Idea Transcript
Leadership Case Study
Individual conviction: Terry Thomas - Co-operative Bank
Terry Thomas (now Lord Thomas of Macclesfield) was born in modest circumstances in the small town of Carmarthen in Wales, and rose to become Chief Executive of the Co-operative Bank in the UK. Thomas took the job when the bank was at a low ebb in 1987. By the time he retired 10 years later, it had returned record profits every year and gained a reputation for being one of the most ‘ethical and sustainable’ businesses in the world. Founded in 1872 as the Loan and Deposit Department of the Co-operative Wholesale Society, the bank was created to serve the growing family of co-operative retail businesses. Now serving the general market the bank’s ethical policy was introduced in 1992. It set criteria standards that would govern the way it traded. This included the requirement for prospective customers to conform to those ethics. If customers did not meet the criteria, then they were politely asked to look for another bank. Investment decisions were subject to the same ethical tests. When looking to determine what ethics to use, it was necessary to consider whose ethics to choose. The bank chose to base its ethical policy on the concerns of its customers, on the basis that it is generally their money that is being used. In 1996, the bank produced its ecological mission statement, based on the ideas of Karl-Henrik Robèrt and his model for sustainability known as The Natural Step. Robèrt thought that one of the reasons why more people were not acting sustainably was because there was no consensus about what it meant to be sustainable. He said that ‘in a democracy, public policy cannot rise above the understanding of the average voter. Consequently, the sharing of knowledge is at least as critical for democracy as the distribution of income’. In order to share the knowledge he needed to find consensus across the whole of society. Living and working in Sweden, his next stop was the Swedish scientific community. He challenged them to come up with a simple but unarguable set of rules that everyone could understand and follow. The requirements for these rules included the need for them to be scientifically supportable, and applicable to any scale. On the human level, the model had to be easily disseminated, should not require individuals to act against their self-interest, or require large-scale societal changes. He (courtesy: Co-operative) was particularly insistent that businesses, political parties
2
Individual conviction: Terry Thomas - Co-operative Bank
and the public should be able to use the model as a practical tool. Incredibly, Robèrt got his consensus, and the support of the Swedish King. The Natural Step is now an international movement and has been adopted by many companies. In the end there were only four rules. Three of them covered the rate of extraction of materials from the Earth’s crust, the rate of emissions of man-made substances, and the rate of destruction of biodiversity. The fourth concerned the fair and efficient use of the Earth ’ s resources throughout the world. The Co-operative bank was the first financial institution to adopt The Natural Step but, more importantly, the approach was one of the most radical and ambitious attempts to link economic success to sustainable performance that had ever been seen in the corporate world. A year later, the bank released its (courtesy: Co-operative) first ‘partnership report’. This attempted an open and transparent statement about the social, financial and environmental impacts of the company in one report, and set the trend for what are now known as ‘sustainability reports’. The report cited seven partners (often referred to now as ‘stakeholders’ in the jargon of corporate social responsibility) that were directly or indirectly affected by the bank’s activities. One of these was ‘leaders, managers, staff and their families’ – still to this day among the most expansive interpretation of the staff stakeholder group. The bank has published a partnership report every year since 1997. In 2004, it started publishing a joint sustainability report with the Co-operative Insurance Society or CIS, under the merger name of Co-operative Financial Services (CFS). The last separate CFS Report was published following year, and subsequent reports will be issued under the parent Co-operative Group banner. The Group is primarily a food retail co-operative, but includes non-food businesses including travel agents, funeral director businesses and the financial service co-operatives. The Co-operative Bank has always understood the need to be accountable to its stakeholders or, in other words, those that matter most to the business. ‘Evidence’, through targets, and ‘open communication’ are two of the main tools used to show accountability to stakeholders. The provision of measurable targets, trends over time, and indicators (benchmarked against relevant sources) have been a feature of the bank’s annual reporting strategy for almost a decade. Anyone reading the full account of this transformation, and the plaudits and awards that followed, would naturally be impressed, but would then become interested in how this change came about. The bank became a benchmark for other
3
Individual conviction: Terry Thomas - Co-operative Bank
