Myners: 'The Co-op will go bust unless it reforms'

Lord Myners has released the first taste of his long-awaited investigation into the Co-op. It's damning stuff.

by Emma Haslett
Last Updated: 19 Mar 2014

It’s been a torrid week for the Co-operative Group and things are about to get even worse. On Tuesday, chief executive Euan Sutherland resigned after just eight months in the post, making no bones about its need to change.
 
‘Until the group adopts professional and commercial governance it will be impossible to implement… changes and reforms to renew the Group and give it a relevant and sustainable future,’ he wrote.
 
Now Lord Myners, who was parachuted onto the group’s board in December to look into its governance, has released a progress update on his report into the group, and boy, does it look bad.
 
Myners’ conclusion is largely the same as Sutherland’s: unless the group makes radical changes, its future is very bleak.
 
‘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 report says.
 
Myners has three particular concerns: firstly, the board structure. The Co-op’s board is too big - 20 people - and none of the board are also members of the executive team, which Myners says is a worry.
 
‘I am deeply troubled by the disdain and lack of respect for the executive team that I have witnessed from some members of the group board. There is a phrase frequently used in Co-operative Group circles that the executive should be 'on tap but not on top'.’
 
At any company, that would be troubling, but Myners suggests that because the board has so little experience, it’s particularly worrying for the Co-op. He may have a point - the list of directors on the Co-op's website includes a nurse and a retired publisher.

‘Elected directors have simply not been up to their task of holding the executive to account.’ At least it gives us some idea of how ‘Crystal Methodist’ Paul Flowers came to be elected chairman.

Second on his hit list is how money is spent. The board has spent far too much of its time on transactions (like the acquisitions of Britannia building society and Somerfield supermarket) that are ‘breathtakingly value-destructive’.

‘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. Sale and leaseback transactions represent an expensive addiction the cost of which does not appear, even now, to be fully appreciated by the board.’

It looks like the oft-maligned hedge funds which now control the Co-op Bank might have done it a favour after all, by getting it out of the clutches of the Co-op Group board.

Lastly is the lack of involvement by the Co-op’s members, who technically own the company, but in reality have very little power.
 
‘Aside from the influence of corporate members from the independent societies, the future of my recommendations lies in the hands of around 100 elected individuals on the current group and regional boards, few of whom have any serious business experience and many of whom are drawing material financial benefits from their positions.’
 
Those recommendations he speaks of? An independent chair, six to seven independent non-exec directors and a national membership council of 100 people, who make sure the group sticks to its original values.
 
Most radical of all, Myners says the group should hold off on hiring a new CEO.
 
‘Until the outcome of these constitutional changes is decided, it is my opinion  that it would be inappropriate and premature to proceed with the appointment 10 of a new CEO, in view of the risk that, while these governance issues remain unresolved, The Co-operative Group will be unable to attract applications from best-in-class retail executives.’
 
It’s a reasonable point, but will the Co-op be able to survive the next few months with leadership that has, at best, been described as ‘divided’. Its future is by no means guaranteed.

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