2. Alternative Theories of Banking Corporate Governance in the Wake of the Financial Crisis: Lessons Learnt from the Case of the UK Co-Operative Bank

Friday, 3 July 2015: 8:30 AM-10:00 AM
CLM.2.05 (Clement House)
Tim Lewis, Birkbeck College, University of London, London, United Kingdom
In the wake of the financial crisis, many have advocated more stakeholder led, democratic based models of corporate governance as a counterweight to the CEO led / Managerial Hegemony forms of Corporate Governance that dominates large financial institutions. After all, advocates argued, the Co-operative bank survived and initially emerged from the financial crisis of 2008 relatively unscathed and as one of the few smaller UK high street banks in the early days of the crisis, that was not bailed-out through Government backed merger or acquisition. 

What was more, the Co-operative bank was a mutual with a strong consumer brand and tradition dating back 150 years, based upon strong consumer-led principles and stakeholder ownership. In fact, what was there, not to like? The Co-operative offered a model of corporate governance, similar to the successful and highly profitable retailer, the John Lewis partnership that was based upon pro-active employee engagement and accountability, including a non-executive board that was represented and elected by its members.

However, scandals emerged; following the merger of the Co-operative bank with another mutual rival Britannia in 2009; and from the subsequent treasury select committee enquiry into the aborted takeover by the co-operative bank of the sell-off of 632 Lloyds Bank branches. This was not helped, by more salacious Sunday tabloid revelations of the drug taking habits of non-executive chairman, the Reverend Paul Flowers in 2013. These outrages perhaps more than demonstrated the limits of this democratic form of stakeholder led corporate governance within the Banking Sector?

The Independent Governance review found this form of governance, ‘unfit for purpose’ and more worryingly for an organisation founded on strong moral principles; he found a deficit in the alignment of ‘the organisations’ social goals and the achievement of its strategic and commercial objectives’. 

Although it is perhaps dangerous to draw general conclusions from single cases, this sorry case study, perhaps illustrates the limits of the mutual corporate governance model, particularly when a bank expands through acquisition or merger to become a less local and more national high street brand. Reforms of the Co-operative bank would also appear to take the banking corporate governance story full circle, in advocating the need for professional management over elected, (relatively lay), stakeholders, when managing complex organisations such as Retail Banks.

Whether you are a skeptic, realist or optimist regarding the future direction of Banking Corporate Governance in the wake of the Financial Crisis, the questions for those of us, researching alternatives are: ‘what lessons can be learnt from the Case of the Co-operative Bank regarding Banking Corporate Governance in the Wake of the Financial Crisis? And if the co-operative model, (as Lord Myners concludes is), ‘no longer fit for purpose’, what alternative solutions remain?’