The Co-operative Group has revealed an independent review will focus on the board structure after the banking arm was hit by a £1.5bn shortfall and was the centre of a drugs scandal involving the former Co-op bank chairman Paul Flowers .

The review, which published terms of reference today, will be in two phases.

Phase one will focus on the development of recommendations for strengthening the board structure, composition, working processes and board policies. The Co-op said there was an “urgent” need to put in place a board structure that provides the right guidance and support to management in a period of “fundamental restructuring” of the business.

A report on this will be published in April.

Phase two, which will be completed by the end of the year, will then focus on recommendations to strengthen links with members and customers of the group and its employees. It will also look at the group’s relationships with affiliated bodies and representative organisations.

Lord Myners, the newly-appointed senior independent director and City veteran, who is leading the independent review, said: “The advantages of mutuality can’t be taken for granted. They have to be earned every day through delivering outstanding value to all our existing members and to our wider customer base. We must also ensure that our employees, too, are fully engaged with our mutual goals and values.

“The review is forward-looking and will complement Sir Christopher Kelly’s examination of events that led to the recent recapitalisation of the Co-op Bank. My recommendations will set out new standards and strengthen the governance of the group in keeping with the best principles and practices of modern mutuality.”

Myners added that it would be taking views from “a wide-range of people and engaging with co-operators”.

He said: “There is a significant prize ahead if the group grasps this opportunity for change. This will call for much greater transparency and individual accountability in the group’s governance arrangements. We must demonstrate the highest levels of integrity to our board leadership and focus the group’s energies in developing a winning customer offer. “

Co-operative Group chair Ursula Lidbetter said: “I look forward to his recommendations on ways to implement best in class structures and working practices fit for the group’s scale and complexity and that will strengthen accountability to its membership and wider stakeholders.”

The Co-op kicked off the root and branch review of the group in November after its former bank chairman and minister in the Methodist church Paul Flowers was arrested over drug allegations in November. It followed problems at the bank which brought it close to collapse. The news shone a spotlight on the group’s ethical credentials and corporate structure.