Co-operative Group Governance: Getting it right, by Cliff Mills

19 April 2014 | News


If this was not already beyond doubt, the results just published demonstrate that this is an extremely challenging time for the Co-operative Group. In such circumstances it is important that there is some clarity for those having to make difficult decisions over the coming weeks and months. That is the context in which the following views are put forward.

If the current ideas put forward by the Myners Review are accepted next month, the Co-operative Group will set out on a pathway by which it will cease to be a co-operative owned and controlled by its members.

The current ideas are based on (1) a democratic body elected by and from members, the highlight of whose powers apparently is to commission and publish reports on adherence to co-operative standards and ethics; and (2) a new Board of Directors comprising two executive directors and six or seven independent non-executive directors with full power and responsibility for the operation and management of the society. What is wrong with this?

There is a great muddling, both in the Myners review and in recent mainstream media reporting on the Co-operative Group, of two fundamental elements of co-operative governance; namely the need for appropriately qualified people to be in charge of running the business (“competence”), and the ownership and governance structure of a co-operative which is based on elected representatives (“representativeness”). Both are essential for a successful and sustainable co-operative business.

The Co-operative Group’s current arrangements for securing competence and representativeness are not working and need to be adjusted. A new settlement is needed which meets the needs of the business, but which also preserves and strengthens the representativeness because that is the basis on which it is distinctive from and challenges its privately owned competitors. That “new settlement” requires the support of members and their elected representatives.

The mechanism for members to choose their representatives is a democratic election. That is (or should be) a system designed to arrive at those who are best at representing their peers, who command their support and are trusted to represent their views. The mechanism for choosing those who are best qualified to run a business is selection. That process needs to be carried out by those who owe duties of care, and can be supported by external advice. A so-called “election” by individual members on the basis of choices made by a nominations committee is neither logical nor sensible. It is disingenuous to suggest that by ensuring that all candidates become members, and enabling a huge number of individual members to cast a vote, this results in member control.

Concerns have been expressed, most recently via Unite, that the Myners reforms are the only option as there is no viable plan B. This is clearly untrue. Paul Myners has stated that he is “not in a position to negotiate on my recommendations”. However, it would not be difficult to set out alternative options which would represent a more logical evolution towards better arrangements to secure competence and representativeness – which may well include important elements of the current Myners proposals.

There is one further point to make about the current proposals. Co-operatives have always challenged traditional privately owned businesses. That is where they started, at a time when people were being charged excessive prices, cheated on measures and being sold contaminated food. Today co-operatives need to challenge a whole way of trading, which makes rewarding investor-owners the priority, provides no constitutional voice for employees or customers, and pays scant regard for wider social and environmental consequences. It is that method of trading – via PLCs – that drives many in the co-operative movement to passionately support the principle of a co-operative way of trading.

To people like that (which includes me), the Myners proposals put forward something which seems close to a PLC model, because of the powers and composition of the board, and because of its lack of real accountability (i.e. the possibility of removal) to members and members’ representatives. It seems somewhat intemperate to accuse people who hold such views of deliberate deception. Many in the co-operative movement are horrified at the terrible mistakes made by PLCs over recent years, in spite of the evolution of PLC governance from Cadbury to the UK Corporate Governance Code and in particular its increased requirements for competent independent non-executive directors. It is not surprising that the Regional Boards – which include employee representation – are said to be unhappy with the current proposals.

Governance continually evolves – for PLCs, in the public sector, and in the mutual and co-operative world. It must constantly adapt to changing circumstances. But new governance arrangements cannot be imposed on the Co-operative Group, and that is effectively what is happening via the current process. It is a high risk strategy, and hardly surprising that it is causing such concerns amongst employees. It is essential in taking forward reforms to the Co-operative Group to move to new arrangements which dispassionately use modern features of governance which are appropriate for a co-operative, which can command the support of those who have to vote for them, and which provide a sound basis on which to provide an effective alternative for customers.

Cliff Mills, Principal Associate, specialist in mutual governance and joint author of the Blueprint for a Co-operative Decade