Reputation: Grappling with co-operative identity and governance

Co-operative Group members, employees and the rest of the movement were dealing with the fallout from a traumatic 2013. Following the discovery of a £1.5bn capital hole in 2013 and the separation of the Co-operative Bank, 2014 was a year of reflection.

A number of reports identified management and governance issues. The government announced investigations into the practices of both the Group and the Bank following the collapse of the Project Verde deal to purchase branches from Lloyds, and members of the Co-operative Group voted for reform in an effort to turn the organisation around.

The Co-op Group reports

APRIL
Sir Christopher Kelly: “The Bank ignored the limitations imposed by its size, its talent pool and, arguably, its location … The severity of the problem was magnified by failures of management, lack of capability, a fallible culture and weak governance.”

MAY
Lord Myners: “There is no short cut to recovery … It will require retrenchment and some painful choices. Financial health can only be restored through step-by-step rebuilding of the Group’s profitability and repayment of its excessive debt.”

OCTOBER
Treasury Select Committee: “It is not uncommon for deals to collapse. But in this case it was caused by the near collapse of the Co-operative Bank. Each of the backstops {…} failed to uncover the bank’s capital shortfall until it was too late.”

What else happened?

MARCH: Co-operative Enterprise Hub suspends operations

JULY: Co-operative Group sells pharmacy division for £620m

AUGUST: Co-operative Group reform proposals receive member approval

AUGUST: Co-operative Farms sells for £249m to charitable trust

SEPTEMBER: Co-operative Group sells off security arm for £41.5m

SEPTEMBER: Co-operative Bank can keep its co-op name, says Co-operatives UK

REACTION

“There have been many low points this year – the headlines have made painful reading for every co-operator,” reflects Ursula Lidbetter, chair of the Co-operative Group and chief executive of Lincolnshire Co-operative. “Co-ops were born from adversity and it was heartening to see us work together with real determination to find a way through.”

Ed Mayo, secretary general of Co-operatives UK, said: “The Group’s much-publicised woes hit the sector hard. Trust in co-ops did take a dent, and what happened at the Group certainly affected a number of our members – and put others off from wanting to be readily associated with the co-operative model of business.”

Jo Bird from Co-operative Business Consultants, who was one of the organisers behind the series of Ways Forward conferences held throughout the year to address the Group’s crisis, was disappointed with the loss of assets. Other lowlights, she added, “were the vote by regional boards in favour of rules “that are inconsistent with co-op principles”; Co-operatives UK “endorsing the Bank using Co-operative in its name, thereby undermining the co-op identity” and the end of the Enterprise Hub.

Sarah Deas, chief executive of Co-operative Development Scotland, said: “The troubles of the Group are clearly the lowlight. We can only hope that lessons have been learned and there is a more positive future.”

Abcul chief executive Mark Lyonette was disappointed by events at the Bank. He said: “Frustration has been the continuing negativity from some quarters towards the co-operative movement in light of the problems at the Co-operative Bank. When attempts are made to blame the co-operative model itself for the difficulties – in a way that never happens when for-profit enterprises run into trouble – we should never be shy about defending co-operatives and pointing to the movement’s successes.”

“The suspension of the Co-operative Enterprise Hub impacted on many communities seeking co-operative solutions,” said Peter Couchman, chief executive of the Plunkett Foundation. He said that the reputation of co-operatives had been hit by the events at the Group. “The lowlight has been the challenge of putting the co-operative message across in a positive way when the actions of one co-op have done so much to damage the reputation on the movement,” he added.

Sean Farmelo, founder of the Students for Co-operation network, says that 2014 is summed up by “divergence.” On the one hand, he saw “a fresh, fast-moving expansion in the student co-op movement” and, on the other, “the catastrophic climax of the destruction of the Co-operative Group being wrought by corporate capture and expansion-based management strategies”.