Crisis justified policy non-compliance, Pennycook tells tribunal

The Co-operative Group’s chief executive has admitted not following procurement policy during restructuring of the Co-operative Bank. But Richard Pennycook told the employment tribunal he had done so in urgent circumstances, with authority from the board and in the interests of the Group.

The tribunal will decide whether former Group procurement director Kath Harmeston was unfairly dismissed. She says she was sacked after she blew the whistle on procurement non-compliance throughout the Group, including by Mr Pennycook.

Mr Pennycook admitted signing off consultants from AlixPartners, including interim chief operating officer Pippa Wicks, who is employed three days a week for £8,000 a day; Glen Fietta, who worked on renegotiating the Group’s finances for £615 an hour; and Kevin Doran, who replaced Ms Harmeston. In each case he did not adhere to Group procurement policy.

“The Co-operative was a burning building and when your building is on fire you pick up the phone to the fire brigade,” he told the tribunal. “AlixPartners was the fire brigade.” Going through the procurement department would have been like putting the burning building out to tender, he added.

He also admitted circumventing the policy in engaging three senior contractors from the London School of Economics, selected by Lord Myners to help him investigate Group governance. The contractors charged a high rate per day, he admitted, and their fees had not been checked by the procurement department. But “substantial internal and external political opposition to Lord Myners’ work from certain elements within the Co-operative” meant the matter required discretion.

He had authorised payment of their fees and asked Ms Harmeston to take the matter to the Group’s chairs committee for good governance. “I didn’t want details of their contracts leaked,” he said.

He also defended his decision to hire Alex Firth of Alex Firth Consulting, who co-ordinated the disposal of the pharmacy business, as “good value for money”.

“It’s for any senior executive when departing from a policy to do it in a completely transparent way and to get authority from higher up the chain,” said Mr Pennycook.

He said Ms Harmeston had failed to seek higher authority when she had engaged contractors Silver Lining Partners. She had been suspended and subsequently dismissed because at best her decision had shown poor judgement, he said, adding “at worst it was fraud”.

Ms Harmeston claims the Group failed in its fiduciary duties – its legal duties to act on behalf of its members. “We spent a long time deciding whether our fiduciary duty was to save the bank,” Mr Pennycook told the tribunal.

He said that in a six-hour meeting, the Group board had agreed saving it would have avoided administration of the bank, landing the taxpayer a £5m bill and would have led to break up and sale of Group. There were 80,000 jobs at stake, he said.

“We decided that it was our fiduciary duty to save the bank. The executive was given full powers under rule 214 to execute that decision.”

He said the the Group had no legal obligation to have a procurement function, although like most other large businesses it did so for good practice.

When asked under cross examination whether the Group also had a duty not to contract for goods not for resale unless they were good value, he replied: “Yes, but in the context of other circumstances, not in isolation.”

The case continues.

• All of our coverage on the Kath Harmeston employment tribunal can be found here.