Merkur bank


Genuine communities build on interdependence. In conventional business, you can make a quick profit for yourself, by ignoring the longterm consequences for the system. In cooperatives, members make decisions to create value for everyone involved. 

An interview with Lars Pehrson, CEO of Merkur, a Danish cooperative Bank, and the leading Danish bank when it comes to financing businesses with a sustainability or otherwise ethical purpose.

Despite leading a bank, Lars Pehrson insists that business should not just focus on making money.

”Since the 80’ies it has become the norm for companies to follow the shareholder value paradigm, by which the purpose of a company is to maximize the value created for its owners, the shareholders. Any other goals are simply seen as distractions.

Instead, we say that our purpose is to do banking that supports a society, which is sustainable far into the future. Of course, we have to earn money to survive and to develop the business, but the profits are not the purpose”.

In Pehrson’s opinion, the logic of business has been turned on its head: ”If you look at a factory that produces furniture – is its purpose to make money for the owners, or is it to produce good furniture? If it’s all about value to shareholders, you end up with some strange incentives. Also, for the employees, the personal drive in their work is very different”.

Pehrson tells the story of one of his customers, who used to work as an engineer for a telephone company, back when it was still stateowned. At the time, he felt he was working to provide the best and cheapest possible connections to everyone – and he enjoyed that. Later, when the company was sold to foreign private investors, the purpose of his job changed. Now, the goal was to make money for the owners. And this felt a lot less interesting to the engineer, and he went for an early retirement.


The invisible hand goes cherry picking

One could argue that there is not necessarily a contradiction between serving customers well and making the most profits: Ideally, customers would prefer to buy from the company, that offers them the best product or service.

To Lars Pehrson, there is a world of difference. As an example, he points out that one of the reasons why the postal service has worked so well is that everyone pays the same price to send a letter, no matter if you are sending it to someone across the road or to someone living way out in the countryside. In a sense, there is a solidarity in the setup: Those who send mail often and mainly within the same city are subsidizing the letters to remote areas.

”If you were running it along pure market principles, there would be no service to the countryside”, says Pehrson: ”The same goes for trains. There are private companies, which claim that they could operate the main lines cheaper than the national rails – and of course they can do that, because they are not burdened by operating all the smaller lines”.

If it’s only driven to maximize shareholder value, you will fragment and suboptimize in order to remove all the cumbersome pieces. Then you can cherry pick the really good businesses – but everything outside of that withers away”

”It’s not in our collective interest as a society that half of the country is left outside to stagnate – but the market forces will make that happen”, is Pehrson’s conclusion.

Genuine communities

Pehrson contrasts this to what he calls genuine communities. As an example he mentions the new and upcoming communities that connect customers in cities directly to farmers. These are not one-sided communities, in the sense, that consumers join a group to have greater leverage to negotiate lower prices from the producer. Instead, the farmers are part of the community.

In some setups, what’s called ”community supported agriculture”, the consumer agrees in advance to buy a year’s consumption of products, and this make it easier for the farmer to plan and invest.

”It’s not about squeezing the producer – it’s about fairness. Both parties have a shared interest in good and sustainably grown food, and they recognize that they depend on each other. There is a genuine sense of community. The customers want food they can relate to, and to know where it comes from. They understand that it’s not in their long term interest to impoverish the farmer, because they would risk that he will have gone out of business in a few years”, says Lars Pehrson.

Of course, the consumers could find cheaper ways of buying food, but still it’s not philanthropy, says Pehrson: ”Customers get their food, it’s real business. Sometimes, as a customer, you need to take on an extra responsibility in order to free the farmer to produce real products. By making the direct, long term cooperation, you create a space, where the farmer is free to create good products, and not be driven to produce as much as possible as cheap as possible.


The sharing economy is not necessarily a community

Lars Pehrson sees this type of genuine communities as quite different from what takes place on many of the services that are described as the sharing economy:

”The large platforms like Airbnb or Uber are not cooperative. They are more like a collective individualism. It organizes a lot of people, but everyone is acting on their own, for themselves”.

Airbnb and Uber are commercial companies, and they are making their founders potential billionaires, because they might be able to sell the platform to shareholders, that believe in the profitability.

If a company like Airbnb was as a cooperative business,

the platform would be owned by those, that make their homes available, and the profits would be shared, according to how often you are renting out.

But just changing the structure of ownership would not make it genuinely cooperative, in Lars Pehrson’s opinion.

”There has to be something more in common among the participants, something which stretches beyond the mere activities”, he says:

”Merkur is a cooperative bank. We lend money and take care of savings and we do all the things a bank is supposed to do. But we try to add another layer, so our customers feel that we have a particular function in society and that by using us, they are taking on some responsibility and showing concern for what will be the long term impact of what they are financing.  We strive to be transparent, and show our clients to whom we lend and what we are achieving with the loans we make to companies. In that sense, there is more to what we do than the mere functionality. About a fourth of our customers have bought shares – but even among those that are not co-owners, it’s common to think of our relationship as more of a membership than simply being customers in the bank”.


Fewer temptations to make a quick profit

The altruistic and non-profit oriented purpose of Merkur may be sympathetic, but, particularly for a bank, one might worry that unless it was able to offer competitive returns, it wouldn’t be able to survive compared to more straight competitors.

Lars Pehrson points to a recent report*, which concluded that globally, banks that are based on values rather than just profit orientation, perform as well as the conventional banking sector.

”It’s a myth that having ideals makes you more vulnerable financially. It’s not that clear-cut. The profit maximizing system has its own set of vulnerabilities”, he says:

”It increases stability to work as a value based community. You are not tempted to engage in risky short-term bets because it’s so clearly outside our purpose. This makes it easier to determine that some activities are not part of your business model.

If you are maximizing shareholder value, it’s tempting to pursue chances to get large returns quickly. But as the crisis in 2008 showed, this is not so safe.

Obviously, that doesn’t make us immune to the general economic trends around us. Merkur was not hit when the real estate bubble burst, but when the financial crisis spread into the real economy, our customers were affected as well. We had some losses, but they came a couple of years after the conventional banks were first hit”.