OP-ED: Myners' plans are the only way to rescue the Co-op

A system designed to give members a vote on the organisation's leadership has created a democratic deficit, says the Institute of Directors' Dr Roger Barker. Time for a change.

by Dr Roger Barker
Last Updated: 17 Apr 2014

The scale of the losses across the Co-operative Group is truly shocking. The two biggest sources of the £2.5bn lost come from the Co-op Bank - whose failure under the stewardship of the Reverend Paul Flowers has been so high-profile it doesn’t need repeating - and the terribly misjudged acquisition of Somerfield. It is rare to come across an example where failures of governance are so clearly to blame for poor corporate performance.
 
At the heart of the problem is a glaring lack of accountability. The three-tier structure of the Co-op’s member representation, with area committees and regional boards below the group board, has an admirably democratic aim.

In practice, though, it is very unclear that the board is actually being held accountable for its actions. The board is responsible for scrutinising management decisions, but where in the disastrous takeovers of Somerfield or the Britannia building society is the evidence they were fulfilling their obligations?

The irony is that a system designed to give members a vote on the organisation’s leadership has ended up creating a serious democratic deficit. Shareholders in listed companies have a far greater say in the governance of the companies they own, including now a vote on executive pay, than do members of the Co-op.
 
The well-intentioned voting system has also had the disastrous effect of producing a board which lacks the skills and experience necessary to promote financial success, while upholding the group’s values.

Governing a large conglomerate with businesses covering banking, supermarkets, travel, funeral care and pharmacies would be a tough job for a board composed of professionals, but has proved impossible for a board with overwhelmingly lay members.

Across the business community there has been a movement over the last 10-15 years towards more professional boards, recognising that good governance relies on specific knowledge and training for directors. The Co-op seems to have moved in the opposite direction, with an inefficiently large 21-person board that appears devoid of the necessary business experience.
 
A more professional board is in no way inconsistent with the Co-op’s mutual principles. Lord Myners has suggested a smaller board sitting underneath a council representing the members’ views. The board’s role would be to oversee the management, while the council would set the vision, mission and values of the organisation. This approach has merit. The council would have significant authority, being able to appoint the members of the board, which they should do according to objective criteria based on candidates’ experience and knowledge.   
 
The Co-op’s results make it very hard to see how the organisation can continue in its current form. This should be very worrying for the group’s 90,000 staff, its 7 million members and for the mutual movement as a whole.

If you believe, as the IoD does, that the UK benefits from having companies with a range of ownership models including PLCs and mutuals, then this should concern you too. Without substantial reform, the long-term future of the Co-op looks very uncertain.
 
- Dr. Roger Barker is Director of Corporate Governance at the Institute of Directors

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