A focus on too many deals, such as Somerfield and Britannia, have led to under-investment in food stores, according to a review of the Co-operative Group’s governance.
Lord Myners, who is scrutinising the society, said the grocery market share held by the co-operative was back to same level prior to the £1.5bn acquisition of Somerfield in 2009. He also believed there was “nothing to show” for the Britannia deal.
He said: “Customers want to believe that the shop they use is run ethically, but they want the shop they use to be smart and tidy, with good IT systems, nice sight lines in the shop, good lighting, etc etc…
“While our board has been doing deals, we have neglected our core business, underinvested. Our expenditure on our stores as a percentage of our revenue, is a good base measurement point as to whether we are reinvesting in your business is significantly lower than for our main competitors. I asked a number of directors for this piece of information – they had no idea at all.
“We have debts which are at a higher level that anybody would sensibly judge to be appropriate. We now have to give priority to debt repayment, which means we have to sell assets that we may not have ordinarily chosen to sell, or felt that now was the right time to sell them.”
During a live-webinar with Group members, Lord Myners responded to a question about whether the management was also to blame: “I don’t know the previous management. I don’t know to what extent they were at fault. But they were not on the board of directors. The board had to take decisions, the board could have rejected the advice they received.
“They could have challenged the arguments that were put forward. They could have declined to support proposals. They didn’t. And, in fact, this board until early last year was still charging Project Verde towards a transaction that would have completely transformed the Group. I can be pretty sure that if we gone ahead with Verde, the Co-op would have failed. Yet this board was charging ahead with a proposal that would have transformed the riskiness of the Group, with apparently little regard for what they were doing.”
He said that if the Group was a public company then these “very big transactions” would have had to go to shareholders for a vote. Describing this as a “major democratic deficit” and a “glaring anomaly”, he said he proposes to give all members the opportunity to vote on big decisions, such as these.
It wasn’t just the main board that had to explain its actions, said Lord Myners, commenting that activists from the area committees also had “a lot to explain as to how the people they put on the board managed in the period of half a dozen years to lose the majority of the capital the co-op has accumulated over a 150 years”.
Highlighting his interim review report, he said: “I have much more confidence under one-member-one-vote, with a proper nominations committee process, with a proper board evaluation, carried out each year by an independent expert commenting on the effect of the board.
“That’s what a co-op is about, it’s about member ownership and membership involvement. Not through an architecture which might have made sense in a pre-digital era when it wasn’t possible for everyone to see.
“We can find all manner of ways to address the challenges, and I’m confident that if we do that we will excite and enthuse our eight million members, which will revolutionise the performance of the co-op and recapture the essence of the Rochdale Pioneers.”
For further updates, information and analysis, view the full Myners Review collection