With its ethical origins and ubiquitous shops, the Co-operative Group has a special place in the hearts of many Britons. But that was shaken in 2013 by the collapse of its banking arm and an embarrassing drugs scandal. After the Co-op published its latest results this morning, here’s MT’s interview with its chief exec Richard Pennycook from back in October.
Not many big-ticket bosses get the top job having publicly stated their lack of enthusiasm for the post quite as openly as Richard Pennycook.
But when he arrived at the floundering Co-operative Group in 2013 - floored by the you-couldn't-make-it-up double whammy of a £1.5bn hole in its once green and cuddly bank's balance sheet, plus the methamphetamine-fuelled leadership apocalypse of party animal ex-chairman, so-called 'Crystal Methodist' the Rev Paul Flowers - he was there strictly as the interim FD. He said, more than once, that he wasn't interested in climbing into the hot seat.
A serial turnaround guy, Pennycook was cast in his usual role as the emergency medic called in to dress the Co-op's gaping financial wounds and stabilise the patient.
Not only did he not want to be chief exec, he wasn't even sure the job could be done. Record losses in 2013 totalling £2.5bn were one thing. The prospect of complete structural meltdown was another. 'Organisations have accidents and that is fixable, you can turn that around,' he says. 'The big difference here was that on top of all that was a completely unmanageable governance structure that had been part of the problem. If it wasn't clear that we could make that change, then I didn't want to be part of the future as I just couldn't see a happy ending to it.'
And yet six months later, after the man who did get the top job, Euan Sutherland, abruptly resigned (also calling the Co-op ungovernable on his way out), Pennycook was made interim CEO. A few months after that he was confirmed as the group's new permanent head.
What on earth happened to change his mind? It's clear that the Co-op - for all its faults Britain's largest and best-loved mutual organisation, with 70,000 staff and around 8m members - had begun to get under his skin. 'Although they were let down by a small number of people at the top, there is huge goodwill among the Co-op's colleagues. I have been involved in a few turnarounds and by definition the environment is somewhat unappealing. But this is different - the starting point here has always been people leaning forward and saying, "The Co-op is very important, how can I get involved in putting it back in its rightful place in British life?"'
But the real clincher came last summer when four-fifths of its members voted in favour of radical structural changes. Despite the opposition of many die-hard mutual activists (including film director Ken Loach), its grassroots members proved to be in favour of the pragmatic recommendations. They were prepared by Lord Myners, who had resigned as chairman following a failed earlier reform attempt.
So an end was in sight to the mishmash of 48 area committees, 20 independent co-operative societies, seven regional boards, and a 21-strong group board (which included such business luminaries as a plasterer and a horticulturist), in favour of a new streamlined regime with a much more commercial board.
Under those conditions, he concluded that having a stab at making the 'ungovernable' Co-op governable once again, 'was absolutely worth a try. We had had a banking crisis, an existential threat for the whole group. We had a reputational crisis thanks to Paul Flowers, and then the previous chief exec disappeared. Had I then said "right, I'm off now as well", I don't think that would have been great.'
Of course, if he could pull it off, it would also be a tremendous personal achievement. And perhaps he was ready for a meatier leadership task. At £1.3m plus bonuses, his salary, while hardly stingy, was considerably lower than predecessor Sutherland's £6m plus deal.
Fast forward a year or so and he reckons that stage one, the rescue, has been completed and that stage two, the rebuild is well under way. It's back in the black (just), and at £900m its debt is 'manageable'. It also has a new chairman in the shape of retail royalty Allan Leighton. The new nine-strong board - two executive directors, four independent non-execs and three directors nominated by Co-op members - is up and running, as is the Members' Council, a 100-strong body of members, tasked with ensuring that the board's commercial strategy is in line with the group's co-operative values and ethos. 'We have to be as fleet of foot as out rivals, it can't take three months to make a decision, but we also have to be able to take the ethical stance that is important to the Co-op.'
Its 2,800 branch grocery arm is busy re-inventing itself as a good-value destination for foodies - think Waitrose quality with Aldi prices (at least that's the idea). Fortunately its portfolio is largely high street rather than the out-of-town real estate that is causing the likes of Tesco so much grief. 'Food is our largest business, it's primarily convenience as opposed to big box stores, we don't have the same exposure to that. It's doing well - over 3% like for like is not bad in that business.'
A bit of a foodie himself, Pennycook says the group is full of great food stories. 'We source more of our fresh meat from UK farmers than anyone else, and if you buy a bottle of Co-op Malbec it comes from a co-operative in Argentina, which uses all its surplus profits to build schools in the poorest part of the country.'
Getting these stories out there without turning preachy is the key, he reckons. Take milk. 'The market price of milk is lower than the price of bottled water. Anyone who thinks that through can see it's nuts, so we pay 5 or 6p more per litre to support British dairy farmers. But we have to leave it up to the customer to decide if they want to support British farmers too.'
The Co-op's other key interests are in household and general insurance and funerals. With 900 homes, the Co-operative Funeralcare is the largest funeral director in the UK and thanks to an ageing population, it's a steady if rather sombre business to be in.
Pennycook is quietly optimistic that the future looks bright, perhaps brighter than it has done for many of the Co-op's 170-odd years, right back to the Rochdale Pioneers of 1844 and their belief in trade as a force for good in local communities. 'The Co-op has a proud, brave history. That spirit got a bit lost in the run-up to the financial crisis - life was good, capitalism worked, people scratched their heads and asked, "What's the Co-op for?"
