Troubled Co-operative Group backs controversial reforms

http://www.theguardian.com/business/2014/may/18/co-operative-group-backs-lord-myners-reforms

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The Co-op's members voted unanimously on Saturday to accept a controversial plan to overhaul the 150-year-old organisation, which has been rocked by a series of crises.

The decision to endorse reforms put forward by City grandee Paul Myners will be seen as a major victory for its executive directors.

Spelling out the scale of the crisis facing the group, Richard Pennycook, the group's interim chief executive, pointed out that debt interest payments were now costing the organisation £100m a year. "That's £100m we could not invest to make our food stores better," he said. "£100m we could not share with our members. £100m sucked down in the City of London rather than staying in the communities where our members live and work."

The Co-op group's chair, Ursula Lidbetter, said only stringent reforms would turn the group around. "2013 was a disaster waiting to happen," she said. "We had built it into our structure."

But many Co-op members are deeply uncomfortable with plans that would replace the sprawling organisation's board – made up of 15 elected lay representatives from its regional boards, which represent its eight million members, and five drawn from its independent societies – with a smaller version.

Under the Myners proposals, the new board would comprise an independent chair and six or seven non-executives plus two executives, all drawn from professional backgrounds. A separate body to handle members' concerns, which would be called the national membership council and have about 50 members, would hold the board to account and help choose who was elected to the new board.

The Co-op's grassroots members fear the plans would severely curtail their ability to influence the board's thinking and would be inimical to the co-operative ethos. Such is the strength of their opposition that Myners resigned from the board in AprilMyners resigned from the Co-op board in April after his interim suggestions for reforming its corporate structure met fierce resistance.

Myners was paid a nominal £1 for his work but it is being claimed by well-placed sources within the group that the review cost the Co-op about £5m in all, as the salaries and expenses of those involved spiralled.

It was clear that many who voted in favour of the motion proposing the reforms, made at a special general meeting at the Co-op's Manchester HQ, did so in the belief that they had been drafted, to quote the group's respected former chief executive, Sir Graham Melmoth, with some degree of "wriggle room".

Co-op members were also buoyed by comments from Lidbetter suggesting that the Myners recommendations would be up for discussion.

Following a series of scandals, including the conviction of the Co-op bank's former chairman, the Rev Paul Flowers, on drugs charges and the resignation of the group's chief executive, Euan Sutherland, after details of his £3.6m salary were leaked to the Observer, many felt the Myners plan was "the only game in town", as one put it. The organisation racked up losses of £2.5bn last year and owes its lenders £1.4bn.

Lidbetter said: "We may like to think that we control our business, but because of our level of debt, the banks have more say in what we can do than any of us here. How tragic a situation is that?"

Pennycook said the Co-op's tarnished reputation was having an impact on its trading. He pointed to a recent ICM poll that found one in four regular Co-op customers saying they would shop at its stores less as a result of the scandals.

Speaking with Melmoth at a conference on the Co-op movement, held on Friday, Patrick Gray, president of Midcounties Co-operative, captured the conflicted mood of many members. "It is a matter of the utmost urgency that the group lifts the very real threat from its creditors by paying down its debt, and provides the reassurance that its bankers demand, that in the nearest future it will be run by a board which is competent, cohesive and capable of taking business decisions in an informed and decisive manner."

But Gray added: "It is equally important that the group, as part of far-reaching reform, becomes substantially and democratically controlled by its members –and so remains, in letter and in spirit, a genuine co-operative."

Others, though, were furious that the 160 or so Co-op members eligible to vote at the meeting were going to back the motion. One member at the Friday conference talked of the "madness of Myners" and said: "I can't believe we are supporting this."

Melmoth, who has hinted that he may be brought out of retirement to help bridge the divide between members and the group board, appealed for pragmatism. "We've got to batten down the hatches," he said. "Phase 1: adopt the motion [backing Myners] with all of its faults. It's very peculiarly worded. It can mean what ever we want it to mean."

Meg Hillier, a Labour MP with close links to the Co-op movement, agreed. She said that the vote "was not the end but the beginning" and suggested that history would look at the vote as the moment when the organisation turned a corner.

But others were not so positive. Privately, many said that they believed the Co-op group board would now argue that it had a clear mandate to introduce the drastic changes proposed by Myners.

The one thing both sides agree on, however, is that the Co-op's sorry saga is unlikely to be drawing to an end soon. One member predicted: "If they look to force Myners through without substantial changes, there will be civil war."