Lord Paul Myners has called for “radical change” in the corporate governance of The Co-operative Group so that the society can recover from the “traumatic shocks” it has experienced over the past year.
In his review into The Co-op’s governance – commissioned by the society in November last year following the allegations surrounding its former bank chairman Paul Flowers – Myners said The Co-op needed “a compelling strategy supported by tightly disciplined financial management”.
He recommended that the society should put in place “a group board that possesses the skills and experience, as well as the commitment to co-operative values, that will enable it to match in quality the boards of its primary competitors”.
“The organisation has seen more than half of its net assets wiped out in the past five years”
It needed to create a “new National Membership Council, to provide a powerful representative forum of elected members for holding the group board and executive to account, and for acting as the guardian of co-operative values”.
He also called for “the extension of full membership rights to all individual members, consistent with the fundamental co-operative principle of ‘one member, one vote’ and substantially increasing the scope for genuine participatory democracy”.
“The implication for The Co-op Group is straightforward. It needs to have a compelling strategy supported by tightly disciplined financial management,” he said.
“The catastrophic losses that have arisen over recent years are the direct result of a failure to put these in place. After 150 years of development, and an extended period of financial decline, the organisation has seen more than half of its net assets wiped out in the past five years. Financialcan only be restored through steady, step by step, rebuilding of the group’s profitability and repayment of its excessive debt.”
Myners released a progress report into his review in March following the resignation of CEO Euan Sutherland. That report was criticised by a number of people within the co-op movement including the chairman of Midcounties – the biggest regional co-op.
Referencing this criticism, Myners said: “Some people may have expected me to water down my proposed reforms. They may have felt that my interim report was no more than an opening shot. That could not be farther from the truth.
“I committed to giving the membership a full diagnosis and the best possible objective and independent advice, much as a doctor would diagnose a patient. It would be completely irresponsible to change my diagnosis because the prescription is unpalatable, and hard for some elected members to accept. I would then no longer be prescribing the best solution for the organisation.”
Myners also insisted that his proposed changes were not designed to change The Co-op into a plc.
“I want to assure all members that the reforms I have set out are fully compatible with the core values and principles of co-operative ownership,” he said.
“I have no interest in advocating the adoption of a plc model, as some of my critics have claimed. But I do want to see a governance structure that works; the present one has lamentably failed.
“It would be completely irresponsible to change my diagnosis because the prescription is unpalatable”
And he added: “While I deeply regret the departure of Sutherland, who did so much to rescue the group last year, he had already assembled a strong executive team and had begun to map out some highly innovative strategies for reconnecting with members and transforming the group’s effectiveness. I know that the current executive is pressing ahead fast with this work, under Richard Pennycook’s able leadership. My hope is that as this vision for the future emerges it will once again inspire members, customers and colleagues.
“The prize is clear: a transformed organisation with a compelling mission that meets the needs of today and tomorrow; a purpose-led organisation defined by the power of reciprocity and mutual advantage; and a refreshed appeal to members, championing the interests of local communities.”
Commitment to reform
Myners’ report was welcomed by The Co-op Group. Chair Ursula Lidbetter said: “The board of the group has made clear its commitment to far-reaching and fundamental reform of our governance. A resolution containing four key principles on reform is being put to members at a general meeting in May and we will build from there to ensure we put the right changes in place. Paul’s report will be an invaluable contribution to that work.
“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,” Lidbetter added.
The Co-op Group revealed last month that the four-point resolution to be tabled at its agm on 17 May would be:
- The creation of a board of directors elected by members that is individually and collectively qualified to lead an organisation of the size and complexity of The Co-op Group
- The establishment of a structure that gives The Co-op Group’s members appropriate powers to hold the board properly to account for the performance of the business and adherence to co-operative values and principles
- A move to the concept of ‘one member one vote’ with appropriate representation for independent co-operative societies
- The inclusion of necessary provisions in the rules of The Co-op Group to protect against demutualisation.
Read this: The Co-op Crisis: A timeline