'But post-crash the Co-op is very relevant again, just as it was in the glory days of the movement. People are now saying, "All these institutions we thought we could trust are rotten in some way. They are a long way away, they are anonymous and they are not run by people like us.
The Co-op has the opportunity to say that there is a different business model, one which is owned by you and where any surplus created goes back to you. It doesn't go to the City, it doesn't go to Silicon Valley, it's your money, your business and you can hold us to account.'
But it has been far from smooth sailing. It cost a hefty £1bn in equity to plug the hole in the balance sheet caused by the crisis at the Co-op Bank: raising such a sum not only more than emptied the group's coffers but also saw it lose control of what had been its own subsidiary. Although it remains the largest single shareholder in the Co-op Bank, its holding plummeted to 30% as part of the restructuring deal. A humiliating outcome made all the worse by the fact that, having sold itself to customers as a 'good' bank, it became only too clear that the Co-op Bank was at least as badly run as any of its 'evil' rivals.
Other sound and profitable operations had to go to pay the bills - including the Co-op's farms, and its pharmacies. 'It was force of circumstance. They were good businesses, and they went to good homes. It was very important to get the debt under control.'
The damage to the Co-op's reputation - and perhaps to that of the mutual movement generally - may take years to repair. Even its famous 'divi' - the share of surplus profit distributed annually to every member - has been controversially suspended. 'We need the money,' says Pennycook plaintively. 'Our debt levels are sensible now but we're investing over £1bn over the next three years. While we are doing that there is no room for a dividend as well.'
The son of a civil servant father and a legal secretary mother, Pennycook presents a lean, sinewy and slightly ascetic character. What he may lack in room-filling presence is made up for by a quiet authority and seemingly unflappable calm. He grew up near Kingston upon Thames and went to a local school - 'despite it being a comprehensive in the 1970s, it gave me a good start' - before university at Bristol. Having wanted to be a fighter pilot until a trip to the optician put paid to the dream, he says smiling, 'I had a good think about the next most exciting thing I could do, and decided to become an accountant.'
Joining Arthur Andersen as it then was as a trainee, he spent five years with the firm - a formative experience which he reckons had a big influence on his later career. 'It was the 1980s and I was part of the insolvency division. I was basically going into UK manufacturing businesses and putting them to sleep. The only response when a bank covenant was breached or whatever, was to close the company down.
'The value loss was huge and the people cost was huge. So I became very interested in learning how to resuscitate businesses and fix those kinds of situation.' An interest he was to turn into a career speciality, via stints at JD Wetherspoon, Laura Ashley and the RAC, before eight years as Ken Morrison's FD where he restored the supermarket's tarnished City reputation following the botched Safeway acquisition. (It is interesting to speculate how different Morrisons' recent fortunes might have been had they given the top job to Pennycook rather than to the ill-starred Dalton Philips back in 2010.)
He now lives outside York with his wife and two teenage kids, commuting to the Co-op's HQ in Manchester or to its office on the edge of the City of London. Does he offer his kids any career advice? 'They give me advice, and they keep me in touch with the digital world,' he says.
Just as well, for he admits that digital is one area the Co-op urgently needs to improve. 'In the 21st century, digital should be a basic tool for joining up Co-op members and for us to engage with them but we are miles behind. The only way I can communicate with all my members is by writing them a letter, which costs three quarters of a million quid every time. It is a crying shame.' To that end he has just hired Mike Bracken, the former digital director of the Cabinet Office, as his chief digital officer.
But although the Co-op has a healthy electricals etailer ('It does £100m in turnover so if it was a standalone online business it would probably be valued at a couple of billion,' he quips) one area it won't be straying into is online grocery sales. 'That's the death knell of any profit ambitions I might have. Selling groceries online was once described to me as a social service for the middle classes.'
Only time will tell if his efforts to make the Co-op more businesslike while still retaining enough of its roots to keep members onside has worked. The rebuilding phase should be complete by 2017, at which point Pennycook's thoughts will turn to new opportunities for the group: 'Cartels, and markets that aren't working effectively on behalf of members, the sort of thing the Co-op used to do best.' Such as? 'Childcare, elderly care. On the cartel side, energy, telephony.'
That's if he's still there. It's always possible that another troubled business he really doesn't want to run will come knocking. Maybe playing hard to get isn't such a bad strategy after all.
THREE CHALLENGES FACING PENNYCOOK
1. To make the Co-op as relevant to the needs of the 21st-century consumer as it was in its 19th-century heyday
2. To keep the core food business growing in the face of ever-stiffer competition from Aldi, Lidl et al
3. To drag the Co-op into the digital age before it's too late
PENNYCOOK IN A MINUTE
1964: 26 Feb - Born, Salisbury. Grows up near Kingston upon Thames, attends Hinchley Wood comprehensive school
1985: Degree from Bristol University in economics and accounting. Joins Arthur Andersen
1995: Financial director, JD Wetherspoon
1998-2005: Variously FD/CEO of Laura Ashley, Welcome Break, HP Bulmer, RAC
2005: FD, Morrisons
2013: Interim FD, Co-operative Group
2014: March. Interim CEO, Co-operative Group
2014: September. Permanent CEO, Co-operative Group