Kelly report holds important lessons, but is not perfect

A report into governance and management failings at the Co-operative Group provides many lessons to learn, but there are parts of the report that are inaccurate or could...

A report into governance and management failings at the Co-operative Group provides many lessons to learn, but there are parts of the report that are inaccurate or could have been expanded on in greater detail.

Sir Christopher Kelly was commissioned last year to compile the 150-page report into the problems at the Group and Bank that led to a £1.5bn capital shortfall in the Bank.

The report concluded that the capital hole was rooted in a number of events including unsatisfactory oversight from the board on the merger with Britannia that brought poor commercial lending.

Co-operatives UK secretary general Ed Mayo said: “The Kelly report uncovers failings that are not simply ones of management, business strategy or governance. They are failings of co-operative values. As I read it, Sir Christopher paints a business picture in which people rarely take true responsibility. This is perhaps the most fundamental lesson that we need to learn and change out of this review.

“Our ethical values have to be rooted in a business culture that reflects behaviours from top to bottom. Otherwise, doing all the good we can on top, like fair trade or not investing in arms manufacture, counts for little, because it is an add-on… or, worse, a fig leaf.”

Meanwhile, the Co-operative College denied allegations in the report that indicated the organisation was responsible for training directors. “The College has never delivered training programmes with a curriculum designed to meet the training needs of sitting members of either the board of the Co-operative Bank or the board of the Co-operative Group,” said College principal and chief executive Mervyn Wilson.

He added: “The training programmes provided by the College were designed around the roles and responsibilities of members of area committees and regional boards.”

Sir Christopher also reported that people close to the courses said the training was not rigorous, and alleged that pressure was put on assessors to pass individuals who might have otherwise failed.

Added Mr Wilson: “We refute the assertions made that the training was insufficiently rigorous or that pressure was put on the assessors to pass individuals. These are serious allegations but no evidence is provided to substantiate them.

“No contact has made with the College by the Kelly team to discuss the training provision and we have not been given the opportunity to correct these inaccuracies. We consider it completely inappropriate that such unsubstantiated allegations have been included in the main body of the report.

“The College has worked very hard to develop robust systems which maintain the integrity and quality of course content, delivery and assessment procedures. We are happy to make available further information about the systems in place.”

Michael Mol, professor of strategic management at Warwick Business School, questioned whether co-operatives should engage in acquisitions – an area not touched upon in detail in the report.

“We know that most mergers and acquisitions end up in failure,” he said. “We also know that cases of success often rely heavily on having strong skills at integrating the acquired firm with the acquiring firm.

“Co-operatives in general do not really have those skills, because they are much more suited to steady, organic growth – and the Co-operative Bank and Group have certainly proven they are no exception to this rule. The acquisition of Britannia and Somerfield should never have taken place.”

He said that former chief executive Peter Marks grossly overestimated his ability to integrate Britannia Building Society and Somerfield. Prof Mol describes it as decision-making that really “runs counter to the co-op model” in that they were running the organisation more as their personal empire.

He added: “The Bank, as well as the wider Group, has suffered from severe management and governance issues for many years now, and the acquisitions of both Britannia by the Bank and Somerfield supermarket by the Group have destroyed billions of pounds of value.”

Co-operative lawyer Ian Snaith added: “Sir Christopher Kelly’s thorough and readable analysis of recent failings at the Co-operative Bank and the Co-operative Group is essential reading for all co-operative directors, activists and employees – not only those in the Co-operative Group.

“The lessons he draws from the history of the last few years must be learned for the sake of the future of the whole UK co-operative movement. That learning process is particularly important for everyone involved in debating and deciding on the future governance of the Co-operative Group.”

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