Saturday, 10 May 2014

The Co-Op is in big trouble and needs to take the doctors medicine

The Myners Report into the Co-operative Group has been published this week
The situation is not good. Following the discovery of a £1.5 billion black hole in their finances, followed by the Paul Flowers ‘crystal Methodist’ scandal, the Co-op commissioned the former City Minister Paul Myners to look into the group’s problems and put together a restructuring plan to make it sustainable and properly governed. The Spectator has done a list of the 5 key things you need to know from the 180-page report:

1. The Co-op group is still ‘manifestly dysfunctional’
Lord Myners is not impressed with the current state of the Co-op Group and warns it needs to radically change ‘soon’ or face breaking up. The report suggests there are still ‘deplorable governance failures’ and that the board is ‘still stuck in denial over this near ruinous failure of governance’. The scale of the change required to reshape the group is significant and throughout the report, Myners hints he isn’t confident the group will accept the speed and scale of reshaping necessary.

2. A smaller board should be adopted
The report states that the current board of the Co-op group is ‘not competent’ to perform the duties expected of it and there is ‘limited shared purpose among group board directors’. Myners blamed the board directly for the group’s troubles:
‘It is one of the great national business calamities and it is being led by a board totally unable – because of a lack of experience – to hold them to account’.
To replace the current bottom-up structure — the Co-op has 48 area committees with ~10 members, who in turn elect seven regional boards with 15+ members — Myners proposes a board with six or seven independent directors, two executives as well as a separate National Membership Council, to body to handle the concerns of members.
3. There should be a greater focus on being profitable
The group presently appears to have polarising priorities. As one anonymous shareholder told Myners:
‘Some want a dividend, some want low prices, some want to do social good and some want free range chickens.’

Obviously, the Co-op is a cooperative, which is not necessarily designed to maximise profit. But the report argues that the future safety of organisation’s financial health ‘can only be restored through steady, step by step, rebuilding of the Group’s profitability and repayment of its excessive debt’.

4. There is no easy route to fixing the group
With 90,000 employees and 600 elected members, the group has a lot of stakeholders shouting their concerns, including many with distinct ideas about how the group should change. In his summary, Lord Myners warns:
‘There is no short cut to recovery from its present weakened state. It will require retrenchment and some painful choices. After 150 years of development, and an extended period of financial decline, the organisation has seen more than half of its net assets wiped out in the past five years’

5. Shareholders will decide whether to back the reforms on 17 May

For my part I wish the Co-Op well. I am huge fan. But it has been run terribly for some time. There is a massive place for Mutuals, Building Societies, Co-Operatives and Credit Unions as the banks head away from the High Street in particular. But the Co-op is not helping would be applicants or the publics trust by not taking the medicine.