Assessing Competence And Competitive Advantage In Cooperative Banking

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02 Nov 2017

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ABSTRACT

ASSESSING COMPTENCE AND COMPETITIVE ADVANTAGE IN COOPERATIVE BANKING: THE FRENCH CASE

Jennifer Hamelin

The University of Huddersfield, 2013

By comparison with an Anglo-Saxon vision and literature, (French) cooperative banking groups appear to be efficient and able to compete with commercial banks. Moreover, Financial indicators have shown that they remained relatively unharmed and stable during the crisis and did not need large-scale government support. In this study, we look for different possible explanations for these relatively good performances. To this end, the Resource-Based View theory and the Reynaud model on resources and competences are largely employed so as to assess the possible strategic characteristics of cooperative banking resources. Special attention is devoted to their values and their corporate governance with member ownership. Subsequently, theoretical, practical and empirical insights are combined to investigate and evaluate the role of "Mutualism [1] " in cooperative banking and its strategic characteristic. This question is discussed and linked with the current "responsible" concept applied within companies: the Corporate Social Responsinility, through descriptive and qualitative considerations. It is concluded that current customers ‘expectations toward banks are focused on good products and services offers at fair price and toward a highly devotion in term of proximity, low risk profiles and human relationships.

CHAPTER I- INTRODUCTION

According to an Anglo-Saxon vision, cooperatives organizations would be inefficient and would tend to disappear in favor of a corporation model (Béziaud, 2012). This vision could be considered as inappropriate in France as we know the importance of this banking model in our society. However, this belief is shared by numerous Anglo-Saxon authors who may not have considered the possibility that the cooperative bank model could adapt itself to the changing environment.

Indeed, cooperative systems are built around a common interest; their members have to belong to an identified and limited community. Therefore, organizations which want to integrate this system are compelled to restrict their size and to keep to simple and standardized operations (Jaeger, 2002). However, being largely involved in globalization processes, banks which are not prepared and ready to develop their activities are most likely to disappear. Although this theory is confirmed in Anglo-Saxon countries, the same is not true for France. Indeed, as can be read in Jaeger et al.’s book (2008), French cooperative banks seem to follow an unusual path. Their structures as well as their importance make them competitive. Thus, when we observe the quantity of mutual banks within the French territory and the market shares they have, this situation constitutes a French banking market particularity.

Moreover, a study written by Richez-Battesti et al. (2005, p.41-43), and realized over a period from 1990 to 1999, has pointed out that cooperative banks have had better efficiency than commercial banks, which demonstrates that this banking model has its place in the sector.

Even if cooperatives banks have seen their net profit decrease in 2012, they remain stable compared to commercial banks due to the fact that they have not exposed themselves to international and speculative risks (KPMG’s report on French banks’ performances).

As an example, the French banking cooperative groups, CréditAgricole, BPCE and Mutuel-CIC, are among the leaders in France and within the European Union, with respectively a GDP of EUR 34,2, 23,3 and 14,7 billion. As active stakeholders of the French banking industry, they represent 60% of retail banking activity and embody more than 20 million members directly linked to the decision making process (2012 Coop FR’s annual report).

So, within this context, it is legitimate to ask if these good and stable performances come from mutual practices.

Moreover, the recognition of the effects of globalization has also led to a legitimacy crisis of companies’ activity, more precisely the multinational companies which are driving a wedge between society ‘expectation and values conveyed (CapronetQuairel-Lanoizelée, 2005, p.7). Nowadays, society is asking businesses to regulate the structures and morality of global capitalism. Multinational companies are under pressure concerning their global activities; now, sustainable practices are being demanded because citizens have understood that it is not governments which are going to change the world, but companies. Within this context, companies’ stakeholders are expecting clarity and transparency from firms.

This growing awareness has opened the path to a new concept: Corporate Social Responsibility. (CSR)

Indeed the globalization process raises discussion about economic and political aspects but also around its social implications. Through the process of globalization, the business community has seen emerge a wide range of opportunities and challenges concerning financial systems, communication networks and multinational companies, among others. However, these positive opportunities can have significant negative impacts such as exclusion or insecurity (Jon Burchell, 2008). Concerning the environmental impact of the globalization process, today it appears obvious that the global development of businesses has damaged the natural environment and has caused some disasters. Contemporary society has largely questioned the role of business in these issues. So the unethical practices of firms have been highlighted and have raised questions about their social responsibility.

Thus, in this context, mutual companies, and more particularly mutual banks, could gain an advantage over capitalistic companies, more particularly over commercial banks. Indeed, taking into consideration its moral and human values, mutualism could become a strategic investment. Moreover, results found by Richez-Battesti et al (2005) are driving us toward inspection of the reasons for cooperative banks’ performances, and more particularly concerning the role of for mutualism. Thus, the specific organizational structures of these companies, which are grounded in a particular governance model and also in an ethical commitment, can be "responsible" for their performance?

More precisely, this study will try to discover and analyze if mutualism can be a strategic competence for a company, which can lead to a competitive advantage, and thus income growth. In order to do that, we will rely on a Resource- Based View (Wernerfelt, 1995). This approach is a management device used to assess the available amount of a business' strategic assets. In essence, the resource-based view is based on the idea that the effective and efficient application of all useful resources that the company can muster helps determines its competitive advantage (Maltèse, 2004).

