The main surprise about Lord Myners’ resignation from the Co-Op board is that it took so long to happen. Myners has known for many weeks that the Co-Op “democratic” governance structure was unlikely to welcome his proposals, and so it has turned out. He follows Chief Executive Euan Sutherland out of the door, for similar reasons; mutuality and co-operation are just too quaint for the modern world. So they say.
Except that it isn’t, or at least not generally. There are many, many successful business models that do not follow the usual publicly quoted PLC pattern. Private partnerships still dominate areas such as the law and accountancy, including very large international firms; John Lewis (owner of Waitrose) is another super profitable firm that has no shareholders; and the various building societies still in business, such as the Nationwide, are also mutuals. None is immune from business problems and economic downturns, as the demise of some building societies such as the Dunfermline and Britannia (itself bought by the Co-Op Bank, of which more later) demonstrate. OK, none would have hired the Reverend Flowers; but plenty of PLCs have had crazed chief executives, for whom crystal meth was entirely unnecessary as an aid to insanity.
The truth is very prosaic. By 2008 the Co-Op was bumbling along in a state of sedate long-term decline, as it has been for many decades, until the fateful decision was taken to rescue/take over the Britannia Building Society during the banking crisis. At that point the Co-Op, presumably unwittingly, inherited a vast amount of toxic debt, a problem so dire it not only infected the Co-Op Bank but the wider parent and movement – including businesses such as funeral care that were doing perfectly OK and far distant from US mortgage-related synthetic collateralised debt obligations. And all that.
In its way the Britannia/Co-Op bank deal was like Lloyds’ forced (by Gordon Brown) marriage with Halifax/Bank of Scotland – the latter being an entirely PLC affair. The authorities were desperate for a “private sector” solution to avoid nationalising a bank (damaging for Brown and what was left of new Labour’s credentials) and costly to the public purse. In other words it doesn’t matter if you’re a mutual, privately owned or publicly quoted. If you buy something defective it’s going to bring you down.
The Britannia purchase in late 2008 was a disaster; those who were responsible bear an awful burden; and if anyone in the Treasury or Bank of England were urging the Co-Op on to take the risk, then they too should hang their heads in shame. Indeed the Co-Op and its members have a good case, if any of this is is true, for compensation from HM Government and the Bank of England if they did indeed intervene or encourage this rescue, to save the taxpayer the bother and cost of propping up the Britannia. The Co-Op and the Britannia’s management of the time also obviously have questions to answer. It is the part of the story we know least about, and which matters the most. Let’s hope it won’t take the collapse of the entire Co-Op to bring the facts out into the public domain.