Full Report: Phone Co-op AGM

Members concerned that high risk strategies at the telco co-op are not being properly managed

Members gathered in Sheffield on Saturday 3 February for the AGM of The Phone Co-op. The morning featured two workshops, which gave members opportunities to discuss, individually and in small groups, what matters to them.

The main meeting began at 2pm. The chair, Robert Denbeigh, did not introduce the people on the front table but did draw members’ attention to the changes to the agenda, bringing forward guest speakers and putting the discussion of motions at the very end. He also mentioned that a motion had been withdrawn by the proposer. This was challenged as a point of order by George Conchie and in the end the meeting was asked to vote on whether to accept the withdrawal of the motion. This was approved on a show of hands.

Mr Denbeigh then spent some time giving members the chance to test the voting handsets attached to their seats. He mentioned that not everyone in the room was a member and asked those who were not to refrain from voting. When challenged from the floor, it became apparent that no-one knew how many members were in attendance or who they were as no formal registration or checking had taken place. The chair stated that not all staff were members and this was challenged and corrected by staff present as every employee is, in fact, also a member.

A member intervened to point out that any close votes would have to be regarded as invalid if the margin was close and expressed his disappointment that a society which had traded for over 20 years and had a reputation for good governance did not seem able to run a simple democratic process in a proper way. The chair asked those people who were not members to show their hands and the meeting proceeded on the basis of trust that they would not be voting.

There were two guest speakers at the event. John-Paul Flintoff spoke about positive communication and the transformational effects of conversations. He introduced the Phone Co-op Conversation mug – which he hopes will encourage 1 million conversations.

Vivian Woodell, who stepped down as chief executive of the Phone Co-op last summer to lead the development of the organisation’s new Foundation for Co-operative Innovation, spoke about the its activity. The Foundation has four main objectives: a think tank; development; incubation; and financing co-ops, working with Co-operatives UK. He introduced Baroness Glenys Thornton who spoke briefly.

The outgoing chief finance officer, Per Simonsen, presented the account for the previous year during which there had been an operating profit of £84 on sales of £11.1m, down from £182,826 on sales of £10.5m the previous year. This was explained by various exceptional expenses, but a member from the floor described this result as “little short of disastrous”.

The interim chief executive, Peter Murley, opened his report on the society’s strategy with what he claimed to be a controversial statement, that he believed The Phone Co-op to be “a telecommunications business with a co-operative USP, not a co-operative business with a telecommunications USP.”

An extensive presentation followed based upon the idea that the society was badly under-invested in IT infrastructure, in the premises in which staff worked and in staff development and reward. It was claimed to be over-exposed to the low-margin and highly competitive residential and personal mobile phone markets without the capacity to offer compelling services to business customers where better margins could be made.

In order to move from a 70/30 split of consumer/business customers to a 40/60 split in five years’ time, significant investment would need to be made now implying three years of trading losses, said Mr Murley.

A member asked what level the reserves were at today and Mr Simonsen confirmed that in the first quarter of the new financial year they had reduced from the £1m reported in the accounts to approximately £750,000. They would be reduced to zero this financial year (by the end of August).

The CFO said that growing business to business sales was based upon targeting some key markets, the first of which was social housing. This would be followed by other ethical and values based organisations, third sector groups, co-operatives and local government.

He added that the existing large number of affinity partners would be reduced to about 10, with much more effort to work them to drive sales to individuals.

The projected losses / profits in the business plan were as follows:

  • Year 1 – £1.12m LOSS
  • Year 2 – £0.91m LOSS
  • Year 3 – £0.26m LOSS
  • Year 4 – £0.97m PROFIT
  • Year 5 – £2.76m PROFIT

A member stated that he had been planning to ask whether the society was exploring the option of a transfer of engagements if the strategy did not succeed but, having heard the presentation, would like to ask if a transfer of engagements was being pursued now before the reserves and share capital had been exhausted. Mr Murley responded that these options were, indeed, being explored all the time. Former Phone Co-op director, Justin Anderson, questioned if he actually knew what a transfer of engagements was in a co-operative context (i.e. a takeover by another society) and he responded that he did and that he was exploring both receiving transfers and pursuing a transfer of the Phone Co-op to another society.

Questions were asked about how this would be funded once 20 years of accumulated reserve funds had been lost in the first year of the plan. The response given was that members’ capital would be spent – without, it seemed, an understanding that this would necessitate a suspension of accepting deposits and withdrawals (currently running at c.£1m per year) because the real value of the society’ assets would dip to below the face value of the shares.

Former director (and former Co-op Group chair) Bob Burlton asked about the terms of the lease for the new head office and was assured that the lease was for five years with a two year break point. Another former director, Peter Turnbull, described the Board’s plans as “reckless”.

The narrative section of the annual report, the proposals on distributing trading surplus, the governance report and the auditors’ report were not introduced for discussion (although they were printed in the report booklet) and the meeting moved to voting. The Report and Accounts were approved by 86 votes to 13 and the distributions from surplus by 93 to 4.

