‘Urgent steps’ are needed to reform Co-operative Group governance, says Lord Myners review

Recommendations to radically change the democratic structure of the Co-operative Group are to be put its membership in May. The current Co-operative Group board has backed proposals to...

Recommendations to radically change the democratic structure of the Co-operative Group are to be put its membership in May.

The current Co-operative Group board has backed proposals to reduce its power and be replaced by a board made up of executives and independent non-executive directors, while a supervisory board will consist of elected members and employees.

Lord Myners, who was appointed as the Group’s first independent non-executive director this year, has been brought in to conduct a governance review of the organisation and has today issued a progress update.

In this interim report he said the Group “suffers from acute systemic weaknesses in its governance framework that over many years have gravely damaged the organisation.” Referring to “failings” and “misjudgements” over the past few years, which includes the loss of the Co-operative Bank, he said the board has “collectively presided over losses of several billion pounds”.

He added: “Unless the Group takes urgent steps to reform its governance so that it generates sustainable economic value, it will run out of capital to support its business.”

The current three-tier governance structure of the Group has “consistently produced governors without the necessary qualifications and experience to provide effective board leadership and to monitor, challenge and provide guidance to management,” according to Lord Myners.

As part of his review, Lord Myners will be proposing changes to the governance structure at the Group. His draft recommendations include:

  • A new Group board made up of an independent chair, with no previous association or involvement with the Group; six to seven independent non-executive directors; and two executive directors. The non-executive directors would have the skills and experience of NEDs sitting on the boards of the Co-operative Group’s primary competitors. This new, far smaller board would replace the existing 20-strong elected board; it would be responsible for all commercial and financial matters and would have full power and responsibility for the operation and management of the Society

  • The establishment of a National Membership Council (NMC) of around 100 individuals, including provision for representation of around 20 employees. This council would have powers to ensure that the Group adheres to co-operative values and principles, and that these are reflected in its corporate vision, strategy and operating practices.

  • The NMC would elect from its membership an executive committee of 12 which would also include corporate representation from independent societies.

  • Group board directors would be subject to annual election/re-election by all members. Vacancies would be openly advertised and candidates would be appointed on merit against clear criteria of skills and experience.

  • A Nominations Committee of the Group board would be established on which two members of the NMC would serve. The Nominations Committee would also be responsible for commissioning an annual review of board effectiveness and reporting to the Annual General Meeting in light of this review

Lord Myners added that the NMC would be encouraged to propose Co-operative Group members possessing the requisite competence to the Nominations Committee for consideration as Group Board candidates; and that elections to the Group Board and the NMC would be conducted on the principle of “one member, one vote”.

NMC members would be elected by all members for a term of three years. Detailed voting arrangements, including the structure of regional/national constituencies and the method of voting would be the subject of analysis and consultation in Phase 2 that is due to be reported towards the end of the year.

This current Phase 1 will be released in full at the end of April, with the proposed arrangements put to the Group AGM in May. At that meeting, 75% of the votes are held by regional boards, with a further 25% to be cast by independent co-operative societies: Central England, Lincolnshire, Midcounties, Southern and Scotmid.

Independent societies currently take up five seats, but in Lord Myners’ proposals would cease to sit on the Group board. Instead, a new enhanced structure would be established to promote trade and protect interests in common between the Group and these independent societies which, according to Lord Myners, have a high and necessary dependence on a viable, efficient and competitive Co-operative Group.

If approved, the present membership architecture will be disbanded and transitional arrangements put in place. A revised remit and role would be developed for area committees.

In summarising his interim report, Lord Myners concluded: “Until the outcome of these constitutional changes is decided, it is my opinion that it would be inappropriate and premature to proceed with the appointment 10 of a new CEO, in view of the risk that, while these governance issues remain unresolved, the Co-operative Group will be unable to attract applications from best-in-class retail executives. Confirmation of members’ readiness to approve radical governance reform will also be essential to reduce current uncertainty among existing key employees.”

For further updates, information and analysis, view the full Myners Review collection

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