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Blog : BOARD TALK

Co-op: A Crisis of identity In A #Social Media World

Posted on March 14, 2014 at 8:45 PM

Euan Sutherland, Chief Executive of the Co-operative, was frustrated enough this week ) to exit after 10 months in his role at the 170 year old mutual group calling it “ungovernable.”


The dramatic nature of events, compounded by the emotional language of their unfurling, makes it clear that this is a business suffering from a dual crisis: it is unsure of its raison d’etre as a whole, and that has made both its internal and external communication a disaster of late. Its attempts to launch itself full face into a new world of social media communication while under difficult circumstances were the final straw.


Mr Sutherland has been on Twitter, using the hashtag #haveyoursay to try and reach out to find what Co-op members wanted, going forward. The group also has a Facebook page – and it is this to which the CEO unfortunately resorted when details of his £6.6m pay packet were leaked to the media and published in The Observer newspaper.


“We appear to have disaffected people who are determined to make life difficult and embarassing for the Co-operative at a time when what we need most are professionalism and loyalty to the business” he said, launching a strong attack on “an individual or individuals” who were attempting to undermine him in a posting.


Having done this, he sent in his resignation, saying “The Group must reduce its significant debt and drive major efficiencies and growth in all of its businesses, but to do so also urgently needs fundamental governance reform and a revitalised membership.” Mr Sutherland added: “I will not accept the retention payments and long term incentive payments previously agreed for the delivery and protection of value in the Group and the Bank, even though this was successfully delivered.”


But he will still have been paid £2m for 2013, which includes £1m for buying him out of incentive deals at his previous employer.  He may well also receive all of his £1.5m salary for 2014, although we are only in March. From his point of view, he has walked away at little cost. For the Co-Op, his legacy has been to further expose a serious vacuum in its corporate governance.


This is despite the best efforts of Lord Myners, who, as Senior Independent Director, has been conducting a review which is due to be completed next month (eds-April). Any changes will still need to be agreed upon by the Group’s members at the AGM on May 17th. For the moment, Richard Pennycook, Chief Financial Officer, has been appointed Interim Chief Executive.


There are multiple problems facing the Co-Operative Group as a whole, not least the reputational damage already suffered by the many revelations around Rev Paul Flowers, the ex-chairman of Co-Operative Bank. The revelations point to a boardroom asleep on the job, and raise grave questions about the broader value of boardroom evaluation as it stands.


Last year the recapitalisation of Co-Op Bank meant that the Group was left with a 30% stake in the bank – 70% went to institutional bond holders in return for their debt. Niall Booker, CEO of Co-Op Bank, has said it needs to pay “market prices” to attract and retain staff given the extent of the retsucturing still needed to fix its problems.


He is expected to decide soon whether to ask shareholders for bonus levels higher than 100% of salary, as demanded by new EU rules. For a mututally owned group whose businesses sprawl from farm to funeral homes and commercial stores, it will be another crunch point. In the first half of 2013, the Co-operative bank reported a £709m loss.


The average person on the street, whom the Group board may well reflect – has had enough of bonuses for poor performance, and may well be disinclined to make an exception for bankers.


The Co-Operative Group’s dilemma going forward is one that lurks for all businesses in 2014. It is about defining  their purpose of being while working out how to balance the pursuit of profit with their place in society.


This includes careful consideration of the link between incentives and behaviour. For a business with mutuality at its heart and containing such disparate businesses including a bank , it is perhaps unsurprising that the underlying issues have blown up into something of a firestorm. Ursula Lidbetter, chair of the Co-operative Group, has said she will now start the process to appoint a permanent successor “and urgently reform our governance." With 7.8m members, there will be a lot of eyes watching.


But what is this ? Lord Myners, it seems, has not wasted any time on negative scenarios. The first stage of his governance report has now been rushed out as the Co-op fails.  It's a complicated plan hoping to allow for 'true democracy' for the members of the group through voting powers, while also allowing a dual board system. 


'Change or die' is the message suggested in the media coverage above of Lord Myner's initiative.


But it remains to be seen if anyone who feels a personal involvement with the Co-operative Group is really listening.Only genuinely better communication can begin to win the day in a long battle here.



Categories: Governance, Chairmen, Scrutiny