Co-op urged to embrace reforms

Wednesday 07 May 2014

The Co-op was urged today to back radical reforms that will sweep away the "dysfunctional" board which presided over the mutual's near-collapse. Former City minister Lord Myners set out his plans for a "plc and beyond" structure by replacing the existing 20-strong board of representatives from the co-operative movement with professionally-trained directors.

His proposals will be put to the vote at the Co-op's AGM in Manchester on May 17 but the peer fears that many traditionalists are "still stuck in denial" over the failings of the Co-op, which reported an annual loss of £2.5 billion last month.

Despite its membership of around eight million and 90,000 workforce, Lord Myners said that whether his report is accepted will depend on the votes of about 100 "elected democrats" who sit on regional boards.

He said: "It is these people I need to persuade that if they do not make the changes I'm proposing the Co-op will decline into less and less significance and come under more and more directions from banks."

Lord Myners, who spent four months as a Co-op director but resigned in April, said that the 15 lay directors on the current main board were drawn from a total eligible pool of only 35 regional board members. They include an engineer, a plasterer and a retired deputy head teacher.

He said that apart from their lack of relevant skills and experience, this was not "genuine democracy at work".

The former Marks & Spencer chairman said it was apparent to him within 30 minutes of his first board meeting that not one single member had the ability to address the complex issues faced by a group burdened with debts of £1.4 billion.

He added it was a "catastrophe" that chief executive Euan Sutherland left the group earlier this year on the grounds that it was ungovernable, having been forced out by some people "who should lower their heads in shame".

Lord Myners said he believed the Co-op will survive but faces the prospect of having to sell assets in order to meet the demands of its lending banks if it does not adopt reform.

The jewel in the crown of the portfolio is the Co-op's funeralcare business, which Lord Myners believes could fetch £1 billion from private equity.

He pointed out that 40 years ago the Co-op was paying an annual dividend in today's monetary terms of £1 billion a year compared with nothing at present. Its grocery arm was also three to four times that of Sainsbury's and Tesco.

Today's report comes days after the running of the food-to-funerals mutual was sharply criticised in a review by Sir Christopher Kelly into the near-collapse of its banking arm - a report which backed the need for change.

The bank faced near-collapse last year after the discovery of a £1.5 billion hole in its balance sheet, and had to be rescued by bondholders in a move that saw the group's stake reduced from 100% to 30%.

In the report published today, Lord Myners' proposals for reform include:

:: The creation of a new group board made up of an independent chair with no previous association or involvement with the Co-op, six to seven independent non-executive directors and two executive directors. The non-executive directors will have the skills and experience of directors sitting on the boards of the group's primary competitors.

:: The establishment of a National Membership Council (NMC) of about 50 individuals, including around 10 employees. The NMC will elect from its membership a steering committee of 12 which will also include representation from independent societies.

:: A nominations committee to screen and propose candidates for group board approval and for election and re-election by members at each AGM. The committee would comprise five non-executive members, including up to two representatives designated by the NMC.

:: The review will also seek to extend constitutional rights to the entire membership of the group. The "one member, one vote" has been a core principle of co-operative ownership, but Lord Myners said at present ordinary members have very little power. All members will have the right to elect board members, the right to attend meetings and to approve significant transactions.

Lord Myners said: "I have no doubt that the Co-operative Group can over the next five years reverse a decline that started over 50 years ago. But I am less confident that it will choose to do so."

He called on Co-op traditionalists to acknowledge the collective failure of the current board and the deficiencies of the governance system.

Lord Myners said their resistance reflected a culture of entitlement within a small but highly active proportion of the membership.

"I would say that the group board and many on the regional boards are still stuck in denial over this near ruinous failure of governance, whereas the vast majority of ordinary members feel justified anger."

He added: "This has undoubtedly created strong vested interests and a reluctance to rethink existing ways of doing things.

"I have myself witnessed repeated instances where there has been denial of responsibility, corrosive suspicion, deliberate delay and a practice of hiding behind 'values' in order to deflect or stifle criticism and protect self-interest."

Ursula Lidbetter, chairman of the Co-operative Group, said a resolution containing the four key principles on reform will be put to members at the AGM.

She added that the board of the group has made clear its "commitment to far-reaching and fundamental reform of our governance".

Ms Lidbetter said the Myners report was an invaluable contribution as the board looks to put the right changes in place: " As group chair, I see this as essential and urgent work that is critical to our future, enabling us to build a more effective organisation which can deliver for all our members, customers and colleagues."