We will rely on the evaluation of resources and competences model suggested by Reynaud (2001) so as to highlight the validity of the strategic characteristic of this asset. Thus, we will start from the theoretical basis so as to reformulate research questions and key objectives, and then we will evaluate them through semi structured interviews.

These interviews will constitute the primary data of the study and will be administered on cooperative shareholders and elected members of two cooperative banks: Banque Populaire and Caisse d’Epargne. It will allow us to isolate and examine the strategic role of mutualism, highlighting some factors which are likely to help cooperative banks in their decision making process.

In order to do that, the study will be divided into chapters; chapter one is used as an introduction of the topic and a discussion of the aims and objectives of the study.

In chapter two and three we will start by defining concepts and by explaining the field so as to identify and clarify key objectives and set up the literature review. Then we will evaluate the strategic characteristics of mutualism through the Resource-Based View suggested by Wenerfelt (1995).

In chapter four, we will introduce and explain the methodology that this study is taking and then, in chapter five, theoretical questions will be evaluated and analyzed through in-depth interviews and thus assess the strategic aspect of mutualism.

Aims and Objectives

So as to facilitate the readability of the study, a synthesis of the aims and objectives are presented below. Thus, the main topic of the study is questioning the notion of Mutualism and its link with strategic competence, and the fact that it could generate a competitive advantage.

In order to investigate, the research has set up aims and objectives. Aims have been divided into three propositions and which one has objectives associated.

First aim: To evaluate if mutualism constitutes a competence for the company

Objectives

To assess that Mutual banks use their resources differently than commercial banks

Second aim: To establish the extent to which mutualism might be a strategic competence generating a competitive advantage

Objectives

To ascertain if mutualism is valuable for the company

To determine if mutualism is generating incomes for the company

To appraise if these incomes are different for cooperative banks than for commercial banks

To reveal if mutualism values allowed cooperative banks meeting society’s expectations and consequently to exploit an opportunity

To ascertain if mutualism is rare

Third aim: To establish the extent to which mutualism might be a strategic competence which could lead to a sustainable (sustained) competitive advantage?

Objectives

To observe if mutualism can be replaced by another "responsible" practice (CSR)

To assess if mutualism can be imitated

To appraise if mutualism can be substituted

These aims as well as objectives are going to be largely discussed in chapter two and three through the literature review. Then, in chapter five, the existence of a competence leading cooperative banks to a competitive advantage through mutual practices will be questioned, reported and analyzed.

CHAPTER II: LITERATURE REVIEW

II. Mutualism and Credit Unions: explanation of concepts

II.1. Mutualism: Values and principles

II.1.1. Mutualism: An evolving concept

Even if it exist a significant amount of paper about the concept of Mutualism, there is not a final conceptual definition of it in the literature (Rousseau, 2005).

Indeed, actually in France, the concept of Mutualism is defined through a juridical aspect (1985’s law, order of April 2001), however, according to Régnard and Gouil (2005, p.92), the Mutualism notion concerning companies cannot be reduced only to a juridical statute. According to them, the mutual banks have, in reality, the juridical cooperative statute. By considering this juridical definition, we will be excluding the banking sector from the Mutual concept.

Pastré and Jeffers (2007, p.107), on the other hand, are questioning the Mutualism’ specificities, trying to highlight the fact that it is an evolving concept. They consider that it is not homogeneous, and try to identify if the strengths and weaknesses of Mutual insurance Companies are the same than cooperatives banks. They conclude by questioning the existence of the Mutual system.

Considering all above, it will be hazardous to give a definition as the study does not have the pretention to define such a concept. However, it will try to go around so as to make it more understandable.

The Mutualism comes from the Latin word "mutuus" which means reciprocity. This word is as much used in biological context as in economical one. However, as it has been explained above, there is not a common economic definition of Mutualism. In this context, Régnard and Gouil (2005) are using the scientific definition of a "symbiosis" so as to define Mutualism, considering the symbiosis as an extremist form of Mutualism: it is the mutual association of (two) species which is necessary if they want to survive. So, they highlight the notion of obligation. Thus, they are using two definitions of the symbiosis extracted from a scientist dictionary:

"Symbiosis is a sustainable association which is reciprocally beneficial for living beings."

Symbiosis is a sustainable association between living beings and each of them is taking advantages from it. They help each other so as to feed, to be protected or to reproduce themselves… The symbiosis notion can be expanded to human relationships with eco-systems and engines the human has created".

So, considering these two definitions, it is possible to highlight the notions of solidarity and reciprocity with the use of mutual help idea, and the notion of sustainability within a relationship between several people.

The Mutualism term, as being not clearly defined, is normally associated to cooperation, for example to mutual banks, reinforcing the confusion. Indeed, within the literature, Mutualism and Mutual terms are often used to talk about cooperative banks. So, it is legitimate to ask: are these banks cooperative or mutual? According to Richez-Battesti et a (2005, p.2), the answer is both.

