Tell us about your background in business and politics
I realised this year that I'd been working with co-ops for more than 30 years, and during that period I've had quite a wide set of experiences with different types of co-operatives and mutuals.
My first job was working with the Co-operative Party in the UK* and just by being in the right place at the right time after a few years I became the General Secretary.
So, I was the chief executive of this small but quite influential co-operative party and I learnt fairly early on some of the ‘dark arts’ of co-operation and the way that different people like to relate to one another.
Why does the co-op and mutual sector in the UK punch above its weight?
You could say that today, but equally over the last 20 years, that it's got a lot of similarities with the Australian co-operative and mutual sector.
People would say it might be visibly involved and active and quite successful with this advocacy work. But the size of the sector compared to the rest of the economy is minimal. In the UK, we've got some strong traditions particularly around building societies, co-op retail and mutual insurers.
Just like Australia, we've suffered from the attack of demutualisation. But we are going through a renaissance right now and that’s an opportunity that shouldn’t be ignored.
Bain Capital nearly got control of Liverpool Victoria recently, how was this thwarted and could it happen again?
We should take note of what happened in the UK with Bain Capital, because Bain have clearly identified mutuals as organisations that they would be able to make a lot of money from taking over.
They identified LV, which at the time was the second largest mutual insurer in the UK, and they effectively did a deal with the Board. It's shocking to say, but the Board agreed with Bain that they should sell the business to Bain, and they should compensate the members with £100 each.
So, we ran a campaign against this through our bipartisan group in Parliament, the All Party Parliamentary Group for Mutuals. We also built media support and very fortunately, defeated the ballot to be demutualised. It was a very close-run thing.
There are lessons in all of this. The first lesson is, however big and rich the predator is, they can still be defeated. Their greed was laid out for all to see…
...it was so transparently outrageous that people could see that, even what they thought was free money, wasn't in their interests.
So, the deal fell apart. The chairman and chief executive left, the new leadership came in and they've successfully run this business profitably every year since.
Demutualisation has been a significant issue in Australia, why do you think that has been the case?
Demutualisation, just so everybody's clear about it, only exists in places where it's expressly permitted by legislation. So, it's very much an Anglo-Saxon phenomenon.
If you go to France, it doesn't happen, because you can't demutualise a co-operative in France and share out the assets. They have to be transferred to either another co-operative or returned to the State, which nobody's very keen on.
But in the UK and in Australia today members can just decide that they want to liquidate the assets for their own personal benefit which have been built up over generations. Now, none of those co-ops were set up with the intention that this should happen.
It's just a quirk of the legislation which permits it.
So, we've taken steps in the UK to try to deal with this and passed legislation which safeguards those legacy assets on a voluntary basis, but it means that there's now a statutory protection for co-ops and mutuals that don't want their assets to be distributed in this way by any future cohorts of members.
Is that a case that could be made in Australia for regulators and policymakers?
Absolutely, the similarities are there to see.
We've got very similar legislative frameworks and the BCCM has been doing some great advocacy work to argue for this over the last few years.
It's not there yet. There does tend to be a bit of a time lag for good ideas to be adopted and taken forward. But what we've seen in Australia is that when they are, they can be very enthusiastically taken forward by the government.
There is bipartisan support for co-ops in Australia. One of the difficulties is trying to get people to understand what they can do in specific terms to support the sector.
It may take a couple more years, but I think there is an open door for those conversations on both sides of the House.
These are the first steps. So it's still early days for all of this.
But I'm optimistic, I think that Australia has a great future.
I mean, you could almost say that culturally this country has a natural predilection towards co-operating, I think the idea of mateship is real even if some sneer at that a little bit in modern terms, but it's still real and people do give you a chance of a fair go.
Can you name a co-op in the UK or Europe that you are impressed by, and what are the reasons for that?
Well, everybody should be impressed by Credit Agricole, which is the largest co-operative in the world. It's in France where co-op banks have three quarters of the lending market. So more than half of retail customers use a co-operative bank, they dominate.
And when you contrast that with the UK or with Australia, where mutuals are an important but small part of the banking sector you can see that that's actually going to make a big difference to the way that the sector overall is perceived by governments.
Across Europe about a third of all SME lending is done through co-operative banks, which means they are really important part of the growth of the economy.
