Co-op governance concerns revealed back in 1958

All co-op societies should create a clear management structure with unambiguous job specifications and an explicit chain of command.”

That recommendation could be from Lord Paul Myners’ progress update on his The Co-operative Group governance review last month. But it is in fact a recommendation from a The Co-operative Independent Commission Report published in 1958.

Hindsight is always 20/20, but that report makes many points that are as relevant today as they were 56 years ago. So what were those recommendations? And what can The Co-op Group learn from them today?

Governance is a hot topic for The Co-op. Following the Paul Flowers scandal last November, The Co-op appointed Myners as a non-executive director to lead a review into its corporate governance. Currently, the society has a group board of 15 lay members and five CEOs of indie retail societies - but no executive directors. Below that is a food board, a specialist business board and a banking group board.

Myners released a progress report last month after Co-op Group CEO Euan Sutherland left the society claiming it was “ungovernable”. The hard-hitting analysis hasn’t gone down well in the movement. Last week, following criticism from the chairman of Midcounties, the biggest regional co-op, Myners himself quit. The Co-op has since confirmed he will not stand for re-election at its agm next month, but will continue his review.

It could well have some striking parallels with the 1958 report. Although the backdrop of the 1958 review wasn’t as scandalous, The Co-op faced similar problems. The 1958 report looked at the movement as a whole (then made up of 967 retail societies operating 30,000 shops and 250 factories) and was commissioned to address the issue of increasing competition from multiple chains. Co-ops had been slow to adopt new technologies and were failing to attract younger customers. Sounds familiar, doesn’t it, in light of The Co-op’s current investigation into the role online can play in its retail mix and its tie up with the NUS to try and pull in younger shoppers?

Adapting to compete

A whole chapter of the 1958 report was dedicated to ‘co-operative management’ and how societies needed to rethink their democratic structure to be relevant and compete in a fast-changing retail sector.

It found “the standard of management in co-operative retail societies varies from the excellent to the deplorable” and claimed that although “some critics blame all the ills of the co-operative movement on the low calibre of the elected boards of management… the crux of the problem is not the calibre, but the role of the democratically elected board and the relationship between it and the chief officials”.

It went on to say that some boards were little more than “a consumer vigilance committee” that “merely rubber stamp the decisions of their officials”. At the other extreme, there were boards that “attempt in innumerable committee and sub-committee meetings to share the function of detailed management with their officials”.

The report recommended that “management must now be delegated to the specialist officials who are appointed by the board to carry it out and who alone are equipped to do so.” It added: “Good officials need to be trusted to get on with their job, to be granted full responsibility, and to be given their head. If they are constantly being watched over their shoulder and deprived of due authority they will become frustrated and demoralised.”

Plus Ça change, it seems. This last point is echoed in Myners’ report. “It would be inappropriate and premature to proceed with the appointment of a new CEO in view of the risk that while these governance issues remain unresolved, The Co-op Group will be unable to attract applications from best-in-class retail executives,” he contends.

Myners was also highly critical of the group board, which he said had “collectively presided over losses of several billion pounds in the course of the last few years”. His review, he said, needed to “produce a highly competent and qualified group board with non-executive directors who possess the skills and experience to exercise leadership and effective oversight of executive management who are running a business of massive scale and complexity.”

No one knows why the recommendations from the 1958 report weren’t implemented, but commentators believe they should have been. “People should have taken notice of it,” says one senior industry source. “The Co-op could have been in a very different place right now if they had.”

A Co-op Group insider adds: “Almost 60 years on, criticisms that were being raised back then are still being raised. The objective now is to stabilise. You can’t have a board without an executive. There isn’t a company that can be efficient and effective with a board that size. It just becomes a talking shop. I see barely any denial of the need to reform. The question is, what does that look like?”

Myners expresses his own dismay over the inaction. “What is striking about these earlier exercises is the degree to which their recommendations for reform, while compellingly argued, were nevertheless largely dismissed and ignored. This time, such an outcome will create significant risk of the demise of this organisation.”

The message is clear. History cannot repeat itself come 17 May when Myners recommendations will be put to a vote at The Co-op Group’s agm. Reform is needed - and fast.