Indeed, as they explain, mutual companies have adopted the legal cooperative statute so as to be functional. The banks called cooperative or mutual have the same legal aspect. As they say, in France, a mutual is a juridical form without social capital, which is considered in France as unmatchable with Credit Company. Banks called from the "socially responsible economy" belong even to the cooperative sector than the mutual one. So, the gap between these two concepts is thin. Thus, it is often to find both terms in the current literature. Moreover, the concepts of "cooperative values" and "mutual values" are recurrent without distinctions. In that case, how can we distinguish these two concepts?

First of all, it is not negotiable that they share notions such as community, solidarity, non profitable purposes and democracy, however, mutual companies and cooperatives are different concerning their objectives. Indeed, according to Michel Dreyfus (2005, p.13), Mutual companies offer their services during difficult period such as disease, old age, death, whereas cooperatives are dealing with day to day life situations. However, as we will see it during the study, banking Mutualism finds its origins in Germany, when the country was dealing with economic crisis and usurers practices, with the aim to allow each one having access to loan with reasonable interest rates, and to help them ending with their excessive debts.

According to a 2008’s article, Malherbe is defining mutual companies as belonging, for most of them, to the health, insurance and banking sector. To the contrary, cooperatives are covering all sorts of activity.

The mutual health insurances are under the mutual code and have the mutual juridical statute. They represent 56.3 % of the additional healthcare cover market and have more than 38 million of beneficiary ("La Mutualité en Chiffre 2012"; mutualite.fr).

Mutual insurance companies, on the other hand, are under the Insurance Code, however, they have the Mutual juridical statute. These mutual insurance companies are grouped into the GEMA (Mutual Insurance Companies’ Group). This group operates at a national level and has 46 members societies ("Les chiffres clés du GEMA 2011"; gema.fr).

The mutual banks, which have the cooperative juridical statute, are under the 1947’s law concerning the cooperation legal statute, but they are also under the monetary and financial code, and the 1984’s banking law, as any other banks. Mutual banks are doing day-to-day banking transactions, such as receipt and deposit of public money, credit operations as well as

methods of payment management. With five main national groups, grouped into three big cooperative groups, Mutual banks represent 60% of the retail banking activity and federate more than 20 million of members directly linked to the decision making process (2012 Coop FR’s annual report).

Within Mutual banks, as well as within cooperative banks, associations and foundations, better said, those companies within the "Socially Responsible Economy", the democratic principle "a man, a voice" is respected. Thus, they are in opposition to private sector companies, in which the decision power is in respect with the capital held (A share, a voice). Such decision power dispersion forces them to open consensus for debates and discussions where the collective interest has to be the first. In the cooperative banks case, the capital is held by members who are also customers, in the form of membership shares. So, the majority of the bank’s equity capital is brought by members and the rest is from stocks which cannot be shared out.

Moreover, the mutual companies have a particular organizational form which is an inverted pyramid. This organization leads to the decentralization of the red, which means that the power is exercised as well in territory level as federation level. Indeed, elected members are selected during general assembly by local branch members. Then, the federal representatives are nominated among these elected members, and they will exercise their power by defining the main strategic orientations. (Cadiou et al, 2006b, p.7).

II.1.2 Origins of the banking Mutualism

The mutualism term is born by the second half of the 19th century, from a school of thought who was saying that the human being was obliged to participate to the progress so as to claim sharing the results.

Concerning the banking sector, the first cooperative banks appeared so as to facilitate the modernization of farms by making easier the access to loans with a fair interest rate. Indeed, at that time, the banking system had concerns only for "high finance" (State finance or large constructions…); small farmers, laborers or artisans were neglected and were usually asking to a moneylender. In this context, Proudhon (1809-1865) has created in France, the first "bank of the people" (Vallat, 1999). The concept was a sharing bank based on two main principles: mutual and free loans and cash abolition. It was constituted by an initial capital of five millions of francs and without lucrative purpose. This bank was seeking to organize the mutual loan and the reciprocity exchange of products between producers. There were not reimbursable seeding operations or interest rates, only a guaranteed exchange of products. Thus, each members, physical persons or associations had a debt whose value was equivalent to what they produced and they were committed to accept coupons in payment of their products.

Despite of a large number of adhesions, the activity is not sufficient. Consequently, the bank has to close his door few weeks later, even before the first credit operation. So, it becomes necessary to look after other working examples. Indeed, it is in Germany that two main models of Mutual credit are settled down, under the management of Raiffeisen and Schulze-Delitzsch. Raiffeisen comes from a small farmers’ family and Schulze, on the other hand, comes from the local bourgeoisie. As they have not the same origin, the aim public is not the same either. Indeed, Raiffeisen is more interested by country’ person whereas the Schulze’s model is oriented through city’ person.

So, in 1850, Franz Hermann Schulze (1808-1883) who was jurist and a Prussian’s Member of Parliament, creates the first cooperative for artisans, trying to answer to small producers’ expectations during the 1847’s economic crisis. Through the Cooperatives bank of people (called Banque Populaire in France), he advocates a mutual assistance system and an individual responsibility, which allow its members to borrow a time loan, based on savings collected from all its members. Quickly, the concept carries off a resounding success and four years later, in 1854, Raiffeisen (1818-1888), mayor of a German town, creates the Mutual and Farming Bank.

