Analysis: Role of independent societies in the Co-operative Group is under threat

While the focus of Lord Myners’ review into the Co-operative Group’s governance has been on a more direct relationship with individual members and an expert board, this comes at the expense of a long-standing historical relationship with independent societies.

There are currently around 80 independent societies in membership of the Group, ranging from smaller organisations such as Co-operative Press (owners of the News), right through to the billion-pound co-operatives Central England and Midcounties. Each has a number of votes at annual meetings and has a shareholding in the Group.

This historical relationship links back to the Co-operative Wholesale Society, which was federally owned by individual co-operatives for the purpose of achieving a greater buying power, as well as the production of goods.

This was a stakeholding that could have been converted into pounds by those societies, and something that they forfeited in 2000 in a merger with Co-operative Retail Services, the second largest retail co-op at the time. The merged entities became known as the Co-operative Group, where the federal nature of the co-operative was carried forward where independent society members had a 25% holding in the business. The remaining 75% is held by individual members of the Group.

In return for this 25% stake, the independent members elect five representatives onto the board of the Group. These seats are currently held by the chief executives of Lincolnshire (Ursula Lidbetter); Midcounties (Ben Reid), Central England (Martyn Cheatle), Scotmid (John Brodie) and Southern (Mark Smith).

Under the Lord Myners plan, these executives, who are there to represent the interests of the Group, are to be taken off the main decision-making board and instead space will be made available on a second-tier executive committee. The committee only retains the right to be consulted on matters from the main board.

David Blowe, chair of Southern Co-operative, said his society welcomes and recognises the need for reform, but believes “there are some important details that still need to be worked through to ensure that the legitimate interests of independent societies in the future of the Group are protected.”

Mike Faulkner, secretary of East of England Co-op, said: “Those original retail co-operatives had an equivalent of an ‘equity stake’ in CWS and the independents may feel aggrieved if they are asked to surrender their historic claim to this inherited value.”

Independent societies – mostly the retail ones – are entwined with the functions of the Co-operative Group at a variety of levels, including networking, joint meetings in areas such as membership, sharing a national co-operative brand and member scheme – plus joint trading through the Co-operative Retail Trading Group.

Although some society members sit at CRTG to enjoy the collective benefits of purchasing power, this is at arms-length from the operations of the individual societies due to competition laws. In the eyes of the Competition Commission, the Group and Midcounties, for example, are competitors. Especially since in some areas they trade in close proximity.

It is these potential “legal complications” that were at the forefront of Lord Myners’ views back in January when interviewed by the News. Then he warned: “The Competition Commission is very alert to issues where they think there is collusion between businesses.”

As hinted in his interim report, Lord Myners said the focus with independent members should be on trading relationships: “Scale is the most important value we deliver to the independents, as well as shared support in other areas such as training and a great pooling of resources.”

The interim governance review proposes a “new enhanced structure … to promote trade and protect interests in common”.

Southern’s David Blowe added: “Considerable mutual advantage has come from the trading relationship between the Group and independent societies. It is appropriate at this point to look at how we ensure that continues going forward, while recognising that the structures governing the relationship must be properly aligned with the new governance landscape emerging from the Review.”

He added: “This period of introspection needs to come to an end so that the leadership teams can focus on tackling the ever-increasing competition in our core markets and on restoring our great brand to its rightful standing.”

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