Gregor Gall: Time for customer power

THE drive for banks to make profits for their shareholders first and foremost is at an end – now, regime change is the only option, and citizens can lead the way, writes Gregor Gall

Starting with the credit crunch and the run on Northern Rock in 2007, we have experienced a continuing banking crisis. The palpable anger of the public – and the deleterious impact upon them – means the term “suffered” would be more appropriate than “experienced”.

The latest scandal at Barclays has shed light on the phenomenon of interest rate fixings between the main banks. It shows they have been acting not as competitors to each other, but as a cartel.

To the public, the continuing crisis makes it patently obvious that the banks’ raison d’etre is to make shareholders profit. The issue of customer service and value for money comes a distant second – if that.

No longer can the banks be said to be guided by cautious lending policies. They have become the very opposite of risk-averse in chasing profits, as the powerful troika of shareholder interest, performance pay for senior executives and bonuses for traders has been formed.

Now more than ever, the issue is not just which individuals are to blame but of regime change. Bob Diamond may have gone, but the very same board that appointed and sacked him is still in charge.

People looking for drastic and dramatic change will not be enthralled by Labour’s response. Insisting upon a judge-led inquiry akin to Leveson, Labour has failed to catch the mood – that the nature of the problem is well-known and the time for action is now: striking while the iron is hot.

Ironically, David Cameron’s plan to have a quick parliamentary inquiry more hits the mark. However, it would be astonishing if Cameron countenanced proposals from this inquiry that amounted to any sort of regime change. This is because he has made clear his preference for deregulation and self-regulation – the very things that have helped create the crisis in the first place.

So what are the options for regime change?

The most obvious one is, ironically, nationalisation. Without the effective bailing-out of Northern Rock, Royal Bank of Scotland and the Lloyds Banking Group (which includes Bank of Scotland) using tax payers’ money, this option would normally be laughed out of court as going back to the failed behemoths of the past.But the very depth of the crisis has made this option credible again. The irony of these three banks being said to be effectively nationalised at present is that while their losses have been shared out among the public, the public has no more control over them than before.

Back in the day, nationalisation meant unresponsive and unelected civil service mandarins running the railways, utilities and the like. Under this system for the banks there was no popular control or participative involvement by citizens. But if we re-envisage nationalisation as social ownership, the failings of the past do not need to be revisited. Instead, representatives of customers, community interests and the workforce would have a right to collectively decide – in conjunction with the government as the sole shareholder – how the banks should be run and for what ends.

This shows just how timid even Business Secretary Vince Cable’s solution to the crisis is – simply cordon off retail from investment banking – as this allows investment banking to carry on as before. For some, like the vested interests of shareholders, this medicine will be too hard to swallow. They will make their powerful voices loudly heard. Consequently, other options need to be considered.

Three spring to mind, in addition to not only maintaining the independence of but vastly strengthening the regulatory body, the Financial Services Authority. These are worker directors, union recognition and mutualisation.

In Britain, worker directors have only ever existed in what were British Steel and the Post Office. However, they are extremely common in the only growing and stable economy in Europe at present, namely Germany. After 1945, companies of a certain size there were legally compelled to appoint to representatives of workers to their supervisory board so that boards comprise half worker representatives and half management representatives. This supervisory board then appoints a management board that runs the company but is responsible to the supervisory board.

Lower down the hierarchy, this system, called co-determination, also legally compels companies to establish works councils, so that worker representatives influence how the company runs at the shopfloor level.

In Germany the principle of worker involvement in co-determination also runs alongside union recognition, which we are more familiar with in Britain.

Most large banks in Britain recognise an independent union in their retail arms. However, their investment arms have been made a no-go area for unions, because it is here that companies want total control over their staff. This is achieved through giving astronomical rewards to those prepared to engage in a macho culture of risk-taking.

The current extremely limited statutory procedure for gaining union recognition is of no help here, because it allows employers to freely undertake measures to stop a union building up the elementary support it needs to pass the threshold of an accepted application for union recognition.

Worker directors as well as union recognition, covering not just operational but strategic issues, would not only cut back on excesses and risk by creating transparency and openness, but would help create a force capable of standing up to a management whose creed is greed. This is all the more so when workers and their representatives have social values that oppose the creed of “greed is good”.

Shining a public light on secretive practices forces a degree of accountability. This in itself is necessary but insufficient for it takes a force which is independent and willing to act upon what emerges from transparency. Simply having the transparency merely allows banks to decide entirely themselves how, when and why they should behave in a certain way.

The more far sighted bank executives may recall the well-used phrase that “people are our best asset”. Introducing worker directors and union recognition would allow the input of staff so that a process of constructive dissent emerged.

Checks and balances on leadership excess would ensue. The bonus culture and performance pay would be obvious areas for change. Practices would not solely be driven by targets based on making a fast buck. Risk assessments would be required to foresee the impact upon communities, society and economy. Notions of equity would counter-balance profit for shareholders.

Taking these principles a step further would be for government to legislate to facilitate the remutualisation of many banks. Rather than spending billions of pounds bailing out existing banks owned by shareholders, the same money could be used to re-establish building societies. Owned and controlled by their citizen members, and not obliged to make profits, building societies could reinvest their surpluses into further lending at equitable rates to those that become new members. Sustainable, sensible and stable would be their watchwords.

So how to get any of these implemented? Unite, as the main banking union, the biggest union and the largest Labour affiliate, has a huge role to play. But so too do the likes of Sean Clerkin and his merry band called Citizens United. Occupying an RBS office in Glasgow in 2011 to protest against bonuses, they showed how citizens could develop their own pressure groups for change.

• Gregor Gall is professor of industrial relations at the University of Hertfordshire ([email protected])