Myners warns The Co-operative must change or will die

FORMER government minister Lord Myners has submitted draft proposals for a new structure at the Co-operative Group, on the back of another turbulent week for the mutual organisation.

Days after the resignation of chief executive Euan Sutherland on the grounds that the group is “ungovernable”, Lord Myners said the Co-op’s structure is “flawed” and it should not try to replace him, on a permanent basis, until it has a new structure in place, arguing that it will not be able to attract a “best in class” candidate until this happens.

He warns too that change must be embraced to address “current uncertainty among existing key employees.”

The former City minister – the only independent director on the board – said the 90,000-employee group, which has shops, funeral homes, pharmacies and legal services operations, must change or risks going out of business.

“Unless the group takes urgent steps to reform its governance so that it generates sustainable economic value, it will run out of capital to support its business.”

“The Co-operative Group suffers from acute systemic weaknesses in its governance framework that over many years have gravely damaged the organisation. These failings include a series of costly strategic misjudgments that have undermined the group’s competitive position and severely eroded its capital base.

“The group board have collectively presided over losses of several billion pounds in the course of the last few years. Debt has reached levels that are no longer sustainable without the sale of treasured assets.”

His draft recommendations are made to address what he calls he “severe weaknesses in the current board structure”.

They include:

The creation of a new group board made up of an independent chair
with no previous association or involvement with the group, six to seven
independent non-executive directors, and two executive directors.

This new smaller board would replace the existing elected board of 20,and  would be responsible for all commercial and financial matters and would have full power and responsibility for the operation and management of the Society.

Lord Myners also advocates the creation of a National Membership Council, comprising of around 100 individuals,  including up to 20 employees’ representatives.

This new Council would have powers to ensure that the group adheres
to co-operative values and principles, and that these are reflected in its corporate vision, strategy and operating practices.

Lord Myners says the new NMC would have two primary roles: first, as “guardian of the values and principles of the group’s constitution” and would hold powers to veto further changes in the constitution, so nothing would be done to increase the vulnerability of the group to takeover or demutualisation.

Its second role would be to hold the group board to account for its stewardship and strategic leadership of the organisation and for the operational performance of the business.

Setting out the context for his report, Lord Myners, who joined the Co-op’s board last year, said the group’s future had been threatened by the crisis in the Co-op Bank, and paid tribute to Euan Sutherland and his new executive team for their “exceptional skill and tireless efforts”, which had ensured its survival.

His interim review contains damning criticism of the Peter Marks era, with the takeover deals he led for Somerfield and the merger with Britannia Building Society, slammed for being “breathtakingly value-destructive.”