Radical decisions on the Co-operative Group’s governance structure need to be taken to assure the future of the retail co-op, according to a report into the organisation.
Paul Myners, who was appointed as a senior independent non-executive director in December, was asked to review the co-operative’s governance structure.
In his report, he echoes the same view in put forward in his interim report published in March. He calls for the Group board to be made up of non-executive directors with skills and experience comparable to its competitors; a national membership council of 50 members; and to give one-member-one-vote to the entire membership of the Group.
But Lord Myners said the Group has to reverse a decline that started over 50 years ago – and he is not confident that its elected members will do so at this month’s annual meeting, where they will vote on governance proposals. He said: “Much will depend on the small number of ‘elected democrats’, less than 1 in 10,000 of the Group’s entire membership. Will they put their self-interest to one side for the greater good, acknowledging the collective failure of the current board and the crippling deficiencies of the entire governance system?”
Lord Myners has put forward four structure changes, with a detailed plan for implementation.
He first calls for the creation of a ten-member 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 will have the skills and experience of NEDs sitting on the boards of the society’s primary competitors.
Currently the Group board includes 15 non-executive directors elected by individual regions and five non-executive corporate member directors elected from independent co-operative societies, plus the new position that Lord Myners filled.
Of the new board, Lord Myners said appointments should be decided on the basis of objective criteria determined by the need to fill specific skill gaps. Applicants will also need to demonstrate strong commitment to co-operative values and principles.
He acknowledged that a principal objection to this proposal is that it would remove the right of lay directors to sit on the Group board and that this is necessary for it to run as a co-operative. “This is not the case,” said Lord Myners. “The key requirement is member control. Under the Review’s proposals, this would be achieved in two complementary and reinforcing ways: first, all Group board directors would be required to be members, and would have to demonstrate a genuine commitment to co-operative values and the co-operative ownership model; second, the entire membership would have an annual opportunity to elect/ re-elect individual directors to the board.”
The creation of a national membership council, which will replace the current regional board structure, will be the vehicle used to represent member interests. The council, which was originally proposed to hold 100 members, will now see 30 non-employee members, 10 employees, five independent society members and five seats for special constituencies, such as the Young Members’ Board.
It will act as a consultative body to regularly engage with the Group board and hold it to account; represent members and serve as a guardian of the Group’s commitment to co-operative principles.
The council will also elect a steering committee of 12, which will include seven members, two employees and three corporate representatives from independent societies.
From the council, there will also be up to two members elected to the nominations committee, which will screen and propose candidates for Group board approval and for election/re-election by members at each AGM. The committee would comprise five non-executive members, including up to two representatives designated by the NMC and the balance from the Group board.
Finally, Lord Myners recommends the strengthening of the rights of ordinary members. Under the proposals, members will have the right to elect Group board members, the right to attend general meetings, to approve significant transactions, approve the social goals programme, elect NMC members and propose candidates for the Group board.
Added Lord Myners: “The recommendations, if implemented swiftly, have the potential to achieve a rapid transformation of this culture. They will create a Group board that is fit for purpose and a NMC that will provide a powerful forum for the representation of members’ interests. However, in these concluding remarks I want to draw attention to four serious weaknesses in the present governance culture and emphasise the urgent need for these to change.”
Lord Myners said these weaknesses are: denial of responsibility; corrosive suspicion; procrastination; and hiding behind values, and added that it was a combination of these factors that obliged him to resign as a director of the Group after only four months.
The above proposals are designed to be implemented within a year, and the review suggests a consultation process, along with a special meeting to approve rules in July. By September, another meeting will approve a final set of rules with the intention of setting up a ‘Day 1’ Group board, membership council and steering committee in November. By the 2015 AGM there will be a full election for all directors.
“The co-operative ownership model can – and often does – deliver powerful economic advantages,” said Lord Myners. “But its superiority over other forms of ownership is not inevitable and guaranteed. For a consumer co-operative, such as the Group, its advantages have to be earned, day by day, through delivering outstanding service and value for money to customers who, especially in food retailing, have plenty of choice where to spend their money.
“There is no short cut to recovery from its present weakened state. It will require retrenchment and some painful choices. Financial health can only be restored through steady, step-by-step rebuilding of the Group’s profitability and repayment of its excessive debt.
“Because of the losses exposed last year and their severe impact on the Group’s balance sheet, the high level of debt now being carried by the Group has made it inevitable that the bank syndicates providing this funding will, for quite obvious reasons, continue to take the closest interest in the Group making rapid progress to strengthen its governance.”
• To read the full report, visit: www.co-operative.coop/MynersReview/Report