Stability, continuity and solidity
In many respects Rabobank appears to be the quintessence of a traditional bank. It can trace its roots back to the mid-Nineteenth Century, when Friedrich Wilhelm Raffeisen created the first farmer’s bank in Germany.
The bank prides itself on its reliability. Rabobank was number 10 in Global Finance’s 2012 ranking of the World’s Safest Banks’ and was ranked at number 26 in The Banker’s list of ‘The Top 1000 World Banks’, ahead of France’s Societe Generale and Spain’s BBVA. But Rabobank’s folksy roots belie a radical and distinctive organisation. In the traditional banking model, local branches tend to be owned by a central organisation. In Rabobank’s case, however, the opposite is true: the network of local Rabobanks is the mother of the central organisation. Rabobank doesn’t have a ‘head office’ so much as a ‘support office’. Vincent Lokin is Rabobank’s Head of Cooperative and Governance. His role is to make sure that this cooperative approach to banking works. It’s an approach based on common sense, where decisions are made by people. “I think it is important to understand our history in order to understand our reason of being. We were not founded by people who had money and wanted to make more money. We were founded by people with limited access to money who decided to organise themselves to achieve more. And the single purpose of this cooperative was to serve its members and its clients. That’s all. Nothing more. But in order to achieve this you need to generate order. To create a sustainable organisation. To comply with the rules of the larger system. Making money is an important aspect, because in the interests of our clients and of the bank we need stability, continuity and solidity. In order to maintain that we need to make profit. Profit is a means through which to serve our clients. It is not a goal to pursue for its own end, or for our shareholders, which is an important difference compared with listed banks.”
Lokin is joined in our conversation by Bouke de Vries, Rabobank’s Head of Financial Sector Research. His team analyses the financial sector, following regulatory changes and competitive activity in retail banking. He is ideally placed to talk about Rabobank’s structure and position in the Dutch financial sector.
“In the present situation of financial turmoil and markets, the robust capital position of the Rabobank and conservative risk management are important. This builds trust. The fact that we are a cooperative means that we are closely positioned towards customers. This is especially relevant today, as the banking sector is facing a lack of trust. I believe we should invite debate with our members and customers about important questions such as: what went wrong during the credit crisis? How can we rethink banking? And what are the main functions of a bank?”
Debate is a recurring theme in our conversation. According to de Vries, “The main point of the cooperative model is that it is democratic and a key aspect of this is that you are willing to be held accountable. “The executive board has the authority to set the strategy but they have to ask for approval for the strategy from the (now) 138 local member banks. They send delegates to the Central Delegates Assembly, which is our ‘parliament’. As an example, if the local member banks say with good reason that they would like to have the strategy changed, then the strategy will be changed. At the local level, in turn, Rabobank has around 1.9 million members. It is harder to organise debate with millions of members than with 138 member banks, so we’ve developed other instruments to help to do this, like the Advisory Council, where entrepreneurs and citizens have opportunities to engage with the bank.”
It’s hard to deny the work that has gone into Rabobank’s cooperative structure is impressive. Democracy and debate are desirable in theory but all too often lead to inefficiency, inflexibility and an inability to set clear strategy in practice. This is acknowledged by Lokin and de Vries. “Decisions may take longer. However, when they have to be enacted, they also have a broader support.” Lokin adds: “Structure alone isn’t enough. A structure is just a set of pipelines through which information travels. If the information runs freely then the cooperative model can work. That’s an important part of my role. You cannot be the head of a cooperative. All you can do is act as a catalyst for the system.”
De Vries agrees: “This is about structure and culture. Our bottom-up structure facilitates this kind of democratic debate, but it is the culture and the people that make the difference. We enable a lot of autonomy at a low level to make decisions that are in the best interest of the customers. So the local banks and the advisors that face the customers have a lot of authority to make decisions and our organisation should support these local banks to be as effective as possible.”
