Within the next year, the Co-operative Group’s democratic structure will change. Whether these changes are an evolution of the current configuration or a radical departure is in the hands of the membership – but the man making the final recommendations will be Paul Myners. Appointed as an independent director to the Group’s board in December, the Labour peer and former city minister is leading the organisation’s review into governance, examining democracy from a grassroots level right through to the main board.
The catalyst behind the establishment of this review, alongside the independent Kelly investigation, has been the failures within the Co-operative Bank and the role that the wider Group played in this. The Kelly review will be focusing on the decisions that led to a £1.5bn capital shortfall with the Bank, while Lord Myners, a former chair of Marks and Spencer and Guardian Media Group, is purely looking at governance.
These reviews will sit alongside a multitude of parallel investigations into the Group’s conduct by the Treasury select committee, the Prudential Regulation Authority and the Financial Conduct Authority, among others. But, says Lord Myners, it is important to move fast and lead by example. “We need to prepare for these other inquiries and should learn the lessons while they are fresh in our minds. The Bad news on the Bank emerged nine months ago, so nobody can accuse us of behaving rashly with a reflex response. There is a time for learning and reflection and a time for action.”
The terms of reference Lord Myners will be using as a framework for his review aim to demonstrate utter transparency. “I have no preconceived notions ahead of the review,” he says. “The terms of reference are very comprehensive and show that no stone will be left unturned. There are no no-go areas. Everything is open for discussion,” as, if you set limits, then the “credibility, authenticity and independence of the review is lost.” He emphasises that the review will be forward-looking, but that it needs to look to the past to identify issues.
Lord Myners also hopes the governance review will provide answers for other co-operatives, by presenting a thorough examination of the tests of good governance – and workable definition of the word. “Governance is a geeky term,” he says. “What do we mean by governance? What does good governance look like and why is it important? What does bad governance look like and what are the consequences? What are the options and choices we have?”
Lord Myners describes the review process as taking two paths. The first phase looks at the “top level leadership” of the Group and will pay particular attention to “the relationship between the board and executive,” looking at everything from the size and composition of the board to working practices and skill-sets.
The second, more lengthy part of the review will look at the democratic structure of the Group as a whole, from ordinary shoppers to committee members, co-operators and colleagues, and how they are represented. This is important, he says, as it is the area committees and regional boards where “people do a lot of good work and put in huge hours in support of co-operation”.
But, for Lord Myners is the wide scope of the review an admission that standards have not been high at the Group? “No,” he says, “if you go for a medical or send your car in to be serviced, the doctor or mechanic will look at everything, not go in with a preconceived idea that you’ve got a heart problem or the exhaust system is not working.”
The terms of reference includes a full examination of the structure of the board, including its future composition and “the proportion of independent professional non-executive directors, to strengthen the balance of knowledge, skills and experience on the board”. Lord Myners acknowledges that this is a contentious issue within co-operatives: “That is a matter I need to look at carefully. I need to respect the traditions of a co-operative society, but at the same time have to square the circle between democratic accountability and commercial efficiency. Some of the noble goals to which we are committed, in particular supporting fellow co-operators and needy members of society and worthy causes can only be achieved if we generate a surplus. So we have to ensure the Group has both strong commercial respect, but also importantly, that it’s respectful of co-operative values and principles.”
He adds: “There is nothing about mutuality or co-operation that guarantees success, it is a distinct model with a number of strengths, but success is not assured. Success importantly depends on the leadership of the Group, which has two elements: firstly management and employees within the group; and secondly the board of directors. Ultimately the responsibility for the success or failure for the overall Group strategy rests with the board.”
But, as with the widely-trumped John Lewis democratic model, there are many ways a board can be composed. “The board is ultimately responsible to the owners, be they shareholders or, in the case of the Co-op, the members,” thinks Lord Myners. “This is talking about the top of the organisation or pyramid, but, of course, ultimately the Group depends upon the commitment of our 90,000 colleagues who work with us and share our vision and ambition.
“That is another thing in the terms of reference: can we, should we, be doing more to formalise employee involvement in the Co-op Group? Have we gone far enough, or could we go further? Why would we choose to go further, what would be the advantages, what would be the disadvantages? I have no preconceived ideas on these issues at all but I am exploring them with an open mind and asking what I hope are logical questions, which all have the ultimate objective of delivering a stronger co-op.”
