Special Report: In business the only way is ethics for Co-op chief

Special Report: In business the only way is ethics for Co-op chief

The chief executive of The Co-Operative Group, Peter Marks, was standing immediately opposite a banker when he delivered his address extolling the virtues of ethics in business at the latest ITT Odyssey supper at the House of Commons.

In fact, the bank employee was from RBS, the very institution that thanks to its former chief, the now not Sir Fred Goodwin, became the bete noir for an anti-capitalist movement reinvigorated by the credit crunch and the corporate largesse and poor governance it exposed.

In the end, while his fellow diner came in for a bit of gentle ribbing, Marks was pretty pragmatic about how business and ethics can be bedfellows. And he admitted that even the Co-op, which took a step away from travel last year by agreeing a retail joint venture with Thomas Cook, had to balance commercial reality.

But he insisted that ultimately all enterprises have a moral duty beyond just the requirement to generate shareholder value.

Marks, who has worked for the Co-op for 45 years, admitted that before he rose to the top of the organisation it was on the road to ruin as competitors, particularly in the supermarket sector, became increasingly efficient and ate into a market share which peaked at 25% but had slumped to just 4.5% before United Co-op merged with The Cooperative Group in 2007.

"The organisation lacked commercial edge, lacked investment. It was great at ethics but it was bloody awful at retail," he said. "Unless you mix ethics with great retailing skills - the right product at the right price at the right time - then you are dead in the water because people don't buy ethics, they buy products."

This hard-nosed business attitude led to the buyout of Somerfield in 2009, following  the move to unify the Co-operative movement under one master brand to give it the scale it needed to be ethical but also competitive.

Marks admitted that before the official unification, the Co-operative movement "rarely co-operated and never moved", due to the complex nature of its many regional boards of directors, democratic constitution and related cost structures.

"When I stood up and said we need to become one society, that went down like a lead balloon. Having said that when faced with the facts it was plainly obvious what was going to happen; we were going to be the next Woolworths. We had to change and we had to change quickly.

"Eventually we got there. We have not yet got one co-operative society but we now have 90% of the co-operative organisations in the UK in one organisation."

While Marks admitted the Somerfield deal was "painful", it propelled the Co-op away from being an also-ran in the grocery sector. And he said the same is true in the banking sector, where the Co-op is also seeking scale after its bank came through the recession “with flying colours”.

Should a deal for the Co-op bank to buy 630 Lloyds branches go through, Marks believes the banking sector as a whole would benefit. “In a low interest rate environment it’s very difficult to make money in banking, but strategically it’s absolutely the right thing for the consumer. It would be fantastic for the banking industry. What we have to do is measure the risk.”

So where does all this leave travel? Marks admitted that the Co-op could not be everything to everyone and simply did not have the access to capital to make every one of its disparate divisions a success.

“I believe to run a successful organisation you need to have a laser focus on all your businesses. We are going to have to decide as an organisation what it is we are trying to be because most of those businesses we are in for historical rather than strategic reasons.”

Marks called the joint venture deal with Thomas Cook “fantastic”, but admitted he had a harder time getting it past his board of directors that the £2 billion Somerfield buy-out.

“Undertsandably they were worried about the brand, they were worried it would be diluted because of values and ethics but they were persuaded because Thomas Cook is a brand of heritage, it was not just a money-making machine. The consuming public trust Thomas Cook, it’s the number two travel brand in the world and it will survive and it will thrive, I promise you.”

Questioned why a £14 billion business like the Co-op couldn’t make travel retailing work, possibly by going down the vertically integrated route and acquiring businesses to mirror the scale of its food retail division, Marks returned to an earlier theme.

“It’s partly to do with trying to be everything to everyone. We have to make tough choices and it was about scale. As a travel agent we are in a high volume, low margin business. We were not making that much money and when we looked at the prospect of whether we could make much more money over the next few years the answer was no. It was going to be very difficult and the business case for the joint venture was compelling.

“It was very painful but one of the things that eased the pain was the protection of 3,000 jobs that were at stake. This deal protected those 3,000 jobs.”

Marks now sits on the Cook/Co-op joint venture’s board and, while he is only one voice in that boardroom, he will undoubtedly be bringing his ethical business stance to bear on a company he believes, despite its recent much-publicised financial difficulties, has a strong future ahead of it.

And he insists that the approach of the Co-operative could deliver benefits for other companies.

“In a Plc there is one goal, shareholder value, that’s it. In my [Co-op] boardroom I have 20 directors who have 20 different goals, some are ethical some are commercial. Often I will submit a business case to our board that generates business and they will say: 'that’s all very well but what about ethics’.

“That’s frustrating, however it’s good as it creates the tension in the boardroom that means CEOs like me cannot just go running off. If these stresses and strains had been around in some other major Plc boardrooms we might not be where we are at the moment.” 

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