Editorial: 2.5 billion reasons that change is needed

Where does one start to analyse the past 12 months that has led to one of the most expensive challenges in UK trading history? Two-and-a-half billion pounds is...

Where does one start to analyse the past 12 months that has led to one of the most expensive challenges in UK trading history?

Two-and-a-half billion pounds is an incomprehensible amount for a co-operative. Losses that large are only reserved for banks and telecommunication companies.

It joins Royal Bank of Scotland (£24.1bn), Vodafone (£15bn/£13bn), Lloyds (£10.8bn) and Cable and Wireless (£6.5bn) for the biggest UK trading losses, and is just sandwiched in between Marconi (£5.2bn) and Lloyd’s of London (£2bn).

At least the bank connection is there with the Co-operative Group. The Co-operative Bank crisis cost £2.1bn of members’ reserves and assets. But another £226m came from a write-down of the 2009 Somerfield acquisition – over 60% of retail floor space bought in that acquisition will be disposed of.

I’m not sure it needs spelling out so plainly, but everyone accepts this was a wake-up call. The Co-operative Group is a large and complex business that is far too big to be overseen by 21 directors.

It is recognised that part of this complex problem is that the Group tries to do something for everyone. And that all these businesses operated autonomously. Already in the year, life insurance was sold off. Farms and pharmacy are next on the list.

Funerals, general insurance and legal services will now form a special consumer division, and others will be deeply integrated – legal services, for example, will offer services such as probate and family law services.

This is a time for the Group to clear out what isn’t working and focus on what is. Some of these changes appear to be already taking effect, with a reduction of debt by almost £300m in the year – though the Group is still heavily reliant on a collection of banks to the tune of £1.4bn.

Debt is a major problem, which caused even more troubles over the past year because a decrease in credit rating led to an increase in interest rate costs. Former chief executive Euan Sutherland said last year he wants the Group to break free from the banks.

A message throughout the final results document highlights another problem: the need for governance reform. Over the past few weeks, activity around governance has increased, with Lord Myners handing in his resignation following what appears to be a backlash from the members that have the power.

Both regional boards and independent members are sceptical of the top board being comprised solely of plc-type executives and non-executives from within and outside the business. But the Group board has put forward a proposal to the annual meeting next month outlining the Myners proposals – presumably this resolution can just be noted.

Many members with influence over the annual meeting votes do not deny the need for governance reform – they just want to be an integral part to the process.

There are 2.5 billion reasons for progressive change, but change must give members control and bring a future Co-operative Group much closer to the wider-membership.

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