Nick Eyre: The Co-operative Group: The risk of a management-led oligarchy

14 July 2014 | News

The Co-operative Group with its ground breaking history is in the middle of a root and branch constitutional review. Not only those involved  in the Co-operative sector, but all who value the present diversity of ownership models in the UK economy should regard the success of this review as  important .

The wider mutual sector includes The John Lewis Partnership, in essence a workers Co-op, and the Nationwide (formerly the Co-operative Building Society) and sundry Friendly Societies .None have the reforming history or community roots of the Co-operative Group which proudly sits at the heart of a Co-operative sector that until recently was regarded by the public with huge affection.

The present problems of the Group stem essentially from a catastrophic failure of management following the appointment of Peter Marks as chief executive in 2007. While Sir Christopher Kelly in his report into the Group’s former subsidiary, the Co-operative Bank highlights management failures, Lord Myners, in his report chooses to focus almost exclusively on the failure of the Group Board to control (incompetent management).  Myners is right to highlight that the Board, poorly led by weak Chairs during this period, proved itself ”unfit for purpose” and that significant governance changes must  follow. Nevertheless, it is important not to lose sight of the fact that the disastrous decisions made flowed primarily from unchecked management.

Paul Myners, with his “megaphone” approach, which must surely have done damage to the Group’s ongoing business, thankfully has now moved on to greater things. However, I question whether the latest management team, with apparent ignorance of the sector and little or no empathy for it are the right people to deliver the necessary constitutional reform. In particular, whether the current proposals do not simply institutionalise the problem that needs addressing i.e.The issue of holding a too powerful management team in check.

So what is going on? The present Group governance structure relies heavily on professional, full- time management and in particular the Group Secretary, to advise a wholly non- executive, essentially lay, Board of Directors. This involves provision of legal, administrative and general support. The Board of Directors, in receipt of this advice and guidance, will then present to the membership for approval, on a take it or leave it basis, a new constitution that is intended to be “fit for purpose”. This model requires a powerful and independent Secretariat if advice isn’t to become simply a presentation of managements wishes. At present the constitutional proposals, apparently being railroaded through, with indecent haste, backed by barely credible threats from the new executive management team, appears to have crossed a line. It lacks contextual understanding of both the Group’s role and that of other societies.

The Group’s present constitution of tiered democracy was designed to reflect the Group’s evolution from manufacturer/wholesaler owned by independent retail societies to retailer/sector co-ordinator in which those same independent retail societies retained important and valuable “ownership” rights. This was at a time when predator protection was at the forefront of mind, coming as it did immediately after the destabilising, unsuccessful, assault on the Co-op by the putative asset stripper Andrew Regan and his city cohorts and when the Building Society movement was being ravaged by “carpet baggers”. This constitution, as has been demonstrated, is no longer appropriate as the then Chair and Board showed themselves incapable of holding a failed management team to account. It is important to remember that it was an over powerful, out of control management team that was the primary problem. Present proposals entailing a board sub-committee made up of management and their appointees to select Directors will see elected members lose the effective ability to hire and fire ( and consequently control) their board. If management and an existing Board take on this power to hire and fire this ceases to be a Co-operative and instead becomes little more than a  self- perpetuating, management led oligarchy. This is certainly not the answer and if it comes to pass then all who cherish the Co-operative and mutual model in a diverse economy might as well pack up and go home.

Nick Eyre was Secretary of the Co-operative Group until 2007 and is a former Chair of Mutuo