It exist few differences between Schulze’s cooperative banking model and the Raiffesein one: unlike the Bank of People, the Mutual Bank are open to everyone. Moreover, with a liberal tendency, the Schulze’s bank model compensates, financially speaking, elected members and members has a profit-sharing. The Raiffeisen’s bank model considers, on the other hand, that the economic activity is based on ethical values.

Although they are different on few points, these banks work around the principle of money savings collections which are necessary so as to offer the possibility of a loan to other members. Indeed, loans offered to people who need investment, come from the members’ money, under the cover of a guarantee. In case of non-repayment, the loss is taken by all members which means that more members there are, less the loss is and less riskier the operation is. Concretely, the system is working through a closed-circuit until it becomes necessary to pool requirements into a regional red, then a national one so as to amplify the trend (Colette and Pigé, 2008, p13). So, in 1864, Schulze groups The Bank of People into a federation and creates, a year after, a Central Bank which allow dividing up tasks between local branch. On the other hand, Raiffeisen, proceeds on the opposite way, by creating in 1869 a Central Bank before putting in place a federation in 1877.

These two Mutual models are going to influence deeply the schools of thoughts in others countries. Indeed as much in Italy as in France, we can find the farmers characteristic of Raiffeisen and the capitalistic trend of Schulze within the Mutual Banking Sector (Albert, 1997, p.16). The Raiffeisen’s model with his non capital, small wages of social share and low interest rates constitute the starting point for several trends in France such as Crédit Mutuel, Crédit Agricole et Crédit Coopératif (Collette and Pigé, 2008, p.13). On the other hand, the Schulze’s model with his Elected Members’ pay and the constitution of a starting capital with regular wages become the Bank of People main principles in France.

Within this context, the first Bank of People is created in 1878 in Angers by Ludovic Besse (1831-1910) and it is dedicated to artisans and laborers. In 1882, he creates the Mutual and Cooperative bank, to which fourteen other Cooperative banks will be connected.

Ludovic Besse was catholic and liberal; he was inspired as much by the urban vision of the Schulze’s model, as the ethical characteristic of Raiffeisen which was making easier the mutual commitment and was seen as a moral guarantee (Albert, 1997). So, throughout the 80’s, it has been possible to see the creation of others Cooperative Banks in France, but so as to see the signs of a Cooperative Banks Organization, we have to wait until the creation of a Cooperative Credit Federal Center in 1889 (Gueslin, 2002, p.30).

Concerning the first Cooperative Credit Unions in France, they were created by Louis Durand (1859-1916). At that time, he worked for the farming minister and he was the lawyer in charge of investigating about the Crédit Agricole project (farmers’ bank) (Moulévrier, 2002, p.36). It is in this context that he took an interest in the Raffeisen’s model and, convinced by the values held by this one, he decides to create the first Cooperative credit union in 1883.

The cooperative model establishes itself all around in France, but it is later that the 1958’s law, order of October 16th, give a legal statute to these local credit union.

So, all these movements are going to develop themselves in France and in Europe. Local banks are structured around regional banks, and the latter around national groups. This inverted pyramid organization awards them strength and stability, allowing them being competitive nowadays with Banks, while keeping their regional and local settling down. Moreover, their deployment in the loan area which was, at the beginning dedicated to specific activities, is expanding itself, allowing them, following the law n°84-46 of the 24 January of 1984 from the monetary and financial code, to have the statute of Universal Banks (Gueslin, 2002, p37-38). Completed by the 1996’s law, this decompartmentalization is stimulating the competitiveness between financial intermediaries.

Nevertheless, it is important to note that the French State has contributed to the growth of these cooperative Banks (Vallat, 1999, p.251). Indeed, it has helped them to develop their activities by bringing financial resources. As an example, the French Bank has granted 40 millions of Francs the Crédit Agricole (Vallat, 1999, p.250). Concerning the Banque Populaire, the State has employed them during the post World War I so as to have a social role with artisans and laborers (Albert, 1997, p.3).

II.1.3. The Banking Mutualism’s values

Values held by Mutual companies are moral and ethical. These values represent the actions taken by these institutions and allow us understanding easier the meaning of these initiatives which are often grouped around notions such as "responsibility", "solidarity", etc. So, Mutualism, closed to the concept of "Socially Responsible Economy", is constituted around an unchanging value system, which can be adapted to a changing political, social and economical environment. So, firstly, it will be interesting to identify the values held by the Mutualism trend and then to introduce their meanings.

Malherbe (2008, p.156) considers that the values of solidarity, democracy, freedom and responsibility represent the four fundamental and original values of the Mutual movement. Amongst institutions which represent Mutual companies, like the GEMA for example, they consider democracy, liberty, equality, non-profitability, responsibility and solidarity as Mutual values. However, Richez-Battesti et al (2007) observe that the values of solidarity, responsibility and proximity are mostly highlighted by Cooperative banks. So, if we take the fundamental principles of Raiffeisen and Schulze again, we can find easily the same values following the democratic path "a man, a voice".

