Will Co-op officials vote themselves out of power?

Co-operative bank branch

Lord Myners wants the Co-op Group's elected officials to make what they may see as the supreme sacrifice - in voting for reforms that would give them a lot less power, and would give executives, professional non-executives and millions of Co-op members more power.

But the former City minister and ex fund-management boss, hired by Co-op to recommend changes to the way this sprawling mutual is governed and managed, fears that failure to adopt the reforms would be catastrophic.

He argues that it was the commercial naïveté of the elected officials that almost destroyed the group, by permitting Co-op Bank to manage itself in a near suicidal way, and by approving the too-expensive takeover of the Somerfield supermarket chain.

They failed to rein in dangerous ambition - and because Co-op has no conventional shareholders, because it is a mutual, the institutions of the City of London failed to restrain the Co-op in any way (not that these institutions would be seen as models of intelligent oversight for public companies, but maybe they are better than nothing).

Myners says Co-op Group only avoided total collapse by the skin of its teeth and thanks to the exhausting and exhaustive efforts of the executive team - who was led by Euan Sutherland till Tuesday, when he quit in frustration at what he saw as the intransigent opposition to reform of the elected officials.

But Co-op is not out of the woods. As Myners says, its takeover spree has left it lumbered with too much debt, around £1.5bn.

And as I mentioned earlier this week, the appalling financial performance of Co-op gives its banks, led by Barclays, the ability to seize its assets - which they would be obliged to do if they perceived Co-op Group to be in a death spiral.

To placate the banks, Co-op is selling important assets, its farms and - probably - its pharmacies.

But the banks will also want to see top quality management of its most important business, its supermarkets - which have been losing market share, and whose profits are likely to be squeezed by a prolonged and vicious price war that is the expected consequence of Morrison's rehabilitation plan.

But a decent successor to Sutherland is unlikely to be found unless and until the Co-op is perceived to be governable and manageable.

As Myners points out, just 50 of these - many of them remunerated by Co-op for their elected positions - have the ability to veto reforms that would threaten their status and rewards.

But if they do block the establishment of a more conventional board structure, and don't accept a future role for themselves largely as guardians of the mutual ideal, then - in Myners view - they may find they will have ringside seats as this most important of all co-operative organisations is destroyed in a conflagration of its own creation.

Robert Peston Article written by Robert Peston Robert Peston Economics editor

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  • rate this

    Comment number 47.

    Financial organisations should be managed in the traditional way for a very good reason. The decisions should be made from the top down by people qualified and experienced enough to understand what they are doing.

    The Co-Op organisational structure appears to be a strategic risk and I expect further problems unless it changes.

  • rate this

    Comment number 46.

    there is more chance of the board of the coop group voting for less powers for themselves than there is of anyone going to prison from the major banks over any of the trillion pound plus frauds we ALL have to pay for with stupidly low interest rates.

    and thats for sure......

  • rate this

    Comment number 45.

    I work for the Co-Op. (Retail side not banking) although we are sad to see our CEO we are all 100% behind Richard Pennycook.
    The plan agreed with the creditors is still in place and they see Pennycook as a very safe pair of hands.
    The confidence in the business is extremely high with our new Exec team and although we will have tough times ahead we are confident on our future

  • rate this

    Comment number 44.

    @32 (b33bbab3)
    " smile said my money would be protected if it were put into administration -- BUT does that mean I MIGHT get it back only after bigtime creditors have been paid"

    No - like all UK banks, your first £85,000 is underwritten by the government. Despite the picture above the article, the bank is not now the problem. It is the CoOp Group, now only a minority shareholder in the bank.

  • rate this

    Comment number 43.

    The Co-operative movement was born in an era of thieving which continues to this day.

    Will they survive?

    They are up against established companies which would like them to fail.
    Also there are asset strippers ready to pounce.

    And yes I know that the other companies would like other companies to fail as well.
    There is no conspiracy against The Co-op.

    The nature of the beast is that everyone is

  • rate this

    Comment number 42.

    This kind of article is fuelling a potential run on the Coop/Smile bank

    The failure of articles like this to make clear the Coop/Smile banking arm now only 30% owned by the Coop, and therefore partly insulated from any collapse, is appalling.

    Most Coop/Smile members have no idea of the technicalities of this, and read this kind of article and think the Coop/Smile bank is also about to collapse.

  • rate this

    Comment number 41.

    vic parks @40
    "Democratic Deficit"

    Not just in the Co-op!

    For years the cry of those 'for proportional representation' or 'for nationalised ownership'. Sadly, point missed: 'no real democracy without agreed equal partnership'.

    From New Labour & Coalition voices, sinister or comical accusations of 'democratc deficit'?


