The latest chapter in the crisis at the Co-operative Group threatens to overwhelm the mutually owned business and is indicative of how troubles in its financial arm are having profound consequences for the future of the Co-op’s operations, notably retail.

The latest chapter in the crisis at the Co-operative Group threatens to overwhelm the mutually owned business and is indicative of how troubles in its financial arm are having profound consequences for the future of the Co-op’s operations, notably retail.

The allegations of drug taking levelled at Paul Flowers, who was chairman of the bank between 2010 and 2013,
are compounding fears that the ongoing scandal and difficulties in the financial services division will damage the wider business’ ethical position and its commercial performance.

With the Co-op’s food arm battling to stay competitive, it can ill-afford to concede any advantage from its ethical heritage. Furthermore, the group will not hand out its pre-Christmas dividend as a consequence of the losses at the bank and that will harm relations with members and potentially hit sales.

But, despite the incendiary nature of Flowers’ personal life, it is difficult to separate the shortcomings of the system under which he flourished at the Co-op from the scandal surrounding his vices.

A “root and branch” review of the group’s democratic structure has been the board’s response. As the success of the John Lewis Partnership suggests, alternative structures to those typical of UK PLC are more relevant now after years of global financial turmoil than they have ever been.

But there is much about the Co-op’s current structure that fails to meet the needs of a well-functioning, modern business as well as elements that would be unrecognisable to other organisations - such as the fact chief executive Euan Sutherland does not sit on the group’s board.

The review must find a way to marry corporate governance with the Co-op’s values. That heritage will only continue to be a strength if management can modernise the other principles upon which the Co-op is run, from operational excellence to meritocratic-based leadership.