organisations wishing to produce a similar result. The enquiries for assistance became so frequent that Thomas approached all four Universities in the Greater Manchester area (the heartland of the Co-operative Movement), and set up a nonprofit consultancy called the National Centre for Business & Sustainability (NCBS). Inquiring companies were directed to the five-way partnership for guidance and advice, on subjects including the formation of sustainability indicators and measurement techniques, and innovative and creative ways for Boards to envisage and plan for a sustainable future. These practical questions could easily be answered, but the way that Thomas created the conditions and the leadership for such a change was less obvious. The answer to this more personal question requires an understanding of two key days that diverted Terry Thomas’ path away from a skilled, yet ordinarily motivated, banking career towards becoming a sustainable business icon. The first was a Welsh history lesson when he was 13 years old. The second was a meeting with the inspirational Swedish founder of The Natural Step soon after he became head of the Co-operative Bank. The Welsh history lesson told of the life and times of the industrialist and social reformer Robert Owen. The son of a saddler, Owen came from the Welsh village of Newtown, but left at the age of 10 in 1781 to join his brother (also a saddler) in London. At the age of 21, he became a manager in the first mill in Manchester to spin thread using a rotary steam engine. During this period Owen became a founder member of the Manchester Board of Health, which helped to bring about the earliest legislation to protect factory workers in 1802. Owen went to Scotland to manage New Lanark mills in 1800, and set about improving conditions for the workers because, as he would write later in 1814, a ‘living mechanism is improved by being trained to strength and activity, and that it is true economy to supply it regularly with sufficient, wholesome food, to keep it neat and clean, to treat it with kindness that it may not experience mental friction … ’ . Owen believed that people’s behaviours were formed out of the environment in which they had to live. The centrepiece of his efforts was the building of an Institute for the Formation of Character, which included a nursery, school rooms, public halls and community rooms for use by the mill workers. He also improved sanitary conditions, raised the child labour age, and attempted to show the workers how to self-govern. By today’s standards, Owen was a philanthropist. But his beliefs had a hard commercial side which Thomas never forgot. A better educated workforce was able to manage manufacturing methods and materials that would command premium prices. Sea Island cotton, one of the finest types of cloth available at the time, was expensive to buy and difficult to work with. A less skilled and less healthy workforce would cause wastage that could not be afforded. Owen ensured that the cloth was made efficiently, and with minimal wastage, by investing in his workforce, thus ensuring a good return. Towards the end of his time at Lanark, he and his partners were making a 25 per cent return on their investment. The worldwide co-operative community still looks upon Owen as the father of the
4
Individual conviction: Terry Thomas - Co-operative Bank
movement. He applied his philosophy of toleration, co-operation and respect, and the creation of non-competitive environments with conviction. And while his ideas were not always successful, they inspired others to create businesses that were not dependent on the exploitative tendencies that mainstream capitalism displayed at the time. For the young Terry Thomas this was a powerful and inspiring concept, but he had to wait a considerable time before he could put it into practice. Thomas’ early career in banking in the 1960s was with one of the main high street clearing banks, National Westminster (now part of the Royal Bank of Scotland Group). Frustrated at his employer ’ s hierarchical structure, Thomas sought to fasttrack his career by enrolling at Bath School of Management. Nat West was less than supportive of this move, although they did later award him with a scholarship for the course, but the damage was done. He responded to the advertisement for a post at the much smaller Co-operative Bank, partly on the basis that he felt an affinity with the co-operative movement, which he assumed would run a much more supportive and caring business. On joining he found that sadly this was not the case. As a middle manager in the fledgling marketing department, he found an old-fashioned and backward-looking business that was relying on the past glories of the movement and the loyalty of a fading working class customer base. This was 1973. By 1979, and the election of Margaret Thatcher as Prime Minister, the societal class stratification of Britain would be blown apart, severely challenging institutions like the co-operative movement, which relied on working people shopping and banking in places that represented their interests. The acceleration of social mobility, and the erosion of the identification with working class roots, undermined the affinity to the co-op brand, and it reacted by trying to imitate its private sector rivals, including the adoption of the very practices that it was originally created to avoid. Thomas saw that some innovations were needed straight away. One of his ideas was to introduce ‘ free banking ’ for current accounts in credit. Many customers today probably don’t realise that this has not always been standard practice in the banking world and that it had its origins in the Co-operative Bank. Ironically, this is now threatened, in the UK at least, by a challenge to the banking practice that levies high charges for those who are not in credit. However, it is unlikely that customers will give up Thomas’ innovation without a fight. By 1982, Thomas was Director of Group Development during which time he was asked to help the trade union movement set up its own financial bank (Unity Trust Bank). When the time came to appoint a new Managing Director of the bank in 1987, Terry was a natural choice. But he inherited some tough problems. The bank was making less than one million pounds a year. Morale was very low, and Thomas understood that staff would rarely admit to working for the bank unless pressed, such was the embarrassment of working for such an outmoded and unfashionable business. While the bank was not failing, it was not moving forward either, and was vulnerable to any kind of unexpected market upheaval. His first task was to change the bank from being asset driven (loans and over-
5
Individual conviction: Terry Thomas - Co-operative Bank
