Ethics: the new yardstick for business?

Sensemaking / Ethics: the new yardstick for business?

The Co-operative Group has doubled its profits in the last four years. But is it making as much progress on sustainability? Simon Birch and Martin Wright investigate.  

21 Mar 2012

The Co-operative Group has doubled its profits in the last four years. But is it making as much progress on sustainability? Simon Birch and Martin Wright investigate. 

The view from the sixth floor of The Co-operative’s Manchester headquarters is characteristically murky, thanks to the city’s signature rain hammering down outside.

It’s tempting to come up with all sorts of clichés about northern grit and gloom, about struggling through tough times with ‘nowt but a whippet and north country pluck’. But unlike the Mancunian skies, the cliché just wouldn’t hold water. Because this is the HQ of a business that has doubled its income and its profits in the last four years. It’s one which controls a vast empire of operations, from insurance and food stores to pharmacies and farming – and is possibly about to become one of the most prominent banks on the High Street.

It’s no coincidence that this growth spurt has coincided with a loss of confidence in ‘casino capitalism’. First, The Co-operative’s operating principles meant it avoided exposure to the sort of dodgy dealings which have hammered mainstream banks. And second, its solid ethical foundations have won new support from people shocked by what seemed to be a collective loss of moral compass by much of the financial world.

So it’s been a good time to get ambitious. “We want to be clearly recognised as the UK’s most socially responsible business”, says Paul Monaghan, Head of Social Goals and Sustainability. “We want to show that it is possible for business to embrace the efficiencies of the market economy and to trade ethically. But, we’re part of a wider world which is full of wrongs and injustices. So we need to be an even bigger part of the solution.”

This solution was revealed in February 2011, with the launch of The Co-operative’s self-styled ‘revolutionary’ Ethical Operating Plan. It featured nearly 50 pledges on everything from slashing carbon emissions to increasing investment in renewables, from championing human rights to boosting funding for co-operative businesses and schools. “At a time when UK society is picking up the pieces from a recession exacerbated by corporate greed and speculation,” said Group Chief Executive Peter Marks, “we are seeking to show that there is another way. The plc model is not the only game in town.”

The Plan built on and subsumed earlier commitments, such as The Co-operative Bank’s longstanding ethical policy. As part of the new initiative, this was extended to The Co-operative’s insurance arm, making it the world’s first insurance provider to ethically screen all its general products. This means that its £1 billion worth of assets will no longer be invested in companies involved in activities such as fossil fuel production or tobacco.

Rob Harrison, co-editor of Ethical Consumer Magazine, believes this marks a milestone for the provision of ethical finance: “We’ve been campaigning for over 15 years for insurance providers to ethically screen their investments. If The Co-operative can explain to consumers the story behind its screening policy, and demonstrate to the industry that it’s generating additional market share and increased profitability, then other businesses will follow.”

Some goals are already being revised upwards. “We set ourselves the target of cutting carbon emissions across our group of businesses by 35% by 2017”, says Monaghan. ”We’ve already reached this target whilst growing the business, which I think is phenomenal. So now we have a new target of 50%, saving 500,000 tonnes of greenhouse gases annually by 2020.”

Interestingly, that’s similar to the goal recently set by Unilever – to halve emissions per consumer use [see 'Reinventing consumption: an exclusive interview with the CEO of Unilever']. And it’s not alone. Some other major businesses, such as Marks & Spencer with its celebrated Plan A, are also setting some pretty bold targets on ethical issues. Monaghan acknowledges that all this activity among major corporates can act as a spur. “Our new plan partly arose from the need to integrate our ethics better with our business planning, especially given our recent economic renaissance. But we’ve also, if I’m honest, been driven by an erosion of our leadership on ethics in the eyes of the public. We track these things quarterly, and whilst we were still seen as being ‘number one’, the gap had narrowed – and that’s not something our members would be happy about. They don’t want us to lead on these issues, they expect it.”

Inevitably, success brings greater scrutiny – and criticism, too. Some have questioned whether The Co-operative’s rapid growth can really be compatible with its ethical foundations. Monaghan agrees it’s an issue. “There is a dilemma within the co-op movement between those who think that small is beautiful, and those who say that the only way to compete with big business is to have a big co-op.” But it’s one on which he’s happy to take sides. “[We are] firmly of the view that if we are to operate effectively in the food and finance sectors then we need to have scale. We need to be big to enable us to compete with the likes of Tesco on price and availability.”