When you're getting involved in that kind of enterprise and that kind of activity, then it starts to make you a player in the broader economy.
Mutual Capital Instruments have been available for two or two or three years in Australia but arguably they haven't been embraced fully. What's the problem?
The thing about MCIs is they were always designed as instruments to transform a business. They're not for business as usual, not for lending, they are not for doing what you did yesterday. They're about doing something completely new.
So if you're looking at diversifying your business, if you're looking at acquiring a competitor, then MCIs can stack up as a meaningful financial instrument.
And basically, it comes down to the cost of borrowing… capital that's invested is always going to cost a little bit more than your borrowing.
But the crucial thing is it sits on the correct side of your balance sheet. You don't have to pay it back.
You've got to attract people to invest, and that means you're going to have the good ideas for what you're going to use that money for.
My challenge to everybody, slightly tongue in cheek, but not completely, is who in the mutual sector is going to buy Bendigo Bank, who's going to raise the capital, build the team together, and get a controlling share in a listed firm like that?
That's the kind of ambition that MCIs would be perfect for.
Among the various mutual and co-op sectors here, is it the financial services sector in Australia that has the greatest potential to grow?
I don't know about the greatest potential to grow, and it's got the greatest need to grow.
And if you add up all the mutual banks and Australia, there's still less than four per cent of the overall market.
So, there is an imperative to grow and they are merging, they are consolidating, even as we speak. That's a good thing, but even that isn't enough.
They need to do more, they need to grow, they need to have ambition to provide real competition, to what is a very concentrated banking market.
There isn't anybody else that's going to do this in Australia.
People could talk about neo banks, they can talk about starting from afresh, but you don't need to reinvent the wheel when the bicycle's sitting there in front of you.
We're talking about being able to turn these banks into competitive businesses that already compete on service and in many cases, doing very well on price, but they need to scale and they need to quickly.
Can you see a mutual here ever taking over a listed or much bigger rival?
In theory, there's no reason why an Australian mutual bank cannot emulate what Nationwide have done in the UK by basically buying a listed entity (Virgin Money) and absorbing it into its business. But there's two things that they need to be able to do that, and the first is capital, which means they need to have either enough retained earnings or the ability to raise capital in which to do it.
Now, they can raise capital in Australia through the issue of mutual capital instruments. But secondly, the other aspect that they need to have in place is the ambition and the risk appetite to do this.
People shouldn't underestimate just how unusual it is for Nationwide who have done this, and at the same time, you know, they say you wait for a bus and then two come along at the same time.
At the same time as Nationwide were buying Virgin Money and delisting it, Coventry Building Society was buying from private equity the Cooperative Bank and bringing it back into the mutual sector.
So, both those examples show that you can have ambition, you can build the capital, and you can do it, but you've got to have the willingness to take the risk at the same time.
BCCM is making its mark here, particularly in housing and aged care. Is that something that you also see in Europe and in the UK where the co-op movement can have a particular focus where it punches above its weight in some sectors or it has a greater appeal?
Looking around Europe in particular, co-operative housing is a big thing, very significant in Nordic countries, significant in Germany and Austria and others too. Less so in the UK where there's a tradition of homeownership over collective ownership.
All the housing market problems in Australia are the same in the UK and there is a chronic shortage of supply and a serious problem with access into the market because of the price.
The UK has concluded that the answer is to increase supply. And the government has adopted a policy to dramatically increase the building program over the next three or four years. Some of that will be housing co-ops, but most of it will be for sale or for traditional rent.
You are taking a group of Australian mutuals to Europe later this year, what can they expect to learn?
The study tours are an important part of what the BCCM offers, and we always help to facilitate those when they come to Europe. We try to identify the businesses that are doing interesting and new things which could be useful to learn from and share those experiences on a peer-to-peer basis with senior executives from Australia.
Rather than sit at a conference, we get them into the businesses to talk to the executives that have been involved, for example, in the acquisition of Virgin Money at Nationwide, or in Germany in the way that they organised their competitive banking sector or in Italy in the way that they organised their support for co-ops and mutuals across the whole economy.
*The Co-operative Party in the UK is a political party that advocates for co-operative values, promoting member-owned businesses and community empowerment, and works in partnership with the UK Labour Party. Gordon Brown is among the Party’s notable members.