drafts) to deposit based. This would give the bank a more secure basis from which to do business. But rather than dive into the normal marketing approach of developing products that would compete on his competitor’s terms, Thomas decided to go back to first principles. His first task was to set up a small committee of inquiry that asked how the bank could increase its longevity. This was grounded in the understanding (courtesy: Co-operative) that profitability was going to be partly dependent on stretching lending periods. Lending on a one-year renewable basis was uneconomic because of the marketing and administration costs, and Thomas was determined to give the business a more stable and profitable footing. The realisation was that a longer-lived bank would need a strategy that kept pace with customers who would be reacting to, and changing with, the world around them. If that was the case, the bank would need a mechanism to both understand these changes and transmit its own values and messages. This would make sure that customers knew that their bank was in step with their own personal values set at any given time. It would prove to be a project that would take time, but one that would also bear fruit. At the same time, other commentators, but not other businesses, arrived at the same conclusions. Books such as Built to Last and the Royal Society of Art’s Tomorrow’s Company Inquiry were saying that businesses should involve a wider spectrum of people who are important to them, if they wanted to remain successful. A Co-operative Bank case study written later, quoted Thomas as saying that: in order to build a successful and long-lived business, the Board of a company should regard themselves, not simply as beholden to generate short-term profit and shareholder value, but also as trustees charged with the responsibility of balancing the needs and aspirations of each partner against the others and across time. ( www.co-operativebankcasestudy.org.uk ) Thomas articulated this approach by explaining that: in dealing with our partners, we have adopted a very simple philosophy: That an important key to business success – and business longevity – is to deliver value to all our partners in a balanced fashion over time. ‘ Balanced over time ’ because we don’t expect each partner to gain equal benefit from each decision we make – in delivering value to one partner we may, at times, work against the interests of another. This far-sighted view is now taken by many (thought not all) larger businesses as self
6
Individual conviction: Terry Thomas - Co-operative Bank
-evident, and would be enough for most business leaders, but not Thomas. Now, two other influences from his earlier life came into play. The first shaped his method of weaving this message of ‘partnership’ into a workable strategy. It is one thing to have the insight to extend the radar of a company to those whose views were not previously considered important or relevant. It was quite another to put the ‘listening’ into practice. Here, Thomas recalled his childhood. Son of a Catholic mother and a Protestant father, and living in a community where religion was an important social factor, Thomas learned how divisions could be wasteful and destructive. As youth groups and family activities were organised by the churches in Carmarthen, and the young Thomas was not solidly of one faith or the other, he had first-hand experience of what it meant to be excluded. This made him determined in later life to ensure that different perspectives were considered, and that all interests were incorporated for the good of the whole organisation. His other passion was to commit his business, and later the whole of the North West of England, to do everything it could to ensure that its environmental impacts were understood and minimised. This was directly influenced by Robert Owen and his work to clean up and improve the working environment for his employees and the wider community. Later, he was to persuade key business leaders and regional public sector bodies to set up Sustainability Northwest (SNW), the first public–private partnership in Europe to promote sustainable development in a regional context. In 2001, SNW and the National Centre for Sustainability would come together to provide both the persuasion and the solutions needed to accelerate sustainable change. It was while searching for inspirational ideas on how business and the environment should interact that he came across the writings of Karl-Henrik Robèrt. Some time later he found himself in Rfobèrt’s house on the outskirts of Stockholm. The two men sat down with a cup of coffee and, when they concluded their discussion, they realised that they had been sitting in Robèrt’s kitchen for the whole day. Thomas was completely won over by the argument that a company that wanted to last into the future had to play by the same rules that kept the planet going. Other authors, including Fritjof Capra, helped to reinforce the message that Thomas brought away with him from Sweden, and soon he was putting the whole forward strategy together. The main pieces of the puzzle Included: ■ the belief in low impact , or ‘ beneficial’ business , which he took from Owen;
7
Individual conviction: Terry Thomas - Co-operative Bank
■ the understanding of how to stitch a sustainability roadmap into standard business practice, which comes from The Natural Step; ■ the ‘Built to Last’ message that widening the listening/speaking radar beyond conventional stakeholders will lead to longer lasting business partnerships; and ■ the people skills that helped him to navigate through difficult religious waters in his youth. Thomas still had to carry the staff, and many who did not agree or understand his strategy, left the bank. The Board was often uncomfortable with his departure from standard banking practice. This Thomas combated by playing the co-operative card, which held that the co-operative principles were something that needed to be revived in the business, and that his new policies were completely in tune with the co-operative ideal. While not entirely accurate in terms of all the sources that he drew upon, few could argue against that contention and Thomas got his way. Thomas would later become chairman of Red Rose Forest (a community forest), was the first Chair of North West England ’ s regional economic development agency. He returned to Sustainability Northwest as its President in 2006. His elevation to the House of Lords was seen by many as just reward for a brave and innovative career.
(courtesy: Co-operative)