Which means that, even if the Mutual Banks carry the same values than 150 years ago, these values do not have inevitably the same meanings, either the same consequences than before. Indeed, Mutualism, and its values are adapting themselves to the evolving political, social and economic environment. It is interesting to link the Mutual values with those claimed by cooperatives and "socially responsible" companies. Indeed, it is possible to find common values such as solidarity, democracy, non-profitable and responsibility. Thus, nowadays, the values of responsibility and solidarity are widely pointed out by Mutual companies, following then by the values of democracy and proximity, considering that the non-profitable value is, on the other hand, less claimed.

So, as we said, responsibility, solidarity, democracy and proximity have never been more important than today. Indeed, since the citizens’ awareness concerning globalization issues, companies are scrutinized and we are expecting a responsible and ethical behavior. It is for this reason that companies are now widely communicating about values such as responsibility and solidarity. In this way, the values held by mutualism reflect actions taken by companies.

Concerning the value of responsibility, Lamarque and Aburaki (2007, p.505) consider that it is the most important value within Mutualism today. Indeed, as we have already explained it, today more than ever, companies must be transparent concerning their business activities. The meaning given to responsibility has not always been the same, it has evolved; before we were taken responsibility for an action, wanting to repair something which has been prejudicial to someone. Now the responsibility is more associated to a security need, trying to put in place the precautionary principle (Ewald, 1997). Thus, being responsible today means that we think about consequences not just for ourselves but also for the others. Lamarque and Aburaki (2007) notice two level of responsibility: an individual and a collective one. So, the responsibility can be seen through several actors within institutions: elected members, workers and the structures itself.

Within the Mutual and cooperative banking institutions, the elected members, elected by members during general meetings, are responsible for decisions they take and for their consequences within a double agreement. First of all, a democratic agreement concerning members, considering that elected members are the legal representatives of the latter, then, their purpose is to deal with structures which are carrying the capital of the regional banks. Workers, on the other hand, whatever their positions, have the responsibility towards the company and its members to lead a commercial policy with respect to the mutual values without doing concessions on the economic side. Moreover, the governance system has to allow a unitary member’s expression in accordance with each one, most of all, in accordance with those who are not directly taking decisions. Finally, the responsibility of the structures themselves is involved at the local and regional level due to the fact that its economic development and its financial solidity will have a direct impact on local and regional economies.

Concerning the value of solidarity, Lamarque and Aburali (2007), say that mutual companies have as a vocation to realize mutual and balanced commitments between members with economic and social purposes. The solidarity represents the second most important value of the Mutualism. Indeed, according to Couret (2007, p.40), the mutual instinct meets a primordial need which means that, faced to existence risks, people have to join forces. So, the value of solidarity expresses the will to sort individual issues out with a collective action. This logic of mutual help is the root of the Mutualism concept. Traditionally speaking, it is a survival value, but it is also a way of optimize the available production factors.

Within the Mutual and cooperative banking institutions, the value of solidarity is expressed at a territory level, considering that each regional branch is working within a defined territory. Thus, if we consider that regional branch is dependant of their territory dynamism, it is normal to say that their local involvement is directly contributing to their own market. It exist as well a solidarity between local and regional branch which can be defined as an institutional solidarity. Indeed, even if there are independent from the others, there are also united. Mutual banks will also, during catastrophes, try to find solution for everyone. This economic solidarity will then be expressed through regional support such as company’s creation, so as to put its economic strength to help a social project. Finally, the solidarity is also between members and customers when one of them needs economic or psychological support.

Concerning the value of democracy, it has been explained above, that Mutual and cooperative banks take part of the "Socially Responsible Economy", which are working in a democratic way, "a man, a voice". So, these banking-houses belong to their members who are as well, customers. Indeed, customers do not have the obligation to be members. Members have a double statute allowing them to elect their representatives during general assembly. Thus, elected members, at a local, regional and national level, are in charge of the mutual groups’ good management so as to meet members’ expectations. Thanks to their decentralized form, all power comes from a local base which promotes the geographic, social and professional representativeness of agents. Thus, this democracy put the member as an end more than a mean to receive cashing. It has to be noted as well that elected members are volunteers.

Concerning the value of proximity, it appears being a value largely claimed by mutual banks compared to other mutual companies within other business sectors. This value can be considered as paradoxical if we highlight the fact that mutual banks, in general, have chosen external growth strategies with the purpose of reaching a national, European and even international dimension. Nevertheless, the taking root has always been respected. Indeed, mutual banks have developed an important banking-houses network, following the idea of Raiffeisen which was requiring a limited district for each branch. Moreover, technological innovations have allowed a "virtual" proximity with the internet, and a "physical" one with automated teller machines which are supporting the banking-houses and offering an easy access for companies and customers. Then, it has to be noted that councilors are really favorable to regional development as well as mutual bank members. Thus, elected members’ local actions are contributing to this development. In this way, the proximity constitutes one of the fundamental values of Mutualism.