But the criticism doesn’t stop there. Along with many other food businesses, The Co-operative has also drawn flak over its policies on soya – demand for which is driving rainforest destruction in the Amazon [see 'Leading companies reach palm oil pact']. Friends of the Earth, in particular, is calling on The Co-operative and other retailers to set clear targets to reduce the amount used in its animal feed. Again, Monaghan agrees, “this is an area in which we have more work to do to source sustainably”.

Then there’s the tricky, politically charged issue of whether to prioritise reducing poverty abroad – or accept that, for many people, charity begins at home. Monaghan insists that The Co-operative’s members are “hugely supportive of our work in tackling global poverty through our championing of Fairtrade”. But he acknowledges that they “now want more emphasis on helping to alleviate poverty closer to home”. In response, he says that The Co-operative has “committed £5 million to tackle poverty around our stores and branches across the UK. We aim to start rolling out this programme in 2013”.

As well as getting its own house in order, though, he says, “we want to encourage the next big co-ops of the future – which are inevitably going to start small”. And that’s the focus of The Co-operative Enterprise Hub, an initiative offering free advice and training to nascent co-ops. Launched in 2009, it’s helped over 500 new co-ops set up in business, and given support to an additional 165 established ones.

In doing so, The Co-operative is in some ways returning to its roots. Monaghan gestures at a picture on the wall behind him, showing the 28 ‘Rochdale Pioneers’ – the founding fathers of the movement back in 1844. “These guys started a revolution. One that in 20 years inspired 350 other co-operative societies the length and breadth of the UK, who between them had over 100,000 members … These people were banging on about one member, one vote, within a customer-owned business, at a time when not only women lacked enfranchisement, but the majority of working class men too! How the hell do you live up to that?!”

In some ways, of course, nothing The Co-operative does today could quite match the courage of those early pioneers. But, says Monaghan, “I’d like to think that what we’ve come up with recently, with the Ethical Operating Plan and so on, would at least lead them to doff their caps, and maybe throw us a paternal smile…”

Buying a round

After standing empty for a year, The Butchers Arms – the only pub in the Cumbrian village of Crosby Ravensworth – reopened in August 2011 with new owners: a community co-operative of 300 local people and supporters from elsewhere. With support from The Co-operative Enterprise Hub, the determined community made an offer to buy their local pub and launched a community share issue to raise the money needed to purchase and refurbish the premises. The Co-operative Loan Fund provided a loan to help with working capital. Cameron Smith, treasurer of the new co-operative, said: “This has been an incredible community project to be involved in and this pub will now benefit from having around 300 ‘co-owners’ committed to its future success. We have been overwhelmed with the interest in the project. Around half of our members are local, but we have had investors from as far afield as Alaska, America and Australia.”

Into the future…

If you’re looking for a spiritual heir to the Rochdale Pioneers, you could do worse than pick the sofa-surfing dude logging onto the net to bag a night’s stay via Airbnb.

At first glance, that may seem an odd – even cheeky – comparison. But in some ways the rapid rise of peer-to-peer trading, along with collaborative consumption, has a lot in common with the founding principles of the co-operative movement. They’re both about individuals coming together to improve their lot in a way which can strengthen bonds between communities – without draining the resources on which we all depend.

Such initiatives may not be co-operatives in name – although some of them are. But they are certainly co-operative in nature. Far from being consigned to a worthy past of flat caps and corner shops, they are helping take the co-operative ideal into the future.

“You see examples bubbling up all over the place”, says Michael Fairclough, Head of Community and Co-operative Investment. “People coming together to make bulk buys, whether it’s food for the community, or groups of walkers or sports enthusiasts buying gear at cheaper prices.” And he sees a clear role for The Co-operative in supporting them. “Take village stores. If you run these on a plc model, they don’t work because they haven’t got enough turnover. But if the community comes together, through a mixture of ownership, investing and volunteering, they can be viable again. Now we’re piloting a scheme via the Enterprise Hub where we plug them into our buying power to secure green electricity for them at affordable prices.”

Meanwhile, he says, the internet, and social media in particular, has a major role to play in the co-ops of the future. “One of the sticking points for larger co-ops has been the question of democracy: how can you make sure everyone has a sense of ownership? How can you make sure that those who own the business in large numbers can still feel plugged into it? The internet is allowing that to happen as never before. It’s about large-scale democracy, and it has huge potential.” – Martin Wright

Photos: Stuart Walker Photography 2011; Digital Vision / thinkstock

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