With more than 130 witnesses and a further 100 testimonies, the Kelly review into the Co-operative Group is one of the most intimate peeks into the co-operative sector.
It would have been a must-watch inquiry for co-operators to see all participants come under the spotlight – but instead a summary of views have been brought together in a concise 150 page report. All key people were interviewed from elected members to management to external experts – all apart from the disgraced former Bank chair Paul Flowers, who refused to take part.
Like any other disaster report, Kelly’s verdict focuses on a chain reaction of events that caused the £1.5bn capital black hole in the Co-operative Bank. Each individual event is shocking, but collectively they caused a disaster that nearly brought the whole Group to its knees.
Perhaps the most interesting part for co-operators is the governance section. Sir Christopher Kelly is quick to say that his comments “should not be interpreted as a criticism of the co-operative model”, but that it was the particular model of governance adopted by the Group that “manifestly failed”.
On the Bank there was confusion about the Group’s role and how involved the directors should be. The Bank chief executive presented a written report to each meeting, but there was little discussion or challenge. If there was a challenge, it was to do with the Bank’s co-op values and principles, rather than anything related to banking matters. When the board approved the Britannia merger it was done so with minimal detailed discussion.
It is little wonder that the media and the many commentaries into the Group have blamed the co-operative way of doing business.
Ultimately, the Kelly report blames an inexperienced board and one that would not stand up to former chief executive Peter Marks. This weak board did not provide effective oversight of the Bank.
There is a whole culture that needs cleaning up. Some directors told Kelly they were kept in the dark on some matters, but he refuted those allegations and said a competent board should know on what and when to challenge executives.
Kelly has not just singled out democrats. He said effective boards also need clear and relevant information. Executives did not provide a good source of information. Board papers were overly long on detail, but sometimes omitted important information or failed to draw out key facts.
There was also a culture of ‘good news’; staff were wary of reporting bad news, which encouraged them to hide, moderate or ignore issues.
Put simply, executives disdain elected members, while those members do not challenge management hard enough. Many of these people have already left the organisations, but the lesson for co-operatives is that these two sets of players need to figure out if they’re playing for same side.