Concerning the non-profitability value, it is considered nowadays as the key value for "Socially Responsible Economy". However, this value is more claimed by mutual companies than cooperative banks which are communicating indirectly on it, highlighting the pregnancy of human over the capital. Then it becomes more important to satisfy members’ needs than profits. However, the non-profitable characteristic of a company do not have to be taken as conflicting with the possibility of generating surplus, but more as a limit to its private results’ appropriation. Indeed, the value of non-profitability carried by mutual banks can be explained through its stocks which cannot be shared out but also through limited capital remuneration (membership shares). The non-profitability highlights the members’ satisfaction and put a curb on profit motivations.

II.1.4. CSR: a Mutual approach applied to corporations

The gradual stepping down of the welfare state in Europe giving a greater importance to companies, added with the citizens’ awareness concerning globalization issues which have degraded the image of multinational companies, have lead to a gap between society’s expectations and companies’ value. In this context, companies’ reactions have been quick, trying to restore their images so as to get the consumers’ trust back, they have highlighting responsible behavior (CSR) (Capron et Quairel-Lanoizelée, 2007, p.9).

As this study is trying to identify Mutualism and its values, it was impossible to ignore the concept of "Corporate Social Responsibility" (CSR). Indeed, Capron (2005, p.19) explains that the values held by "Socially Responsible Economy", so by Mutual companies are precisely ones which are putting forward by the CSR theory.

The CSR concept has been created by Americans in the 50’s based on ethical and religious considerations. The concept is particularly developed during the past few years due to the companies’ legitimacy crisis. From now on, the company is evaluated by the society according to a triple dimension and has to adapt its behavior. Companies have to be economically viable, socially responsible and environmentally good. These dimensions are closed to the Sustainable Development concept. As Capron and Quairel-Lanoizelée (2007, p.16) note, there is often a confusion between these two concepts. However, the Sustainable Development is a macro economical concept within a global context whereas the CSR is applied to companies within a micro economical level. These two concepts intervene with two different levels; a company can be socially responsible without actually contributing for a Sustainable Development.

It is often as well that in the cooperative banking sector, it exist confusion between the CSR notion and the Mutualism. However, the Mutualism is born almost a century before the CSR movement, which means that it has its own history and is own values. So, even if these two concept highlight same values such as responsibility and solidarity, and have both a mutual governance approach which considers as much shareholders as employees and the society, Mutualism as well as the CSR has proper characteristic and its own history which is conferring it an unique identity (Richez-Battesti et Boned , 2008, p.10). Thus, Mutualism is fixed within a company’s genes whereas the CSR is an adaptation of the Mutualism so as to meet expectations. This ambiguity prevents cooperative banks having a clear positioning, leading to a risk to be misunderstandood by members. So, it seems to be necessary for cooperative banks to communicate about the differences between them and banks by highlighting their mutual roots, but also by educating employees, members and customers to Mutualism history. Indeed, the risk will be to be associated to the CSR and consequently losing their particularism.

II.2. Credit Unions’ evolution in France

Cooperative banks are evolved a lot since their creation. As Richez-Battesti and Boned (2008, p.6) notice, transformations which have affected them are mainly due to the evolution of the national and international environment, such as French law of 1984 and 1996 and the European directives aiming to unify Europe. Indeed, these laws have intensified competition within the French banking sector. European directives have, on the other hand, contributed to strengthen competition and restructuration processes.

Added to that, there are the Bâle agreements 1 and 2 which have been as a consequence the normalization of the banking activity. With the aim to supervise risks generated by the development of international activities, Bâle agreements are applied in the same way for each bank, requiring solvency ratios, apart from statutes, from property’s structure and from activities’ characteristics. Moreover, the International Accounting Standards (IASB) are mainly oriented through financial investors who are nonexistent within the cooperative banking network, but more present within cooperative banking groups. Within this context, cooperative banks had to adapt themselves to these changes, especially by moving from a simple banking network to a banking group, gathering together cooperative networks and private financial companies, but still remain independent concerning decision making process. So, these last few years we saw the appearance of fusions and mergers, 2006 being the record year, allowing French cooperative banking groups to be present as well in Europe as in International, reinforcing then their economic and financial power.

Once it will be explained the notion of cooperative and the specificities of credit cooperative, we will try to introduce an overview of Cooperative banks within the French banking industry.

II.2.1. A cooperative company: A particular juridical structure

As it has been said previously, companies called cooperative, as companies called mutual, belong to a trend even stronger than those which come from the "Socially Responsible Economy". Thus, it can be noticed in the Socially Responsible Economy’s charter that these companies should give priority to the service provided rather than the profit raised (non-profitability value) and they have to implement a democratic rule: a man, a voice.

According to the 1st law article talking about the cooperation statute, the main purposes of cooperatives companies are:

(Law n° 47-1775 of September 10th, 1947) To reduce, for the benefit of its members and thanks to its members, the cost price and, if applicable, the retail price for some product and service, while ensuring the functions of managers or intermediaries whose remunerations could undergo the cost price. (www.legifrance.gouv.fr)

To improve the commercial value of products supplied for its members.

The law n° 92-643 of July 13th, 1992, 1st art adds: And more generally speaking, to meet customers’ expectations, to promote social and economic activities for members and to contribute to their training.

The International Co-operative Alliance (ica.coop website) defines cooperatives as "an autonomous association of persons united voluntarily to meet their common economic, social, and cultural needs and aspirations through a jointly-owned and democratically-controlled enterprise."

