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
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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
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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
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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-
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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
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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;
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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)