Group bears little resemblance to that common in the rest of the mutual sector.  Building Societies, Friendly Societies and Mutual Insurers all have boards that are accountable to their members, but they differ from The Co-op Group in that they are not elected from their members. Directors are generally elected once they have been nominated by their Board on the basis of their skills and experience.

Indeed, governance in mutuals is progressing further.  For example, the new wave of mutuals providing public services – such as NHS foundation trusts, housing mutuals and co-operative schools all have a clear delineation of the role of the individual member in governance.  They are all managed by boards of executive and non-executive directors selected for their relevant skills, and the board is then separately accountable to individual members through a second tier structure of elected representatives.

It is to these and to the many successful international examples of mutual governance that the Co-operative Group should now look in considering how it can improve on its historic structures.  In the meantime, mutuals continue to thrive in the UK, in financial services and elsewhere.