This definition is followed by a statement of the cooperatives’ values and principles.

"Co-operatives are based on the values of self-help, self-responsibility, democracy, equality, equity and solidarity. In the tradition of their founders, co-operative members believe in the ethical values of honesty, openness, social responsibility and caring for others."

It is interesting to note that it exist similarities between values held by mutual companies and those held by cooperative ones. Indeed, we find values of solidarity, democracy and responsibility proper to mutualism.

Finally, "The co-operative principles are guidelines by which co-operatives put their values into practice." There are seven principles:

Voluntary and Open Membership

Democratic Member Control

Democratic Member Control

Autonomy and Independence

Education, Training and Information

Co-operation among Co-operatives

Concern for Community

So, it is a common based respected by all existing cooperatives. Indeed, cooperatives cover numerous activities’ sectors, which can be industrial production, services, agriculture, culture… although they promote the same cooperative values and principle, it exist a lot of cooperative’s forms. Within this context, it can be difficult to find the way around. So, in order to be clear, the study will gather together the different forms of cooperative. So as to do it, it will be used the typology found in the Coop FR, co-operative companies’ website. Indeed, two main criteria are used: the type of member and the sector. Then, the different forms are grouped into five families: user co-operatives, co-operative banks, business co-operatives, worker or producer co-operatives and multi-stakeholder co-operatives.

Table 1: Types of Co-operatives

FAMILIES

CO-OPERATIVE FORMS

User Co-operatives

-Consumer cooperatives

-School cooperatives

-Co-owned housing cooperatives

-Low-income housing cooperatives

Co-operative Banks

-Credit’s Union

Business Co-operatives

-Agricultural co-operatives

-Co-operative fisheries

-Co-operatives of small business-owners

-Co-operatives of haulage contractors

-Co-operatives of retailers

Worker or Producer Co-operatives

-Worker co-operatives (Scop)

Multi-Stakeholder Co-operatives

-Co-operative social enterprises (Scic)

Source: http://www.entreprises.coop (types of co-operatives)

Thus, it exist as much juridical specificities as co-operatives forms. Indeed, there are particular legislative and regulatory texts which adjust, derogate or complete this general law in order to take into account the co-operatives specificities in accordance with its activity. Thus, the French co-operative banks are managed through monetary and financial codes, orders and specific decrees.

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II.2.2. Credit Unions’ overview in France

The subprime crisis, which has started in the 2006 second semester, has brought the 2007 financial crisis, leading to a decline of the financial and investment banking sector. Moreover, France has seen its economic growth felt to 0,2 % in 2012 which is reinforcing the difficulty for banking activities. (OECD website)

France has actually eight big banking groups, whose four are cooperative groups regrouping five banking cooperative networks: Crédit Mutuel, Banque Populaire, Crédit Coopératif, Crédit Agricole and Caisses d’Epargne. Thus, the mutual banking sector concentrate almost 23 000 banking branches with more than 22 million of customers, mainly private individuals, artisans, retail traders, SMB and farmers.

Crédit Agricole, Banque Populaire and Caisses d’Epargne (BPCE) and Crédit Mutuel have a net banking income of 34,2, 23,3 and 14,7 billion euros respectivey in 2010 and represent among the leading bank in both France and Europe.

Moreover, in 2009, the Group BPCE is founded so as to serve a total of 36 million of customers with 8,5 million of cooperative shareholders. It represents the second largest banking group in France and accounts for 20 % of the drive to finance the French economy. It is organized around the cooperative retail banking network (Banque Populaire and Caisses d’Epargne) and a number of other subsidiaries (Crédit Foncier, Banque Palatine and BPCE international) and Natixis which is the Group’s specialized Corporate and Investment banking, asset management and financial services arm, listed on the Paris stock exchange.

Thus, this merger has concentrated even more the French banking sector (2012 Coop FR’s annual report).

Table 2: General information concerning French co-operative banking groups (2010)

Co-operative

Banks

Members

Co-operative Structures

Employees

Economic Indicators

(Turnover in Billion Euros)

Crédit Agricole

6 600 000

2537 local branches,

39 regional branches

7012 offices

160 000

GDP: 34,2

Balance: 1 731

Customers : 54 m

Group BPCE

Caisse d’Épargne

Banque Populaire

With

Groupe Crédit Coopératif

8 154 233

54233

17 Caisses d'Epargne

19 Banque Populaires

14 branches

110 offices in 2004

125 000

GDP: 23,35

Balance: 148,4

Customers: 36 m

GDP: 0,38 m

Balance: 12,22

Customers: 271982

Crédit Mutuel

7 200 000

18 regional federations,

2065 local branches

5370 selling points

75805

GDP: 14,7

Balance: 591 309

Customers: 29millions

Source: 2012 Coop FR’s annual report

Group Crédit Agricole

The group Crédit Agricole is the most important co-operative banking group in France, with the greatest number of desks, customers, capital stock, profit, GDP, etc. Thus, it is the market leader in France and a key player in Europe thanks to its capital stock which represents one third of the eight main French banking groups’ capital stock, and the quarter of the total GDP net profit. This group is composed by the Crédit Agricole and the LCL (Crédit Lyonnais) network and it is the first local bank in France with 28 % of market share from households. It is an ambitious group with numerous specialized business lines, implemented in 74 countries with more than 54 million of customers around the world. Thus, the group Crédit Agricole has opted in 2001 for a hybrid structure with the creation of the Crédit Agricole SA (CASA) and its introduction in the stock market the same year. The aim was to have access to the financial market resources so as to expand its activities. This structure, not really capitalistic, neither mutual, allow the group taking advantage of listed companies while keeping the benefits of mutual structures, such as the fact it cannot be took over.