Independents on the board
The role of independent retail societies being represented on the board is also under scrutiny, especially in a marketplace where various consumer co-operatives are competing on the same high streets. Says Lord Myners: “The Competition Commission is very alert to issues where they think there is collusion between businesses, so I know Euan [Sutherland, chief executive] and Ursula [Lidbetter, chair] are very aware of the fact that at all times – particularly after the Bank situation – we must be careful to stay away from any difficult legal territory.”
While positive outcomes can come from independents being on the board, he believes that there are other ways these good outcomes can be achieved, and that the benefits for independents still exist if they are not on the board. “The essence of a co-op is to co-operate,” he says, “and the most powerful form of co-operation, as far as the independents are concerned, is the benefit they get from joint purchasing. Scale – particularly in food retailing – is critical.
“We have seen how the success of large retailers can become self-fulfilling because of the volume of purchases and their ability to secure the best deal possible. Scale is the most important value we deliver to the independents, as well as shared support in other areas such as training and a great pooling of resources.”
Membership and connectivity
The issue of engagement with wider membership is also included in the terms of reference, and says Lord Myners, is one of the challenges to overcome: “We need to emphasise, emphasise and re-emphasise again what it is that makes the Co-op different from other similar ventures. It’s one of things you can never do often enough or loud enough. What we do know is a high proportion of our society don’t really have a good understanding of what the Co-op is.
“Those that do may understand that it is member-owned, but may not necessarily have a good understanding of how that works or what it means. Many don’t have a particularly good understanding of how ‘I can get involved’. Of course, we have a lot of customers who are not members, who simply go to the shop because they like the store, the offering, the pricing, the staff – or it’s the most convenient. Can we engage them?”
What the value of membership means for the Group’s eight million members is an interesting question for Lord Myners. “My suspicion,” he says, “is that we have several different customer groups. The Food stores have 15 million customer visits a week. A significant number of those people will suddenly realise they’ve run out of a packet of fags or they’re thirsty and pull the car up to buy a bottle of water. We have another group who regard the dividend as a loyalty reward, and probably would put it on a par with the Nectar or Tesco loyalty card. And we have another group who actually feel like they are owners of the business.
“Now, not all of those people will want to be owners. The person who suddenly finds they smoked their last cigarette is probably not a good candidate to try to convert into a member, but there’s a cohort there to whom we probably need to give a clearer membership message than we have done in the past. I will be asking members whether they want a more real and direct voice in addition to or in place of the intermediated one.
“I think the Co-op is extraordinary. Eight million members. The three major political parties in this country can’t muster 300,000 members between them.”
The digital and smartphone age is recognised by the peer, who many times refers to the need for digital “connectivity” with members: “There are so many things the Co-op should have done. We should have become the voice of our customers in terms of fairness: fair treatment of suppliers; fair treatment of colleagues; fair treatment of customers. We should have been a mobilising voice. We should have been a voice that all political parties listened to because we have the sense of what our eight million members cared about.” To get to that point now, he admits, “we have some distance to travel.”
But he is positive about other ways in which connectivity can be enhanced through digital means: “15 years ago, communicating with eight million members was a very costly business. A business that probably would have filled a train-load with letters. We don’t have email addresses for all our members, in fact we have email address for far fewer members than I would have expected. But there are new ways now of establishing the views of Group members, which is ultimately about creating a deeper and richer relationship with them.”
The Co-operative Group’s external funding arrangements will be on the minds of those co-ops that are supported in this way. “We have to make decisions about value on the high street, such as pricing,” he says. “We have to make decisions about how much we invest in the business in improving and growing the estate, in advertising and IT; we have to make decisions about dividends; and the good causes we support, including affiliated bodies. In as much as we have less resources, those are the places something will have to give.
“The recapitalisation of the Bank has cost real money, money that is no longer available to support our operating units and higher purposes. The Bank misadventure has been costly and the board is now having to confront some challenging questions about priorities and focus. The board has to ask itself ‘what were we doing? How accountable are we for not exercising an appropriate accountability?’ There is no hiding from the fact that the Group has experienced one the largest commercial failures ever reported by a UK enterprise.”