    When comes such another?

  • rate this

    Comment number 40.

    I have recently submitted a 40,000 word dossier to the Select Committee, Kelly and Myners Reviews. Many of the issues raised by Myners I documented. The "Democratic Deficit" (the powerlessness of ordinary members) has been a highly controversial issue for many years. At the heart of my dossier is the CG Control Freak management. which bullies and victimises outspoken elected members. (past Chair)

  • rate this

    Comment number 39.

    End of the co-operative?

    Up to 'the people', if not too far in despair.

    We need to show resilience - to give voice, ear, support - leadership such as lost in 1983.

    The message of LIBOR, 30 years-on: not simply to nationalise banking but to agree our equal partnership. No more of the 'victimless crimes' that otherwise 'come to mind' so easily, to ripple around the world - and return as tsunamis.

  • rate this

    Comment number 38.

    “Someone who is not in it for the money but to do good.”

    Such people vanished from companies in the 1980’s when the “loads of money” and short termism culture took hold.

    The fact that its farms are considered “non-core” shows that (for a food retailer) something is definitely amiss as they are the biggest farmer in the UK.

  • rate this

    Comment number 37.

    Mutal is dead , follow John Lewis Partnership format is the only way to survive and maintain some old Co-op value ,"power corrupts and absolute power corrupts absolutely " co-op needs to be updated , you cannot have a faceless small group to run a modern company with no responsibility and accountability .

  • rate this

    Comment number 36.

    It is difficult to see who can get the Co-op out of this mess.
    They need someone who is completely dedicated to the cause and has undoubted financial expertise. Someone with a thick skin who is used to carping and back-stabbing. Someone who is not in it for the money but to do good.

    At first the only candidate seemed to be Ed Balls but now I realise John_from_Hendon might be more suitable.

  • rate this

    Comment number 35.

    33.jgm2 Your 'ideas' are Jurassic - and as daft as a brush!.

    Who created the NHS? The most treasured national British institution by all parties - (except you)?

    You would reduce the poor to starvation and permit unbridled exploitation by the powerful and wealthy. I can reasonably deduce you are neither wealthy nor powerful! You yourself depend on socialism!

    Your selfishness is naïve.

  • rate this

    Comment number 34.

    31 explained... Why it matters to the Co-op.

    Markets have been rigged by the BoE/Fed and thoroughly perverted. These idiotic steps of market bucking undeniably hurt the smaller banks and financial institutions (Co-op). Just as they did in the USA with Libor..

    Bucking the market is a CRIME and should receive, at the very least, compensation.

    HMG must compensate those who lost!

    BoE = crooks

  • rate this

    Comment number 33.

    I rejoice in the collapse of this vile enterprise that underwrites the Labour party.

    Hopefully the Co-Op bank will be bought up by Barclays or HSBC and they can call in the Labour Party loan and bankrupt them.

    It's the right thing to do.

  • rate this

    Comment number 32.

    I'm disgusted by COOPs unethical developments & now transferred savings to Triodos, [who won't offer current acct until next year] I asked smile whether I'd lose my ££ if COOP was put into administration, etc - they said it was protected -- BUT does that mean I MIGHT get it back only after bigtime creditors have been paid. I'm on fixed income & don't trust any UK banks>libor!

  • rate this

    Comment number 31.

    The Feds can prosecute the big banks for manipulating LIBOR why can't savers and pensioners prosecute the Regulators for similarly bucking the market to steal money from savers and pensioners?

    Undeniably saving/pension rates should have 10 times higher, but were manipulated to thieve money from savers and pensioners to prop up the bust banks.

    Isn't this malfeasance in public office? eh Co-op?

  • rate this

    Comment number 30.

    If they failed to rein in dangerous ambition previously, how does reducing their influence help? This looks like an opportunist coup by those that brought disaster down on the co-op in the first place.

    Myners is New Labour and has a track record in banking that does not sit well when described as independent.

  • rate this

    Comment number 29.

    "Will Co-op officials vote themselves out of power?"

    Flogging off the company's assets & chucking people out of work is one thing. Picking up the revolver from the silver tray is quite something else.
    These stupid people will not relinquish power even if the whole thing ends up going super nova they would rather that than give up what they consider to be their divine right.

    It will just go bust.

  • rate this

    Comment number 28.

    P.Myners(no one is my lord) became a Life Peer on 21/10/08 to become Financial Services Secretary(City Minister) in HM Treasury + other appointments http://en.wikipedia.org/wiki/Lord_Myners#Other_positions .
    In what sort of decent human society are people like this taken seriously?
    This,as always under capitalism leads to the expropriation of other peoples wealth & mathematically will collapse


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