Wednesday, 19 March 2014

Myners briefing on Governance at the Co-op - working class barred from the Board?

Wolf - step away from the door...
A corporate governance story that will echo in the eternity of MBA classes for years to come, the unravelling of the UK's Co-operative Group from the benign grocer-cum-divvy machine into a ying and yang shotgun conglomerate of opposites is proving to be a watershed moment for UK plc, with stakeholders attempting to balance myriad legal, political and ideological considerations in order to both keep the wolf from the door, and preserve the principle of mutuality for its membership.

There are no surprises that the crux of the Group's issues lies in its banking arm, nor that being acquisitive during the financial crisis (here, here and here) has proven to be poor strategy. Keeping the wolf from the door has therefore largely been delivered through the tried and tested combination of begging and borrowing, which the recently departed CEO appears to have delivered with some aplomb.

Governance structures
- choices choices...
However, the Group's hiring of Paul Myners back in December, a man with an extensive collection of t-shirts and hats, to independently review its governance arrangements, seems likely to deliver to the membership a menu of choices as unpalatable as a Sunday skip-dip.

Lord Myners has hurriedly delivered a briefing on his findings to-date, as well as performed some mainstream media duties (here and here), following the Group CEO's resignation last week. This early sighter was seemingly unscheduled, but the manner of the CEO's departure ("a tragedy" in Myners' words) meant that his findings to-date could not wait until May for its full publication date.

Myners has therefore naturally delivered a ruthless and scathing take-down of the governance structure and processes within the Co-operative, while calling out the Board member who are clearly well schooled in how to game the system, as well as the playground tactics/rabbit-in-a-hat tricks that turn "one-man-one-vote" into "one hundred men-all votes"!

Killer quotes
  • The group endures a significant "democratic deficit"
  • The future of my recommendations lies in the hands of around 100 elected individuals on the current Group and Regional boards, few of whom have any serious business experience and many of whom are drawing material financial benefits from their positions
  • There is a phrase frequently used in Co-operative Group circles that the Executive should be "on tap but not on top"
  • ...the Group Board has spent far too much time on transactions such as Somerfield and Britannia which have been breathtakingly value-destructive
  • The "exceptional skill and tireless efforts" of the Executive team are cited as the reason for the Group's survival in its current form
  • The current governance framework is variously referred to as "flawed", suffering from "acute systemic weaknesses" and having "consistently produced governors without the necessary qualifications and experience to provide effective Board leadership". Ouch...
  • That the Groups social goals are not aligned with its strategic and commercial objectives. This is of course less of a worry for its financial services competitors.
  • The the Group's "massive scale and complexity" means that a man-off-the-street approach to electing Board members, which may be sufficient for a farmer/grocer co-op, is not suitable.
  • Shatters the "myth" that the Group has always been run by lay members, as opposed to those with commercial experience.
  • The thought of creating a board of INEDs and lay members is disregarded due to the potential for creating "second-class citizenship"
  • Highlights that Co-op's core business of groceries is savagely competitive at the moment (just look at Morrison's and Sainsbury's), so continued ineffective governance could be devastating
  • Notes that there have been previously (disregarded) reviews of its governance architecture, which is "long known for its labyrinthine complexity and its disfunctionality"
  • Stresses that, due to the current voting structure, acceptance of  his recommendations "...potentially lie[s] in the hands of fewer than 50 elected members". It sounds like they haven't been shy to remind him of that either!
  • Halve the size of the Group Board, which will be subject to annual re-election
  • Independent Chair, with no previous association with Co-op
  • 6-7 INEDs and 2 Executive Directors
  • All with qualifications of a similar ilk to its (listed) competitors
  • Create a National Membership Council (NMC), with a 12-person executive committee to effectively represent the membership and co-operative principles and values
  • The Board to be subject to scrutiny by the NMC, who have the right to be consulted on "key strategic and operational intiatives"
  • "Arrangements" to be made to safeguard the confidentiality of information shared between the Board and the NMC (certainly not the case with current arrangements!)
The entire document feels drenched in class warfare and spectrum politics. That rather hideous take from the existing Board on their executive team ("on tap, but not on top") feels like the inspiration of Myners' recommendation for a professionalised, appointed Board, rather than the beer and sandwich brigade which currently exists.

That said, there is thought on the left-wing (here and here) who feel that mutuality and co-operation should remain unsullied by the commercial world, who remain unable to affect much in the way of democratic change in Boardrooms even after the raft of FRC-sponsored guidance released over the last couple of years (though PIRC are trying!). Is one failed attempt to democratise stakeholders best replaced by cherry-picking from a similarly deficient model?

On the basis that I have banged the drum for background diversity in Boardrooms (not just gender or race), and the existing Co-op Board is "diverse" in that respect, I'm left to wonder if I've been barking up the wrong tree. The Board delivered by their existing process is neither fit nor proper, and are able to outmanouevre their executive compatriots armed with little more than a working knowledge of provincial politics and a polyester suit.

Should we therefore use the grey-area of "fit and proper" regulation to ban the contract plasterers, nurses and retired publishers of the world from financial service provider Boardrooms on the basis that they don't have an MBA, and count with their fingers? Or can one make a valid contribution to a financial services Board of directors regardless of the colour of their collar?

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