Triodos: Heart of gold, feet of clay?

(Published in The Observer of 28 may 2004).

As a customer takes Triodos to court, Andrew Bibby sees a fascinating case study in balancing morals and money-making.

The specialist bank known for its pioneering work in developing ethical investments in Britain is being forced to defend its reputation in a High Court action brought by a former business customer. Triodos Bank has built up a track record for its role as banker for a range of social and community-based ventures and for its work in developing the idea of ‘ethical’ share issues.
It is responsible for the technical and fulfilment aspects of the current Cafédirect issue, launched by the fair trade company last month and already half way to its £5 million target. Cafédirect shares will be tradeable on the Ethex (Ethical Exchange), another recent Triodos initiative.

Triodos describes itself as a bank that lends only to organisations that ‘create social, environmental and cultural value’. Its latest newsletter reinforces its progressive credentials with, among other things, a discussion of sustainable farming, a critique of current world trade rules and publicity for a community-controlled village shop.

It is unfortunate for the bank, therefore, that it has a customer prepared to confront it in the High Court. The civil case pitting property developer Ashley Dobbs against the bank, which has been stewing for several years, began on 16 March and is expected to be completed this week.

The case concerns the Crickhowell ’televillage’, an innovative development of 39 homes in south Wales that was designed to attract teleworking pioneers. Ashley Dobbs, now in his forties, began property-developing in his early twenties before, among other things, following up interests as an underwater photographer and documentary film-maker. He was an early telework enthusiast and helped found what is now the Telework Association.

Dobbs’ dispute with Triodos hinges on the bank’s decision to withdraw support for the Crickhowell venture, pushing his company Acorn Televillages into receivership in 2000. He claims that, despite some problems with contractors, the development was fundamentally profitable and that the Acorn assets sold off by the receivers for £2.1m have since been shown to have been worth much more.

He alleges that Triodos actively worked in the period before receivership to undermine his position. He is representing himself in the High Court in the £18m case, which also has Acorn’s two administrative receivers as defendants.

Dobbs says he chose Triodos as banker because he identified with its environmental principles. His views have changed. For Triodos, he says, ‘I would place a "u" and an "n" before the word ethical.’

Triodos is strongly contesting the case. ‘We don’t accept the claims he’s making. We’re confident we have a good case and that the court will recognise this,’ says Charles Middleton, Triodos UK’s managing direc tor. The bank says that it will make a full statement at the end of the hearing.

The Ashley Dobbs case relates to decisions taken by an earlier management team at the bank. However, it will inevitably focus attention on Triodos’s background. While the bank’s British office is in a fine old building overlooking Clifton Downs in Bristol, Triodos has its head office in the Netherlands and is regulated by the Dutch central bank. Triodos also operates in Belgium and Spain.

Its roots (like the UK bank Mercury Provident, which it took over in 1995), are in the anthroposophy movement. This refers to the ideas of the Austrian spiritualist thinker Rudolf Steiner, who died in 1925 and whose interests included education, ‘biodynamic’ agriculture, eurythmy (movement as art) and therapeutic medicine.

Triodos Bank’s statutes committed it to anthroposophical principles until 1999, when this formal link was dropped, and in recent years the bank, under its current head Peter Blom, has embarked on a policy of reaching out beyond Steiner adherents and of broadening its appeal. Nevertheless, Triodos’s origins are reflected in the fact that most of the Dutch directors come from within anthroposophy, and it is banker for many Steiner-inspired projects.

Triodos describes itself as a ’transparent bank’. In a 16-page brochure ‘Inspiring Change’ it spells out all the UK ventures in which it has given overdrafts or loans.

However, Triodos has to overcome a problem of transparency in its own structure. Behind the single Triodos brand is a parallel legal structure in the Netherlands: Triodos Bank NV is legally separate from Triodos Holding NV, which operates as an international fund manager, provides microcredit in developing countries and runs a significant venture capital operation in the Netherlands.

The two companies are ultimately both controlled by foundations, with strong roots in anthroposophy and overlapping membership. The bank’s foundation issues dividend-earning but non-voting ‘depository receipts’ which are held partly by private investors but also by a number of Dutch commercial companies.

Triodos says that its structure, whilst unfamiliar to British investors and borrowers, is partly the consequence of Dutch company law. The bank points out, for instance, that the Anglo-Dutch electrical giant Philips also has a foundation designed to protect the interests of the company.

Charles Middleton’s appointment as head of Triodos in Britain last year followed a managerial hiatus. Glen Saunders, Triodos’s first UK managing director, left the bank in October 2001 and his successor, Mark Hayes (a well-respected figure who previously set up Shared Interest, the ethical savings co-operative), stayed only a few months before parting company after a disagreement, not believed to be linked to the Ashley Dobbs case. Hayes’s departure was more likely to have been connected to his discomfort with another legacy issue from the early days of Triodos’s operation in Britain, the treatment of former Mercury Provident investors.

About 560 people had taken advantage of two early ‘ethical’ share issues to invest a total of about £1.3m in the British bank. At the time of the 1995 takeover they were given replacement stock in a new subsidiary, Triodos Stockholding plc, with an initial pledge that the stock value would be tied to the parent bank’s own share value.

This arrangement failed to allow adequately for UK/ Dutch exchange rate movements, so by 2001 Triodos Stockholding found itself technically insolvent. Ex-Mercury Provident shareholders were asked to agree to a variation in the terms of their stock, reducing the value of their investment by 16-20 per cent.

It meant that £50 originally invested in Mercury Provident became converted in 2003 into Triodos stock worth about £42.

Triodos says that it explained the reasons behind the proposal in a three-page letter sent in 2002 to all stockholders, and that of the 220 who subsequently voted, only one was opposed to the change.

Charles Middleton, who has brought in several new senior managers for the UK bank, will no doubt be wanting to look to the future rather than dwell on past problems. He comes from a banking background, having joined from Barclays, where he held senior management positions in Africa, the Caribbean and India.

He speaks with obvious passion of the potential for developing the bank’s distinctive values in Britain, where it has about 23,000 account holders and about 550 borrowers.

Triodos’s next event is an annual meeting for investors, borrowers and friends in April, when invited speakers will be exploring ‘how values-driven businesses and organisations can reach wider audiences without compromising their principles’. In this respect, Triodos’s efforts to reconcile its role as a profit-generating commercial business with its desire to encourage an ethical approach to money makes it a fascinating case study.

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