The Myners Report: a response

12 May 2014 | News

Nobody can seriously argue that there have not been very serious failures at the highest level in the oversight, stewardship and management of the Co-operative Group’s affairs.  Nor can it be disputed, in my view, that the Group’s democratic structures and processes are dysfunctional.

Where there is scope for very serious discussion is in how to reform the current constitutional arrangements.

The publication of the Report of the Independent Governance Review by Paul Myners on 7th May, with a Special General Meeting taking place on 17th May, leaves woefully inadequate time to digest this 182 page document which contains much very serious and thoughtful material.  It deserves and needs to be digested if the right decisions are going to be made.

I do not believe that they will be, if voting in favour of the current resolution at next Saturday’s members meeting provides a green light for the implementation of the proposals contained in the Myners review; because I believe that those proposals will result in the society ceasing to be a co-operative owned and controlled by its members.

The central weakness of the current arrangements is that executives (those expected to have the highest levels of skills and competence within the organisation, and exercising supreme executive power) do not sit on the society’s ultimate source of legal power – its board; and those who do populate that board are people elected to represent members, rather than being chosen for their suitability to oversee a very large and complex business.  It doesn’t work; Kelly says so; Myners says so; and it has been said before.

In the search for modernised arrangements, it is inevitable that we should look to those governing the Group’s major competitors and indeed much of the business world – companies.  Inevitable, because the company model dominates the business world; and inevitable because that model is so successful.  But it is successful at doing what it is designed to do, namely maximising the financial return for investors; and for those purposes, a model which entrusts all of the powers of the company to its directors as the agents of shareholders is essentially an efficient approach.

A co-operative has a fundamentally different purpose.  Of course, a co-operative has to be profitable and create value if it is to survive; but its reason for existence is not to maximise the return for investors.  Its purpose is to carry on a successful business, providing customers with access to goods and services, employees with a job, and suppliers with a market, in accordance with some values and principles which have a broader regard for economic, social and cultural well-being.  For these purposes, entrusting all of the powers of the organisation to agents to deliver on behalf of the owners is simply inappropriate.  For me, that is what is wrong with the Myners proposals.

Significant powers DO need to be entrusted to agents so that they can get on and run the business.  But given the more complex aspirations of a co-operative, the owners need to retain some powers in relation to the society’s affairs, which can be exercised through their elected representatives, allowing them to influence how the business is run.  This must result in governance arrangements which are significantly different from a company with its all-powerful board of directors.  If any corporate diversity is to survive and prosper today that difference needs to be clearly enshrined in distinctive ownership and governance arrangements which must be part of the reason why people choose to be customers, employees or suppliers of such an organisation, and it must result in a business plan which is distinctively different from its profit-maximising competitors.  It is only if we decide that we cannot succeed on that basis that we should fold our tent and agree that co-operation no longer works in today’s world.  But we are not at that point.

The current arrangements at the Group result in a chief executive who is inadequately controlled, insufficient independent expertise, and members with an ineffective voice.  I agree with a great deal of what is contained in the Myners Review in terms of analysis), and the material on other models is very helpful.  But there is a disconnect between this and the proposals.  I do not agree with transferring all of the effective legal power to a board of executive and non-executive directors, and leaving members and their representatives with no real legal power.  This will result in loss of co-operative identity, loss of member interest and engagement, and the loss of any effective alternative ownership and business model on the high street.

At the very least, members’ representatives should be involved in agreeing future strategy and plans, monitoring the board’s delivery of strategy and plans and holding them account for their performance.  “Holding to account” means the power to congratulate, correct or replace, and this is a role which needs to be undertaken by those holding some position of authority and owing some duties.  Short of that, members will have handed over control which they will never recover.

My greatest concern with the Myners proposals, however, relates to the process by which constitutional reform is being approached.  Of course there is a need to make changes on a relatively short time-table, but a “take it or leave it” approach, and plunging into an unprecedented solution without serious thought about the consequences of how it will work in practice, is a bad mistake.

There is clearly an opportunity for serious reform, and the price of getting it right or wrong is the survival of the Group as a co-operative.  But the solution is more likely to be right if it is sought in a respectful and co-operative way, under calm leadership, and building on the valuable analysis in the Myners report, rather than adopting its current proposals.

If that is what the resolution on Saturday is intended to provide, then this should be clearly stated and it should be supported.  But those voting on Saturday need to understand clearly what they are voting for.