The Co-op clears a hurdle

No one knew which way The Co-operative Group’s crucial vote on governance reform would go ahead of the society’s special general meeting on Saturday.

Following weeks of debate that saw those affected come out both for and against reform, a Co-op insider told The Grocer last week it was impossible to predict the outcome. And on the morning of the meeting, the Daily Mail ran a story predicting the four-point resolution would be rejected and the Financial Times warned of “strong resistance”.

But in the end, the elected members who attended the sgm, held in the atrium of the society’s new One Angel Square HQ in Manchester, voted unanimously in favour. The four-point resolution needed a two-thirds majority to be passed, but received 100% backing.

Chair Ursula Lidbetter and interim CEO Richard Pennycook left the meeting as soon as the vote had taken place to announce the result to journalists waiting in a basement room downstairs. As they entered, it was clear the vote had been passed from their smiles – they both looked like a huge burden had finally been removed from their shoulders.

Both had made impassioned pleas to members at the agm held immediately before the sgm.

In a speech that pulled no punches, Pennycook laid bare the problems facing the society – warning the banks were watching and that its massive £1.4bn debt had cost the society £100m in interest payments last year.

“Until we have addressed our governance issues and our debt situation we cannot hope to rebuild our business or renew it for the long term,” he had told delegates.

“We have been financially weakened and I need everyone in this room to have a firm understanding of the state we are in right now and the implications that has for implementing our future plans and our new purpose. More than half of the wealth of the society built up over 150 years was blown away in the last four years. No business is sustainable with this amount of drain on its resources.”

And he added: “The reform of our governance has to be the number-one priority. We have been through the toughest time that any business can imagine. We have a chance to put things right. I doubt we will get a second chance if we miss this opportunity.”

Lidbetter’s speech had been equally hard-hitting.

“We have to recognise that there has been a catastrophic failure of governance,” she said.

“It’s natural not to want to face up to bad news. There are recognised emotional stages that people go through. First there is shock and denial, then comes anger and blame, and then finally understanding and acceptance of what needs to happen. We have been shocked. We do feel angry. Now we need to understand.

“I recognise that the process we have gone through so far on reform has not been ideal. We have certainly not been helped by the serious crisis caused by board leaks and resignations. But there is a need for urgency about what we must do next. We cannot endlessly debate this – our customers, our members, our employees, are demanding we set our house in order.”

A ‘yes’ vote is a burden off Pennycook and Lidbetter’s shoulders, but it is just the start of a long and potentially complicated process on the road to governance reform.

Lidbetter told journalists that journey would start “as soon as possible”. It has already set up a sub-committee to take forward the principles and work on the detail of a new rule book for the society. Yesterday, it held a regional boards conference dedicated to governance reform and next week an extra group board meeting will be held where a detailed timetable will be set out.

Lidbetter added that some of the work would be able to be start straight away, but other aspects could be complicated and would require rule changes.

The vote will eventually see a new group board put in place that “is individually and collectively qualified to lead an organisation of the size and complexity of The Co-op Group”. Based on Lord Paul Myners’ review, this would take the form of an independent director as chair, around seven professional directors and two executives.

Indie societies will also no longer have representation on the board, and Lidbetter, who is also CEO of Lincolnshire Co-op, confirmed she would therefore be stepping down when the new structure is in place. “I will stay as long as needed and not a day longer,” she promised.

It will also see a new structure that will give members powers to hold the new board to account, and a move to ‘one member one vote’. Currently, members are elected at a regional level who then vote on behalf of the members in that region. ‘One member one vote’, Pennycook said, was a “fundamental principle” that he hoped would be up and running by next year’s agm.

The key now is for The Co-op to crack on with reform. Myners has already warned the society must not be side-tracked by discussion and negotiation, and as Pennycook warned in his agm speech, it’s not only the banks who are watching – it’s regulators, suppliers, landlords, colleagues and members too.

The society cleared one major hurdle on Saturday, but there are going to be many more on the path to governance reform. Decisions need to be made quickly to ensure the society not only survives, but thrives, for another 150 years.