It seems that Co-operative Group Board meetings may have been a little too much like tea and cake with the Vicar for an elite group of devotees to listen to and support the ideas put forward in a relaxed environment. In the same week that ex Chairman and Methodist Minister Paul Flowers admitted drug possession, Lord Myners found in his report on the decision making process at Co-op Group:
Effective governance requires a high performing board. The composition of the Co-operative Board, and the limited pool from which its members were drawn, made a serious governance failure almost inevitable.
He goes on to say:
It places individuals who do not possess the requisite skills and experience into positions where their lack of understanding prevents them from exercising the necessary oversight of the Executive.
In a Corporate setting governance is usually taken as the process whereby the interests of current shareholders are protected and a strategy for value growth is agreed. The London Stock Exchange in its report The development of the UK Corporate governance regime lists a number of key criteria for good governance that are not present in the Co-op structure. The report states the critical nature of Board balance and size: The board must not be so large as to prevent efficient operation. A company should have at least two independent non-executive directors (one of whom may be the chairman, provided he or she was deemed independent at the time of appointment) and the board should not be dominated by one person or a group of people. Furthermore it details, Board skills and capabilities: The board must have an appropriate balance of functional and sector skills and experience in order to make the key decisions expected of it and to plan for the future. For larger companies it suggests at least 50% of the Board are qualified non-executives.
The Co-operative Board of 21 contains only 1 non-executive Director and comprises mainly regional representatives whose skills range from a retired publisher and telecoms engineer to a self employed plaster.
So how did this situation arise in a diversified organization that is 170 years old which has flourished and grown across times of great change including two world wars and sits at the heart of many local communities. In 2006 its was voted the UK’s most trusted retailer.
Given its own statements that “ we are in business to serve them (our customers) and their communities, and our business is run for their benefit. We listen to member opinions and integrate these into our business activities and our social and campaigning agenda”, good governance should have been at its heart.
Perhaps the key lies in another statement from the Stock exchange report that the governance framework should be reviewed against the company’s stage in its life cycle, its sizeand its geographical reach. It seems that the proposed takeovers of Somerfield and Britannia in 2009 pushed the scale of the Co-op to a point where its governance needed change if failure was to be avoided. Challenge was required about the levels of debt and risk in the business and the regional representatives simply didn’t have the experience to understand those issues. Last month, the Co-op Group reported losses of £2.5bn for 2013, the worst results in its history.
A cautionary tale or modern business fable in the making? I sincerely hope that the arrogance and backward thinking that Myners experienced in his investigation abates and that the decision makers accept his proposed reforms. It is simply unquestionable that the unqualified can continue to have the level of influence over such a large company. If these reforms are not adopted not only will the business suffer but the wider co-operative business model will also have it’s reputation tarnished.