The fall of the ethical bank

CFS, as the UK’s ethical financial services house, was a healthy money tree a few years ago but, having shed over 1,000 staff members, including the chief marketer, its leaves appear to be dropping as its message is lost in the wake of increasing marketing cuts. By David Benady

Ethical consumerism is on the rise, yet Co-operative Financial Services (CFS) keeps on shedding jobs.

CFS, owner of the Co-operative Bank, internet off-shoot Smile and a sizable insurance business, should be riding high on the new wave of responsible consumerism that is sweeping the UK.

The Co-operative Bank was one of the first UK brands to adopt an overtly ethical stance. In 1992, it launched its ethical policy in a blaze of advertising, vowing not to invest in an array of unethical businesses, such as those with links to oppressive regimes. Today it is one of Britain’s top-rated ethical brands.

But last week, CFS axed marketing director David Newman and board-level commercial chief Craig Shannon in a cull of 17 senior managers, as exclusively revealed on This came as it announced a sweeping restructure including 1,000 redundancies – 10% of its workforce – in a bid to cut costs by £100m.

Unethical restructuring?
At a time when sales of ethical goods and services are booming across the UK and the major banks are announcing windfall profits, CFS is locked in a spiral of restructuring and flat profits. CFS, which has 6.5 million customers, calls this latest restructure its “operational improvement plan”. It coincides with a £250m investment in upgrading technology, opening new corporate banking branches and launching a new unified brand across its divisions.

Profit before tax and investments across CFS in 2006 was £146.2m, more than £13m down on the previous year. CFS says this is partly down to heavy investment in its “change” plan to become “the UK’s most admired financial services business”. But it seems this plan does not involve having a dedicated marketing director.

In the new CFS structure, distribution and service director Stephan Pater becomes chief operating officer and will be responsible for sales and tactical marketing. Change director Dick Parkhouse takes on a strategic brief and will handle marketing strategy. They will report to CFS chief executive David Anderson.

Speaking to Marketing Week, Pater says the latest restructure aims to get sales and marketing across CFS working more closely together to improve revenues/ “This is not about pointing the finger at marketing,” he adds. “The structure wasn’t getting the value we should be getting. We have a strong desire to move the revenue line forward more strongly than it has been. Sales and marketing will be working even closer in the sense of pulling together campaigns to ensure analysis will be turned into new business at a higher level than has been sustained up to now.”

News of the restructure has already drawn a sharp response from one trade union. David Fleming, national officer of Unite, says: “We expect CFS to honour its reputation as an ethical corporate citizen and to manage change in a way that reflects its high standing in the communities it serves.”

But Pater doubts that news of the redundancies will dent the Co-operative’s ethical image: “The ethical thing we are doing is ensuring we have got a business going forward that sustains the livelihoods of 90% of the people working here. It does not bring down our commitment to our ethical promise.”

Integrating services
CFS was created in 2002 to bring together the Co-operative Bank and Co-operative Insurance Services and to exploit synergies and cross-selling opportunities. CFS owner The Co-operative Group merged earlier this year with The United Co-operative. A new brand, called simply “the Co-operative”, is to be introduced across the group’s operations.

Strategy director Dick Parkhouse says the new structure aims to help CFS become “an enterprise organisation with more cross-selling and more integration”. He gives the example of legal services such as will writing, which he says could easily be cross-sold with insurance policies. The same applies to funeral insurance cover.

However, agency sources believe the Co-operative Bank has allowed its powerful ethical proposition to lose visibility in the media. They say it needs to boost its advertising budget to restate its ethical message, now easily lost in the cacophony of environmental and ethical claims made by so many brands.

The Co-operative Bank’s original ethical launch advertising campaign in 1992 was created by BDDH, now part of Euro RSCG. The agency claims it uncovered, following in-depth interviews with staff, what was then an unstated commitment to invest only in ethical businesses. The agency decided to turn this pledge into the bank’s central brand proposition, which helped it stabilise a declining market share and improve profits. This year, CFS claims that over the past 15 years, it has turned down loan applications worth £700m on ethical and ecological grounds.

But Leslie Butterfield, who worked on the original campaign and is now a partner at Ingram, says: “There is more interest now than ever in the ethical positioning that CFS was at the forefront of. It has let that first-mover advantage go and others are taking its place. You don’t feel it has the emotional, moral high ground of a few years ago.”

He says advertising spend has been severely curtailed since the second half of the 1990s, adding: “I don’t recall any brand advertising for the Co-op Bank – levels of investment have been lower.” He also doubts that CFS-owned internet bank Smile has become profitable.

CFS spends little more than £1m a year on advertising, with campaigns such as “Good with Money” by Sheffield agency Dig For Fire, while Farm works on the Smile account. Zoe Shore, an account director at Dig For Fire, says the agency was “surprised” by the scale of the restructuring at CFS and adds: “The problem is we haven’t been telling many people about the ethical positioning.”

Meanwhile, Leagas Delaney managing director Elliot Moss, who has worked on the Nationwide Building Society account, says the Co-operative appeals to a certain limited group of consumers. He adds: “The big appeal of the Co-op is not its rates or services, it is the way it is not harming the environment, but it hasn’t got much else to talk about. People actively choose the Co-op, it is a badge brand that says something about you. It may not have personality, but it has got an attitude.”

CFS’s Parkhouse claims there is a huge group of “conscience consumers” comprising 23% of the population – about 9 million people – to whom the organisation can sell. Pater adds: “I wouldn’t say the spend has taken a massive move down, we are being more selective with the campaigns. You’ll see more of us through a number of sponsorships.”

With no dedicated marketing director and little hope of a large increase in the advertising budget, some are doubtful that CFS will be able to attract many more conscience consumers.

The success of the organisation’s latest improvement plan will be a test of how far an ethical brand can also be a successful, expanding business.


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