When I was a child growing up in Truro, Cornwall, my mother told me that I should always try to spend my pocket money in the Co-op in Kenwyn Street.

When I was a child growing up in Truro, Cornwall, my mother told me that I should always try to spend my pocket money in the Co-op in Kenwyn Street.

I asked her why. She told me “Because they are different from the other shops. We own the Co-op. It’s for people like us.” I found this difficult to comprehend given our straitened circumstances, but I have never forgotten the message.

I am a strong believer in co-operative ownership, the benefits it can deliver to individuals, the broader community activities it can support and the social goals for which it stands. I fully recognise the enormous strengths of the co-operative movement around the world. Co-operatives are a significant part of the global economy.

That is why I care deeply about the future prospects for The Co-operative Group. My aim in carrying out this Review of the Group’s governance has been to develop recommendations that will strengthen its ability to recover from the traumatic shocks it has suffered over the last year and help position it for renewed success.

The co-operative ownership model can – and often does – deliver powerful economic advantages. But its superiority over other forms of ownership is not inevitable and guaranteed. For a consumer co-operative, such as the Group, its advantages have to be earned, day by day, through delivering outstanding service and value for money to customers who, especially in food retailing, have plenty of choice where to spend their money.

The implication for the Co-operative Group is straightforward. It needs to have a compelling strategy supported by tightly disciplined financial management. The catastrophic losses that have arisen over recent years are the direct result of a failure to put these in place.

I want to stress the importance of financial management because every member should understand its significance. The Group, like other co-operatives, depends for its equity on the surpluses that it earns from its operations each year. It is these retained earnings that it needs for investment in future growth but also for the repayment of the massive debt that it has run up in recent years.

It is only after these priorities are safely assured that it can consider dividends to members and a larger allocation to its social goals. The Group cannot raise equity from the capital markets. 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. Financial health can only be restored through steady, step by step, rebuilding of the Group’s profitability and repayment of its excessive debt.

I have felt the need to set this all out in stark terms because it is directly relevant to this Governance Review. All of the issues I have described above are primary responsibilities of the Group Board.

It is the directors who are accountable to the entire membership for discharging their responsibilities with proper care, with skill and with serious effort. Their competence in providing constructive challenge, guidance and support to the Executive team is the essential foundation for future success. But such competence has been sorely lacking. Indeed, as yet no director has felt obliged to speak up for their own contribution to failure.

It should hardly need stating that all of these issues are also of the utmost importance to the Group’s 90,000 employees and its pension scheme members. That is why governance, while it may seem just a technical subject is, in reality, a matter of high significance.

This is the context for the recommendations I set out in the following pages. My task has been to develop a set of practical reforms that will protect the Group from the deplorable governance failures that have been exposed over the last year. The proposals that I am putting forward

involve radical change to current practices. But it is these current practices that have led directly to the near-collapse of the Group.

I want to assure all members that the reforms I have set out are fully compatible with the core values and principles of co-operative ownership. I have no interest in advocating the adoption of a plc model, as some of my critics have claimed. But I do want to see a governance structure that works; the present one has lamentably failed.

The details of my proposed reforms are set out fully in the Review. I would just like to highlight three particular features. The first is the need to put in place a Group Board that possesses the skills and experience, as well as the commitment to co-operative values, that will enable it to match in quality the boards of its primary competitors.

The second is the creation of a new National Membership Council, to provide a powerful representative forum of elected members for holding the Group Board and Executive to account, and for acting as the guardian of co-operative values.

The third core element of my proposed reforms is the extension of full membership rights to all Individual Members, consistent with the fundamental co-operative principle of ‘one member, one vote’ and substantially increasing the scope for genuine participatory democracy.

Some people may have expected me to water down my proposed reforms. They may have felt that my Interim Report was no more than an opening shot. That could not be farther from the truth. I committed to giving the membership a full diagnosis and the best possible objective and independent advice, much as a doctor would diagnose a patient. It would be completely irresponsible to change my diagnosis because the prescription is unpalatable, and hard for some elected members to accept. I would then no longer be prescribing the best solution for the organisation.

I am well aware that my proposals face intense resistance. As this Review has proceeded, I have taken the opportunity to look at the outcome of earlier reform initiatives, notably the Co-operative Independent Commission of 1958, chaired by Hugh Gaitskell and largely written by Anthony Crosland.

This was a comprehensive, penetrating account of the challenges faced by the Movement as it tried to respond to the competitive threats of the multiple retailers. Yet despite the accuracy of the diagnosis, and despite Gaitskell’s plea, “Don’t defer, and defer and defer”, its proposals were largely kicked into touch.

Why was the Movement so resistant to change at that time, and what accounts for the present degree of resistance, given that on each occasion the evidence of failure has been stark?

Two explanations are apparent. The first is that co-operative ownership, when it reaches the scale and complexity of the current Group, creates deep tensions. There is tension in determining the appropriate boundary between democracy and professionalism; there is tension between local or regional autonomy and central direction; and there is tension in resolving the respective interests of activist members and ‘shopping members’.

For good reason, resolving these tensions is not easy. Nevertheless, that is what I have sought to achieve in this Review.

The second explanation is more disturbing. It is that the resistance of traditionalists owes much to the culture of entitlement that has grown up within a very small but highly active proportion of the membership. This has undoubtedly created strong vested interests and a reluctance to rethink existing ways of doing things.

In this Review I draw attention to the harmful effect this has had on the culture of governance within the Group. In particular, I have myself witnessed repeated instances where there has been denial of responsibility, corrosive suspicion, deliberate delay and a practice of hiding behind “values” in order to deflect or stifle criticism and protect self-interest. It was the combination of these factors, when discussing the approval of this year’s accounts, that obliged me to resign as a director of the Group after only four months.

Despite the current difficulties it faces, and even if the road to recovery is long and hard, the Group retains the potential to emerge once again as a thriving example of co-operation. While I deeply regret the departure of former chief executive, Euan Sutherland, who did so much to rescue the Group last year, he had already assembled a strong Executive team and had begun to map out some highly innovative strategies for reconnecting with members and transforming the Group’s effectiveness.

I know that the current Executive is pressing ahead fast with this work, under Richard Pennycook’s able leadership. My hope is that as this vision for the future emerges it will once again inspire members, customers and colleagues. The prize is clear: a transformed organisation with a compelling mission that meets the needs of today and tomorrow; a purpose-led organisation defined by the power of reciprocity and mutual advantage; and a refreshed appeal to members, championing the interests of local communities.

I have no doubt that the Co-operative Group can over the next five years reverse a decline that started over fifty years ago. But I am less confident that it will choose to do so. Much will depend on the small number of “elected democrats”, less than one in 10,000 of the Group’s entire membership.

Will they put their self-interest to one side for the greater good, acknowledging the collective failure of the current Board and the crippling deficiencies of the entire governance system? Much will depend on what happens in Manchester at the Annual General Meeting and Special General Meeting on Saturday, 17th May.

I have no way of reaching an informed view on the likely outcome of the vote but in the event that the vote passes I will be focusing closely on the expressed appetite for reform, and the messages sent to the Board about the necessary pace of change.

In recent months I have had many meetings with members at all levels within the Group’s elected hierarchy. I would say that the Group Board and many on the Regional Boards are still stuck in denial over this near ruinous failure of governance, whereas the vast majority of ordinary members feel justified anger. Radical decisions on governance structure need to be taken very soon – and with resolution – if the Co-op, as my mother knew it, is to be saved.

The decision lies in the hands of the elected democrats. I have done all I can do.

  • Taken from Lord Myners’ Independent Review of Governance at the Co-operative Group