How members can take part
The move towards the Group’s deeper relationship with members is being demonstrated already by member involvement in Lord Myners’ review through various mechanisms. Those on area committees and regional boards will be holding their own debates and formulating responses, while ordinary members are being invited to respond to the terms of reference through a special website (www.co-operative.coop/MynersReview). Comments Lord Myners: “Members don’t have to respond or write ideas on every point and aren’t restricted to one response – they can respond multiple times as and when they have a further idea. I want to be, above all else, open to the membership, as that is consistent with our goals and values as a co-op”
What types of ideas is Lord Myners looking for? “I am open to new and fresh ideas, but I expect a lot of the evidence I get from my meetings and responses to the website will stay within a fairly set footprint of ‘well this is how we can make this structure better’. “Am I open to radical ideas? Yes, I am. It all depends what you describe as radical of course, but the message that I want to convey is that the Myners Review into the governance of the Co-op, in accordance with the traditions of the co-op, wants to be open, transparent and accepting of radicalism as the Rochdale Pioneers were in originally establishing this great movement. It would be a great shame if the co-operative ceased to be a radical organisation.
As well as wanting to hear from employees of the Group in the review, Lord Myners is keen to hear from the wider co-operative sector about experiences with governance. “It is quite important to emphasise that co-ops and mutuals are not the same,” he says, “so I am looking at successful co-operatives elsewhere in the world.
“One of the distinguishing features of the Co-operative Group is its scale and complexity. This is a large organisation. In terms of sales and revenue it’s in the ballpark of Marks and Spencer, but is actually a much more complex business. There are far more outlets for instance, and the whole issue of member involvement and the democratic structure is very different to a PLC. So while you can look at other co-ops and mutuals, there are similarities, but not many comparable examples. Scale is both an advantage and a challenge, particularly for effective management and a co-operative form of democracy.”
Following the extraordinary challenges faced by the Group board since the Bank crisis, it is not unreasonable to expect directors are feeling vulnerable and have had a knock of confidence. So, is this the right time for a thorough and fast review of the main structure?
“The fact is the Group has experienced a huge shock,” says Lord Myners. “The consequences of the Bank debacle are felt in multiple ways. Damage to the co-op brand has been quite limited, which really is rather encouraging, but damage to the confidence and self-esteem of our people has probably been meaningful. Heads are probably held not quite as high. The Board has to ask whether these are failures of governance architecture or of individuals.”
Despite the size of the task around the governance review, Lord Myners is confident that the co-operative sector can grow and realise its potential by embracing change. He adds: “I’ve already talked about the potential power of the co-operative movement and our eight million members, and that obviously embraces not just the Co-operative Group, but co-operative independence and other co-operative organisations. I see it as a movement with substantial potential.”
The first of Lord Myners’ reports is set to be completed by the end of April, while the second is expected towards the end of the year. Once the first report is completed it will be distributed to members and directors, although, he adds, “it will then be for the board to decide whether to accept my recommendations in total or in part and whether it wishes to put any of those recommendations to the annual general meeting. I don’t have any power to put anything to the annual general meeting, but what I do have is a mandate to engage fully with the membership.”
May’s annual meeting will present initial proposals for changes to the society’s rules, while a special general meeting in the third quarter of the year is set to approve wider changes to the rules.
“We will put this behind us,” concludes Lord Myners. “Other organisations have had similar shocks and recovered. Others haven’t. But I think it’s very encouraging our brand surveys show a continuing high degree of confidence in the co-op brand and the co-op offering. Lessons have to be learned.”
THE TERMS OF REFERENCE INFORMING LORD MYNERS’ GOVERNANCE REVIEW
Review governance arrangements of the Group, with particular emphasis on evaluating the effectiveness of the Group board.
Examine the structure, board policies and working practices of the Group board
Make proposals on Group board structure, including the proportion of independent professional non-executive directors
Ensure the robustness and integrity of all governing structures and procedures
Examine the organisation’s relationship with its entire membership base
Evaluate best practices in governance, including from other co-operatives and mutuals
For the full terms and details, visit www.co-operative.coop/MynersReview