The Co-operative Group stands accused of a cover-up as its former purchasing director attempts to sue it for £5m. Kath Harmeston, who was headhunted from the Royal Mail to cut costs on the Group’s £1bn ‘goods not for resale’ budget, claims she was unfairly dismissed because she blew the whistle on procurement non-compliance, including among the Group’s executive.
The Group says she is not a whistleblower and her claims are “an attempt to mask her own serious misconduct”. It says it sacked her because it lost trust in her.
Group spend on consultancy was “feral” when Ms Harmeston started work on 1 April 2014, she told the Manchester employment tribunal. The business was “haemorrhaging money” on management consultants, paying up to £8m extra in 2013 due to non-compliance with its own policies.
“The daily rates charged by the top 10 consultancies were the highest I had ever seen,” she said. Consultancy spend at the Group peaked at £39m in 2013 and £13.9m in the first quarter of 2014, during the Group’s financial crisis.
Goods not for resale spend was 70% non-compliant, and this was “led from the top”, according to Ms Harmeston. She suggested the Group could have saved £161m by involving the procurement team and increasing competition. The Group says Ms Harmeston’s targets were unrealistic.
In her “protected disclosures” – the documents she claims give her whistleblower status – she claims Group chief executive Richard Pennycook directly recruited consultants on inflated terms and that interim chief operating officer Pippa Wicks was operating a “land and expand” strategy on behalf of AlixPartners, the Group’s highest paid consultancy, of which Ms Wicks is managing director.
Ms Harmeston said Mr Pennycook had directly hired former Morrisons colleague Tony Lawrence as a contractor, and later Zara Law, and was signing off their invoices via his personal assistant. Mr Pennycook says he introduced Mr Lawrence to the business, but had not appointed him, and had given him no special treatment. He hardly knew Ms Law, he said.
He admitted he had not followed procurement policy during the Group’s financial crisis, but with authority from the board and in the interests of the Group. He admitted directly hiring AlixPartners consultants including Ms 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.
“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 building out to tender, he said, adding that having a procurement function was not a legal requirement.
Ms Harmeston alleged Pippa Wicks had been “conflicted” as both COO and supplier. Ms Wicks denied conflict of interest but recognised the potential for it.
She said she had recommended AlixPartners colleagues to Mr Pennycook, but did not procure them. She had recommended Glen Fietta because he had been involved in the bank rescue in 2013 and was responsible for agreeing his hours. She also recommended Kevin Doran.
Ms Harmeston aimed to make savings of £161m by cutting non-compliance. Kevin Doran later estimated savings of £45m were more realistic. Ms Harmeston maintained the Group could have become “world-class” in 12 months if it had adhered to its own policies, but it was seen by suppliers as weak and ripe for exploitation.
She said Mr Pennycook’s promised executive sponsorship of her drive had not been forthcoming. She said her procurement strategy had disclosed commercial risks due to breach of policy. She was due to present it to the executive on 16 June, but was suspended that day.
Group human resources chief Sam Walker had recommended suspension after the Group received an anonymous whistleblowing letter. The letter alleged an investigation into contractor Silver Lining Partners (SLP) had led to Ms Harmeston’s departure from the Royal Mail. The tribunal heard the Royal Mail had confirmed this to the Group confidentially to Ms Wicks and head of Group risk Phil Willsmer.
“Why did you dismiss her based on confidential information without giving her the opportunity to defend herself?” Joanne Woodward, Ms Harmeston’s representative, asked Mrs Walker. Mrs Walker replied she had made the decision jointly with Mr Pennycook and Ms Wicks, due to behavioural and performance issues, conduct that was “seriously wanting” and a broken relationship with senior management.
There had been issues with Ms Harmeston from the outset, Mrs Walker said, including complaints about her relocation to Manchester, the location of her desk, inappropriate use of executive meeting rooms and reluctance to share her personal assistant.
She added that Ms Harmeston was not a whistleblower, but had retrospectively characterised points she had raised as part of her job as protected disclosures. The issues she raised “were problems we knew all about before she joined and on which Kath had been briefed,” she said.
Andrew Burns QC, representing the Co-operative Group, said Ms Harmeston had failed to disclose her knowledge of SLP to the Group and had in fact had SLP in mind from the start, hiring them outside proper process.
He alleged Ms Harmeston had personal connections with SLP’s founding director Gerard Soames. Ms Harmeston maintains Mr Soames was a “networking contact” and SLP had no malpractice case to answer.
Andrew Pope, head of risk partnering at the Group, investigated Ms Harmeston’s relationship with SLP. He found Ms Harmeston had misled Pippa Wicks “just enough to claim it was a misunderstanding”.
Ms Harmeston claims she had verbal authority to hire SLP from Ms Wicks. Ms Wicks disputes this. Former Group chief strategy officer Paula Kerrigan found Ms Harmeston guilty of misconduct, but not gross misconduct following a disciplinary hearing. She could not be sure Ms Harmeston had deliberately failed to get approval from Ms Wicks, Ms Kerrigan said.
Ms Harmeston was “incensed at the unprofessional manner in which the case had been handled”. She was concerned about reputational damage after she had been “publicly shut off the email network” before dismissal. Mr Pope admitted this had been his mistake.
Ms Harmeston alleged the executive had assigned her a code name, “Wimbledon”, to avoid creating a paper trail of emails. This, she said, deliberately circumvented the Group’s obligations under the Data Protection Act.
“My dismissal and the manner in which it was conducted could lead one to believe that I had committed some very serious acts,” she said, accusing the Group of “a deliberate campaign to comprehensively disparage my reputation”.
Ms Harmeston claims the Group failed in its fiduciary duties – its legal duties to act on behalf of its members. Mr Pennycook said the Group’s prime fiduciary duty had been to urgently save the Co-operative Bank, while Ms Harmeston’s proposals represented a work of years.
The verdict is expected during February.
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