“The main role of any bank is to finance the real economy. This is also the case for cooperative banks. The main difference is that members control cooperatives and that cooperatives have a decentralised form of organisation. Cooperative banks are historically oriented to do business locally and this is still very much the case. It’s an economic model with socially beneficial outcomes. Each of the members should see their goals being accomplished by the cooperative. It is an economic model based on a common purpose and the socially beneficial outcome is that you contribute to local development because you are financing the real economy at a local level. You provide access to finance. You provide access for citizens to financial products. This sounds very logical in theory but it isn’t practiced in the developed world today. During the credit crisis we saw a rift emerge between customers and providers of financial services. We are able to go to these customers and say ‘we believe in you as an entrepreneur’.”
This idea of providing finance to entrepreneurs and helping to kick-start the real economy is extremely alluring in the context of a financial crisis. After all, entrepreneurs make up the bulk of our economies. And Vincent Lokin points out that Rabobank has more to offer than just financial support:
“We want to add value to the society we are in. Not just with money but with our network, our knowledge and our people. We are in a position to make a difference, by supporting the global food system and by making it possible that the 9 billion people living on the planet in 2050 can eat. A lot of the large parties in food and agriculture are our clients but in order to feed 9 billion people, it will be necessary to introduce more small farmers to the system. The way to do it is to encourage them to work together as a cooperative, to develop them and to connect them to the food system. We think we can teach them to work together. It requires knowledge more than money.
“We support groups of people in rural areas who could be assisted to set up a cooperative. This is not always about financial support, but a matter of technical assistance. After 3-7 years, such groups are capable of developing into a saving cooperative able to lend money to its members and to use its profits to make the system stronger. We tell them we have been doing this for 114 years. It is great for us to see that these groups become independent from us within a few years.
As a large bank in the food and agriculture industry we have direct access to large traders, processors and distributors of food. And we also finance local producer cooperatives, so we can contribute to the improvement of opportunities for developing countries and producer cooperatives by giving them access to these global food supply chains, by linking them to our other customers — the larger companies.”
This sounds like a tremendously satisfying situation: Rabobank bringing together a network of smallholders, entrepreneurs and global food giants to support an increasingly hungry planet. But our interviewees don’t paint an entirely rosy picture. Not all of the entrepreneurs Rabobank works with are destined to succeed. And not even Rabobank can satisfy all of its customers all of the time. As Vincent Lokin explains to us, customer satisfaction is taken extremely seriously at Rabobank, but it isn’t the most important measure of success for a cooperative that tries to do the right thing:
“Our customer satisfaction research shows that customers are being heard. But this situation is complex because sometimes our customers are dissatisfied when we don’t sell them what they want. If we measure their satisfaction [at that time] it probably isn’t the best, but we hope that if we go back a year later, they realise why we did what we did. We don’t put the client first. We put the client’s interests first.
“Our credit losses on mortgage loans and the number of arrears, which are already historically very low in the Netherlands, are significantly lower than average. We think this is one of the effects of being a cooperative bank, of being interested in your clients and having the guts to say no to your clients, even if you know they won’t like you at the end of the meeting. Thanks to our conservative risk policy, we are in a good position to well withstand the current less favourable circumstances in the Dutch housing market. We are an important pillar in the system, therefore it is in our own, as well as the client’s, interest that we take a prudent approach in our lending activities.”
Maintaining such a level of integrity is a huge responsibility to take on. Vincent Lokin is clear on one final point: Rabobank’s own integrity relies on the extent to which it takes its own values seriously. This means those values must be constantly explained and questioned.
“I think it is good to revisit our core values, not just to assume they persist because they are perfect. I have always tried to understand them. It can sometimes mean we don’t sell a product. For example, we are in the middle of an interesting discussion about how we can measure the performance of our employees, because the one that sells the most mortgages is not likely to be the person that always works in the best interests of our clients. So how can we resolve supporting our clients’ interests with our commercial requirement to make enough money to keep the system going? “It is a tension and challenge. But it is our intention to keep discussing this. The moment we stop the discussion we are lost.”