Strategy & Operations » Governance » Squaring the circle for mutual benefit

IT HAS NOT been a great few months for the Co-op board, let’s be honest.

The hitherto bastion of corporate citizenship and standard-bearer for the mutual movement, reported record £2.5bn losses, details of which followed hot on the heels of the departure of Paul Flowers.

So how has this long-standing vanguard of co-operative principles ended up pretty much on its knees, and can its co-operative values and principles still be practiced within a hard-nosed, commercial framework which some members clearly wish to fight shy of?

Lord Myners’ review into governance at the group clearly identifies a number of failings by the board.

The board is accused of hiding behind a façade of control while severe weaknesses in its structure created weak governance and strategic misjudgements. It singularly failed to scrutinise management decisions as good governance demands.

Fundamentally, the group’s 20 directors – something of a full payload – proved too inexperienced and lacked the skills to promote the company’s financial success.

There was, for example, the “value-destructive” takeover of Somerfield and Brittania, which entirely absorbed the board’s attention leaving far too little time to devote to overseeing management performance.

Regrettably, none of this came to light earlier because no one, either externally or internally, held the board to account. Co-op’s members were hamstrung where shareholders would have been able to speak out.

What is clearly now needed is a professional board to run the organisation without compromising the Co-op’s values and principles. And as Lord Myners has shown, the two are, or can be compatible if not entirely sympathetic bedfellows.

His vision is that of a much smaller board with an independent chair and both executive and non-executive directors. Crucially, all the directors would be recruited primarily on the basis of having the relevant skills and qualifications needed to run the Group, but they would also need to demonstrate they held views consistent with the values of the co-operative movement.

Above the board would be a council representing member’s views, which would also set the vision, mission and values of the organisation. The members’ council would, at last, have significant authority and be able to appoint/annually re-elect the members of the board in accordance with the above.

This has the look and feel of a robust, sustainable response. One that should inject much-needed professionalism into the boardroom while also including checks and balances to ensure greater accountability.

Simply put, the fact that Co-op is run as a mutual should not in any way impact on boardroom efficacy, nor should it imply that directors are any less skilled than those within shareholder-owned organisations.

Peter Craddock, an independent consultant who holds a part-time role at the FCA and is also an IoD chartered director, believes that the debate about ownership here is “a bit of a red herring”.

He has worked within a number of different ownership structures, including a mutual and a plc. He observes: “Mutuals are required to achieve the same high standards of corporate governance as PLCs or private equity-owned businesses.

“The most important issue for any board is the quality of the individuals that are appointed to sit round the table, and who between them have the right mix of skills, experience and know-how to deliver great results. It’s that blend of talent that determines whether any board is a good forum for decision-making.

“Members should have access to directors, just as shareholders have, through the AGM and regular communication, as well as via a members’ council.”

For validation of these sentiments you only have to look to Nationwide which recently reported a massive hike in first-half profits of 162%, which, it claims, vindicates its mutual model.

So, the idea that the venerated mutual should be consigned to the annals of history as no longer relevant seems more than slightly wide of the mark. Look at the growth in ethical businesses, from internet start-ups to that stalwart John Lewis. There seems little reason why the idea of shared ownership within a professionally-run organisation, backed by values and principles, shouldn’t have its place both on the High Street and the information superhighway.

Dr Roger Barker is director of corporate governance and professional standards at the Institute of Directors