The group is structured as follow (see figure 1): The mutual shareholders own local branches, and these local branches own most of the regional banks’ capital. The regional banks own a majority stake in Crédit Agricole S.A., which in turn owns a 25% stake in each Regional Bank. Fédération Nationale du Crédit Agricole (FNCA) is the body through which the Regional Banks seek information, conduct dialogue and express themselves. Its activities are organized into three business lines: retail bank in France and abroad, specialized business lines (asset management, insurance, private banking…) and corporate and investment banking (Crédit Agricole Group annual report 2011).

Group Crédit Mutuel

The group Crédit Mutuel is composed by the Crédit Mutuel network (see Figure 2) and all its subsidiaries such as the CIC. Indeed, in 1998, the Crédit Mutuel took the control of the CIC bank. With more than 75 000 employees with almost 35 000 for the Crédit Mutuel network only and its 5370 selling points dedicated to its 29 million of customers with almost 14 million of private individuals, the group is axed toward local banking and insurance activities. It is implemented abroad, mainly into the financial, insurance and electronic banking activities. Its specialized business lines are used so as to support its banking network (insurance, private banking…)

Crédit Mutuel’s net profit for 2010 was more than €3 billion which represent a 61 % increase from 2009. In 2010, it was named French bank of year by the economic and financial magazine The Banker and France’s preferred bank in the Postemak-Ipsos image barometer.

Crédit Mutuel network is organized around 18 regional federations, which in turn form the Conféderation Nationale du Crédit Mutuel, the central body. The group carries out nearly a fifth of all its business abroad. Crédit Mutuel is a company based on people rather than capital. It is not listed in the stock exchange market as its strategy is not for short term profitability (Crédit Mutuel annual report 2011).

Group Banque Populaire

The Group Banque Populaire is present in more than 70 countries around the world thanks to its numerous subsidiaries and forms the 4th largest banking network in France. It is composed of 17 regional banks and two banks operating nationwide banks: Crédit Coopératif and CASDEN Banque Populaire. Thus the group Banque Populaire has 8,4 million customers with 3,8 million cooperative shareholders and over 3,336 branches.

Its rapid growth is based on its commitment to the personal and professional goals of its customers which allow it to display a leading position in different areas such as the no. 1 provider of new business creation loans and the no. 1 partner of the world of sailing.

The group Banque Populaire has constantly evolved during the past few years, by first integrating in 2002 the Crédit Cooperatif and Crédit Maritime banking network, then by the creation of Natixis in 2006 which is the result of the pooling of financial bank’s activities of the group Banque Populaire and Caisses d’Epargne (see Figure 3). In 2007, the group acquired Foncia, the French leading group of residential housing development and in 2008, the group finalizes an agreement about the sale of the 7 HSBC regional banks. And finally, in 2009 the group BPCE is created from the association between the former Banque Fédérale des Banque Populaire (BFBP) and the former Caisse Nationale des Caisse d’Epargne (CNCE).

In 2011, the Group Banque Populaire has a Net Banking Income of €23,013 million, + 1,4 % compared to 2010 (2012’s BPCE annual report).

Group Caisses d’Epargne

Historically known as a non-profitable credit’s union, the Caisses d’Epargne adopts the cooperative juridical statute in 1999 and creates the Caisse Nationale des Caisses d’Epargne (CNCE) which is considered as its central body. The same year, the group acquires the Crédit Foncier de France and then, keep developing its activities by purchasing big brands and by creating new subsidiaries such as Natixis in 2006 in association with the Banque Populaire (see figure 3). Such as the Banque Populaire, the Caisses d’Epargne has recorded a negative net profit result in 2008 due to the financial crisis which had reached Natixis. And finally, as it has been explained above, the folloxing step taken by the group was the creation, in July 31th of 2009, of the new central body: The BPCE

The Caisses d’Epargne has 17 regional banks with 26,5 million of customers, 4,3 million of whom have also chosen to become cooperative shareholders of their individual banks, over 4,228 bank branches (2012’s BPCE annual report).

Founded in 2009, The Group BPCE has more than 35 million of customer with 8,1 million of them being cooperative shareholders. The Group accounts for 20 % of the drive to finance French economy. The Group BPCE purses different activities through its Cooperative retail banking networks (Banque Populaire and Caisses d’Epargne), its subsidiaries (Crédit Foncier, Banque Palatine, BPCE International et Outre-mer, and Natixis). Being the central body of these banking groups, it defines the strategy, it controls and coordinates the group.

It is the 15th largest asset manager of the world (2012’s BPCE annual report).



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