Why Co-op's woes are deepening


Sent on 7 March, the covering letter from the Midcounties Co-operative, was suitably polite. "If you would like further information on the points raised, please let me know."

The letter was to Lord Myners, the former city minister charged with coming up with a plan to overhaul Co-op Group. With the letter was Midcounties' submission to Lord Myners' review.

In forensic detail the submission picks apart the main arguments contained in the initial plans for change. It is also provides stark evidence that here is an organisation that agrees it needs to reform - it just doesn't agree how.

Patrick Gray, president of Midcounties: We will not be "pushed into a corner"

"In recent years Midcounties has observed a failure at the most senior levels in the Group . . . to consistently reflect co-operative values and principles and the best standards of good governance and transparency," says the submission, which I have seen.

"This was not just a matter of errors of judgement over particular business decisions but also, more crucially, of a fundamentally flawed vision of the future of the movement which led to risk taking of a kind which was inappropriate and unnecessary in the context of co-operative ownership."

Midcounties is an important player in this game, the largest of the Co-op's independent societies with revenues of £1.2bn and more than 10,000 employees. The dozen independent societies across the UK have more than 20% of the voting rights on the group board and five are represented at group level. What they say matters for the future of the Co-op.

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Co-op Group is likely to report losses of up to £2bn when it reveals its 2013 figures next week”

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The background, as we know, is grim. As my colleague Robert Peston revealed last February Co-op Group is likely to report losses of up to £2bn when it reveals its 2013 figures next week.

The supermarkets, pharmacies and funerals business needs to change its model to survive. Many criticise a byzantine governance structure which critics say rewards longevity, skill at internal politics and willingness to attend endless committee meetings, above managerial skills.

Over the last decade, Co-op expanded rapidly, buying Somerfield supermarkets and the Britannia building society. Its structure simply couldn't cope.

Lord Myners - a non-executive board member of Co-op Group - is now on a listening tour, refining his initial proposals which focus on bringing in outside directors and giving the Co-op some of the checks and balances more akin to a publicly listed company. As The Guardian reports this morning, Midcounties has already voted against the reforms, with its president, Patrick Gray, saying that they will not support the "menu" that Lord Myners is offering.

Lord Myners Lord Myners has several proposals for the future of Co-op Group

Mr Gray, whom I spoke to yesterday and who made an appearance on the Today programme and BBC Radio 5 live this morning, is most concerned that by changing the governance structure, the very democratic and "values-led" DNA of the present Co-op might be lost. Euan Sutherland, the former Co-op chief executive who resigned after details of his pay were leaked to The Observer, argued that democracy and values might be vital, but without radical change the whole future of the business was at risk.

This is a disagreement that goes to the heart of the Co-op debate. As its submission continues, "Midcounties does not share the view that in a co-operative context member control is incompatible with the needs of a complex commercial enterprise. Indeed, experience in the UK and abroad demonstrates that this is clearly not the case.

"Among the independent consumer co-operative societies, it is demonstrably the case that it is the most democratic that are the most successful in commercial terms, not the reverse."

The clash is one of cultures. Lord Myners is steeped in PLC history, having formerly been chairman of both the property business, Land Securities, and Marks and Spencer. Mr Sutherland was formerly at the retail giant, Kingfisher. Niall Booker, the chief executive of Co-op Bank in which the Co-op Group retains a 30% stake, is a veteran of HSBC.

They are coming up against committed independent heads of co-operative societies who have long experience of mutual operations. They are suspicious of where change is leading.

"A fundamental point is that the relationship [between Group and its Co-op members] is not purely commercial," the Midcounties submission says. "All societies are part of the co-operative movement.

"We share a common interest in showing that co-operation is a force for good in society and an important organisational model in itself."

Lord Myners has until a special general meeting of the Co-op Group in the summer to get his proposals agreed. He will have a tough job.

UPDATE 13:15

I'm hearing rumblings that the Treasury Select Committee is very keen to call Euan Sutherland to give evidence to its inquiry into the Co-op bank collapse and its impact on the Group's problems.

In what would be an incendiary hearing, MPs are particularly keen to ask the former chief executive exactly what he meant when he said that the business was "ungovernable" and why he left so abruptly. Mr Sutherland also questioned the viability of the 170-year-old organisation.

If it happens - and I believe it will - it will be standing room only.

Kamal Ahmed Article written by Kamal Ahmed Kamal Ahmed Business editor

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  • rate this

    Comment number 13.

    @8. Commentator
    ...Why on earth would anyone want to be associated with anything to do with the Co Op!

    Despite its many problems; including giving the top job to an utterly inept sc*mb*g, for which those who chose him should be sacked immediately; the core values of the Co-op remain and set it apart from all competitors, values we should all try to emulate

  • rate this

    Comment number 12.

    Re 11. Niall.
    Because it Is losing shed loads of money and it's survival along with jobs etc is at stake. Money has to be injected and where is that going to come from under current structure? If not outside finance then from the members who as members of a mutual "own" whole kit and kiboodle including the debt???

  • rate this

    Comment number 11.

    Low quality shopping experience = Coop...only ever go in if I need a tin of something or a stamp...fruit & veg section is a disgrace.

  • Comment number 10.

    This comment was removed because the moderators found it broke the house rules. Explain.

  • rate this

    Comment number 9.

    Co-ops failure has been to take the moral highground in public perception while its executives did the opposite.

    Co-ops long standing moral image is similarly as tarnished as MPs over expenses & it serves them right for employing a religious nutter who believes in a fantasy invisible planet forming superbeing as its head.

    What did one expect to happen if one employs a fantasist as leader

  • Comment number 8.

    This comment was removed because the moderators found it broke the house rules. Explain.

  • rate this

    Comment number 7.

    They opened a new store next to our Tesco Express. There's no fast lane or self-service checkout and the price of basics you'd pop in for (such as a pint of milk) is noticeably higher. After the novelty wore off the store has gone very quiet. One wonders what they are playing at.

  • Comment number 6.

    This comment was removed because the moderators found it broke the house rules. Explain.

  • rate this

    Comment number 5.

    Majority of bankers are male, that's the problem there!

  • rate this

    Comment number 4.

    The Co-op is turning into a toxic brand with all the negative publicity it has been receiving recently.

    It would be interesting to know how many of their bank customers have switched away from them since their troubles began, especially as they are not actively doing anything to reward their loyalty.

  • rate this

    Comment number 3.

    Why is radical change needed for an organisation that has proved democracy and values can work. Midcounties Co-operative needs to ensure it is governed well but that does not mean it has to copy the bog stndard PLC where is seems the only things that matter sometimes are the executives bonuses and share dividends.

  • rate this

    Comment number 2.

    Nice try from the local operators - the role of the regional co-op groups is to provide cashflow to avoid the dismemberment of the co-op group. Unfortunately, the clock cannot be turned back and Midcounties and others should serve notice to extract themselves from the group structure in order to protect the rights and interests of their own local members. Otherwise the end is near. Sad really.

  • rate this

    Comment number 1.

    The Co-Op had an aggressive expansion policy over the last few years, taking advantage of the current climate and shoppers purse strings tightening, they expanded too fast and it all came apart.

    Still they are a good instituion so if they go back to core values and be mildly progressive they should be fine.


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