Lord Myners has released his report into the governance of the Co-operative Group that calls for radical reform. In the 180-page report, he provides answers for some of the most frequently asked questions …
Is the Co-operative Group really ‘ungovernable’?
I understand why Euan Sutherland felt pushed to say this, but there are lots of great things about the Co-op and it has remarkable potential to develop a purpose-driven strategy which will create a Co-op that will truly be different and make a difference. But this won’t happen if governance is not radically reformed.
Are recent mistakes not the fault of management, not the board?
That view ignores the very reason that boards exist. Taking responsibility is primarily what a board is there for. While a board may not automatically deserve blame for specific management mistakes and misjudgements, recurring strategic errors or monitoring failures of the scale and consistency of those at the Group show that the board has been equally at fault. It has not had the abilities to monitor management or provide them with high quality challenge and support. Nor has it proved willing to remove bad management when others with more experience would have realised that this was the best course of action.
Did you resign from the board because of opposition to your reforms?
Contrary to the portrayal in the media, I did not resign as a result of opposition to my proposals. As I mentioned on several occasions, I view my role as akin to a medical doctor charged with undertaking a rigorous diagnosis and dispensing the needed prescription, whether or not the patient is willing to accept the hard truths and take the required medication.
Given that I have called for a complete governance overhaul, I had expected considerable opposition from elected members – I resigned because of the unwillingness and incapability of some Group board members to take their responsibilities with the requisite diligence and accountability. I could not be part of a board which takes such a cavalier attitude.
Are you just opposed to Co-ops? In what circumstances do they work best?
I have always been a strong supporter of co-operatives and of mutual ownership generally. Co-ops work best when they meet the shared needs of their members. In the past that meant safe food at the cheapest possible price. In today’s world, the advantages of co-operation cannot be taken for granted. They have to be earned day-by-day by providing outstanding service and value for money in comparison with other retailers.
￼Structures like the ones you are proposing did not stop the collapse of private sector companies like RBS or Woolworths. Why will it work for the Co-operative Group?
No governance structure can guarantee success, but there is a convincing body of evidence that a structure along the lines I have proposed significantly reduces the risk of extreme failure.
Is training for members of the NMC and local bodies going to be stopped?
Under ICA [International Co-operative Alliance] Principle 5, training for different groups of members is an essential feature of co-operation. This will continue, within a budget agreed by the board and allocated by the NMC. In future, training should be provided by a much broader range of suppliers, including universities.
￼Why are you proposing that there are no lay directors on the Group board?
The evidence I have gathered, and the recent crisis at the Group, show that having lay directors – without regard to whether they possess the requisite commercial competence – on the board, while ideologically attractive, is in practice a flawed concept.
In this fast-moving business environment, the board needs to be able to respond quickly and decisively. Having people with inadequate commercial capabilities or experience would slow down its work, particularly if they need more time or external advice to be able to contribute substantively. One Group board director suggested seriously that as an alternative each lay director should have an experienced advisor seated behind them at board meetings who could whisper advice into their ears during board meetings.
￼The Co-operative Bank had IPNEDs and they didn’t stop the problems there. Why should we believe that having all IPNEDs on the Group board will prevent further problems?
The IPNEDS on the CBG board were not in a majority until 2013 and none of them had previous experience of being a director of a significant commercial and retail bank. As the Kelly Review has found, their influence on major issues was constrained and so their ability to shape decisions was limited.
￼Why aren’t you proposing a two-tier structure with a supervisory board similar to those in Europe?
The model I propose is conceptually similar to the two-tier structure that some (including external commentators) have advocated for the Group. Under both models, responsibility for directing and overseeing the business is separate from guarding the values and steering the social goals agenda.
One reason that a two-tier structure has been proposed for the Group is because its advocates believe that members sitting on the upper “supervisory” board are shielded from legal liability. However, in countries with two-tier boards such as Germany and the Netherlands, supervisory directors do face legal liability, albeit to a lesser extent than members of the management board. Several German supervisory boards have, in fact, been sued in recent years for breaches of fiduciary obligations.
A two-tier board structure is not formally recognised under English law, with the attendant risk that it may not be possible to apportion legal liability between a supervisory board and an operating board in the same way as, for instance, in Germany. This would then expose members of a Group supervisory board to unclear and undefined legal risks. Legal certainty cannot be in doubt and obviously I cannot endorse any proposed governance structure in which the underlying legal basis is unclear.
￼￼￼Why do all board members need such a high level of commercial expertise?
Each and every member of the Group board needs to be highly competent in respect of commercial and financial matters to be able to fully understand the issues presented to them. This is critical because the Group competes with some of the largest and best-run companies in the private sector. The Group board’s work is primarily concerned with commercial and financial issues while the NMC will be the guardian of values and principles.
￼What are the eligibility requirements for sitting on the NMC?
I am recommending that the current area committee requirements are adopted (e.g. 250 trading points, member for one year) but would welcome input from members.
￼What will be the role of the NMC in monitoring performance of the stores?
Local store monitoring and closure decisions will be the responsibility of management and the NMC’s input will be at a national level. If it chooses, the NMC can receive national performance data (subject to commercial and confidentiality issues) and can choose to discuss this at its meetings and with the executive and/or board.
￼What will be the future role of area committees?
I understand that the future role and function of area committees will be redefined in line with the Group’s new purpose and strategy and reinforced to focus on building local membership and supporting community initiatives aligned with the development of the Group’s priorities in individual localities. I am recommending that area committees will no longer have a role in the democratic election process.
What are the practicalities of allowing all members to attend general meetings?
This has yet to be finalised, but recommendations include the introduction of proxy voting by post or electronically. The Group should make every effort to find a suitably large venue to allow all willing members to attend. If the number of members wishing to attend in person exceeds the capacity of available meeting venues, the available seats should be allocated by the drawing of lots
Use of technology to broadcast meetings over the internet with all members able to submit questions in advance. In addition there will be executive and board roadshows throughout the year to provide an opportunity for Q&A with the membership.
Why are you trusting ordinary with decisions about significant transactions when you don’t trust board members?
Significant transactions will be infrequent because they will be defined as involving more than 20 or 25 percent of Group assets. If open to the whole membership there will be a public debate and commentary which will inform the decision. At the moment the Group board could sell practically everything without the consent of the owners
￼What will happen to the subsidiary boards, regional boards, V&P boards and regional V&P committees?
The responsibilities of the subsidiary boards will be scaled back. The V&P board, regional boards and regional V&P committees will be disbanded and their responsibilities assumed by the NMC.
￼How will Corporate Members be represented in the proposed governance framework?
The independent societies will no longer be allocated seats on the Group board but will be represented on the NMC and its steering committee. They will be granted additional voting rights based on ‘purchases’ but the total votes cast by independent society members in the special meeting will be capped at the aggregate proportion of their purchases.
￼Why wouldn’t you negotiate? Why wouldn’t you cut a deal before the general meeting – that is the way we do things in the Co-op?
I committed to giving the membership a full diagnosis and the best possible advice, much as a physician would diagnose and treat a patient. I did not want my advice and recommendations to be watered down through negotiation as then they would no longer prescribe the best solution for the organisation.
• Put your questions to Lord Myners. Take part in the live webinar on Friday 9 May.