The unexpected resignation of Lord Myers from the board of the troubled Coop Group has brought to the fore, once again, the need for regulatory intervention in the Coop Bank affair.
The simple, and right, answer is to relieve the bank of its troubles by creating a ‘good’ bank and a ‘bad’ bank – the old Northern Rock model – and carefully manage down its business.
The longer the Coop Bank continues in this mess the more damage it will inflict on the wider UK banking sector.
Lord Myners has walked out of the beleaguered mutual group after his proposals for a radical transformation of its governance failed to get all-round support.
The reality is that the Coop Group is at an historic junction: it can either take the Myners route and become a PLC in all but name, and in so doing destroy its claim to mutuality; or, it can reject Lord Myners’ proposals and return to its founding 19th century principles.
There is also a middle way of remaining loyal to its principles, while introducing efficient and competent management.
One issue that always raises its ugly head during these discussions is that of threats and bullying; but if people join a mutual they often do so because they feel passionate about the cause.
And to see it whipped from under their feet because of a few bad decisions – opting for a public company route during the boom years, and the awful decision to appoint Paul Flowers as chairman of the bank – should not cool that passion.
One risk that City regulators must take in to consideration when stress-testing mutuals is that they are organisations led by ‘amateurs’, which is their main attraction.
Many consumers do not want to do business with the dominant public companies, for all kinds of reasons, including the bonus-driven cultures of the executive floors.
And this is one of the ideological faultlines of regulation, an insistence that all directors and executives must be competent in financial literacy, while the other stakeholder demands are left for corporate philanthropy.
In the final analysis, in a mature, diverse market economy savers and investors have a right to different business models, including that of mutuals.
So, Lord Myners, despite a distinguished career as a fund manager and financier, is wrong to try to impose a PLC model on one of the nation’s leading mutuals.
Equally, the bright new executives brought in to impose order and efficiency on the Coop Group are right as well as wrong.
The Coop Group, a juggernaut of a mutual, needs efficient and effective management, but this does not mean one based on extortionate remuneration packages for senior executives and running its bank, supermarkets and farms like conventional commercial enterprises.
Customers seek out mutuals for difference, because they are prepared to forego some benefits in return for the ethical returns.
For parliament, the City regulator or the big battalions of the finance sector to drive a cart and horses through mutuality will be perverse.