The re-appointment of the auditors was questioned from the floor and it was revealed that they had been in post for 18 years. A further question was passed about good practice in terms of changing auditors and the Mr Denbeigh reported that the audit partner had changed this year. The meeting moved to a vote and the re-appointment was approved by 78 votes to 10.

By this point it was 4.30pm in a meeting that was due to finish at 5pm. The chair announced a comfort break of unspecified length to heckling from the floor, but the meeting did break. When members were ready to reconvene the chair was not present and the vice-chair briefly took the chair until he returned.

Toby Johnson proposed his motion on pay ratios and equality. Referring to his experience at Suma, ICOM and in other organisations, he expressed his belief that efficient businesses could be run with egalitarian pay ratios and the ideas promoted in the 2008 book, The Spirit Level. Replying for the board, Shelagh Young said that, while she personally had always supported greater equality in pay, she had reached the reluctant conclusion that the society was simply not paying enough to recruit and retain the skills it needed to run the business. She claimed that there had never been a fixed policy on ratios and that the current policy of the board was to pay the lowest salaries necessary to attract the talent required.

Various members expressed the opinion that pursuing growth for its own sake was not in line with the society’s ethos or necessary and the interim CEO responded that he didn’t believe that standing still was an option given the sub scale nature of the society in the markets in which it operated.

In response to the question about how the recruitment of a new CEO had been undertaken, director Jane Watts, explained that Peter Murley (a member of the society who had done consultancy work for it before) had been engaged on an interim basis while a permanent appointment was made. An advert had been placed in the Sunday Times in October 2017 leading to a long list of 35. A firm of recruitment consultants interviewed 12 of these of whom eight met with the interim CEO in December. Four candidates were invited to meet the Board and Two were interviewed in Chipping Norton on 18th January.

It was announced that Nick Thompson would be taking up post as CEO on 19 February and he was invited to stand up so that members could see him. No further information or introductions followed.

Mr Denbeigh tried to move straight to a vote on the motion but was challenged from the floor on the need to allow members to speak for or against it and for the mover to have a right of reply. After some confusion on the part of the chair this was granted, Mr Johnson briefly replied and a vote was taken. The motion passed with 89 votes to 2 (implying that either Board and executive members had abstained or a majority of them supported it).

Simon Blackley, former chair of the Phone Co-op, presented the second motion, welcoming the information shared by the interim CEO but criticising the lack of consultation with the members in the development and adoption of the new strategy.

He reminded the meeting that the society was preparing to spend its whole accumulated reserves from 20 years of trading followed by a significant proportion of the £7.5m of share capital. Referring to the Co-operatives UK’s Code of Best Practice on withdrawable share capital, he reminded the board that if 25% or more than £1m of share capital was at risk of being lost, the society was obliged to suspend withdrawals and questioned whether this should have already happened. The board did not indicate whether share capital withdrawals were likely to be suspended, despite being asked repeatedly by members.

The chair opened debate to the floor and Nick Matthews expressed his grave reservations about whether enough capital was available to meet the society’s plans and indicated that, with reluctance, he would be considering whether to withdraw his shares.

Justin Anderson expressed concerns about the level of risks being taken and how much co-operative experience there was on the board and management.

Pauline Green, former president of the International Co-operative Alliance, reminded the Board of the huge responsibility they had to the wider co-operative movement, both in the UK and internationally – where the Phone Co-op was well respected. She warned that in her visits to many co-ops around the world, she had seen that those co-ops which failed were the ones that did not stay close to their members. Ms Green also reminded the Board that a suspension of withdrawals of capital could risk a run on share capital for all societies in the UK – something that had happened in the past.

Bob Burlton pointed out that it was easy to inflate costs but much harder to grow sales in a co-operative business.

Various other members spoke in similar vein and the board did not formally respond. The motion was passed 79 to 12.

Various items of any other business were raised. These included a society employee imploring the members to support investment in premises and systems as their working conditions were poor and every colleague was 150% committed to the society. Pauline Green intervened from the floor to assure her that we, as members, were absolutely in support of the staff and apologised if she had got the wrong impression of that.

A member questioned whether the board had the necessary skills to run the organisation and director Shelagh Young responded by saying that she felt some consideration of co-opting professional non-executives could be explored but that in the recent past decisions had needed to be made quickly.

In summing up the chair said that he had taken the clear message that members were risk averse. A member stood up and refuted this, to general nods around the room, pointing out that being members and customers of the Phone Co-op at all showed that people were happy to take risks for what they believed in; the question was whether these risks were being properly managed.

Britta Werner from Unicorn agreed, highlighting how at Unicorn Grocery (where she is a worker member) they had achieved growth, but had done so without taking on excessive risk. Nick Matthews argued that the Board should avoid a high risk strategy and said it was essential members were consulted.

At the end of the meeting, Simon Blackley circulated a requisition for a special meeting to vote on a motion of no confidence in the board.

The following day, at the organisation’s board meeting, Jane Watts was appointed chair.

  • This article was amended on 13 February to correct projected loss/profit figures, a quote from Mr Murley and the terms of the head office lease.
  • Read the full response from the Phone Co-op’s Jane Watts here.
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