Testifying before the Treasury select committee as part of its investigation into Project Verde, Lord Myners said radical decisions on governance had to be taken soon in order to save the Co-operative Group.
The former City minister said he was not critical of co-operation and mutuality in general and that the points made in his 180-page governance report were referring strictly to the Group.
In his review, Lord Myners calls for the replacement of the current board of 15 representatives from the regional boards and five from the 22 independent retail societies. Instead he recommends the establishment of a nominations committee and a national membership council, with the later overseeing the former. The nominations committee would propose candidates for the board and would include two members from the national membership council as well as employee representatives.
Lord Myners, who is stepping down as the Group’s senior independent director at this weekend’s annual meeting, believes the Group has witnessed “50 years of progressive cultivated decline” but that if it took the right decisions, it could reverse this.
Asked by Chairman Andrew Tyre if his proposed solution – a hybrid governance model – would work, the peer said he could not guarantee the success of the structure he had proposed, but that it was less likely to fail than the current governance model.
He added that board members should have business knowledge and experience and said the governance arrangements at the Group were “unfit for purpose”. Lord Myners argued that although training was provided to board members “it’s a flawed belief that you can train from almost zero business skill to almost the level required”.
He also said there was a clear democratic deficit at the society, with the eight million members having less power than shareholders of other companies. He added that the membership that has a vote on anything to do with rule change is too small.
Lord Myners thinks the Group’s board had been naïve and had failed to hold the management accountable on issues such as the acquisition of the Britannia Building Society. He added that the co-operative movement was populated with people with “excellent integrity who really want to create a better society” that believed “the co-operative way of doing things is a superior way to the more conventional private business model,” but that this was parroted more often than put in practice.
One of the members of the select committee, Labour/Co-op MP Andy Love expressed concerns over Myners’ proposal which he said would transform the Group into a “half PLC”, thus endangering the co-operative values and principles.
“Good governance and democratic structures have been essential to the co-operative movement,” said Mr Love. Lord Myners replied: “There is nothing about being a co-op that guarantees success. They need good governance as any other form of business.”
Referring to Sir Christopher Kelly’s report on the Co-operative Group, he said he agreed with the conclusions of the report. “To understand what happened at the Bank you needed to understand what happened at the Group. The reckless decision to acquire Britannia was a Group board decision rather than a bank decision.”
Asked by Conservative MP Mark Garnier whether the regulator had failed to look into this problem, Lord Myners said that if the Financial Services Authority (FSA) had familiarised itself with the board of the co-operative they would have become much more concerned about the Verde deal. According to Lord Myners, if the Co-operative Bank had acquired the Verde branches from Lloyds, it would have become primarily a bank with grocery businesses which he believes should have been treated as a financial holding company.
The FSA had suggested the Bank was treated as a financial holding company, but the Treasury did not agree with its proposal. Lord Myners argued that if the FSA had stuck its line on that and not be dissuaded by the Treasury then the Regulator would have become aware of the “lamentable shortcoming of the Group’s board”.
“This board of directors could not possibly have been placed in control of 8% of British market [banking],” said Lord Myners.
He added that in case the Group failed to reform its governance structure the regulator could intervene. He said the regulators could appoint an inspector to look at the conduct of the Group and its board of directors and management. “If the Co-op simply rejected any need for change then I think that the Regulator could not ignore that any more than the banks would ignore that. If you don’t accept the need for change it will be forced on you in any case.”
He added that the Group did not need another inspection, but that it needed to put everything behind and become a strong group. “That’s a realisable goal, providing that they take the right decisions,” said Labour’s City minister during the banking crisis. The Group will vote on the resolutions related to Lord Myners’ reforms at their annual general meeting on 17 May.