The Difficult Road to Success
October 2014
Times are tough for the heirs of Rochdale Pioneers! For the past few years, the Co-op Group, with its amazing sign, its eight million members and 100,000 employees, is making headlines in the British news. A series of bad decisions seems to have plunged the cooperative group into an endless nightmare. Several mergers and acquisitions, many ill-advised, - or so they say - seriously compromised its financial health.

"Too big", claimed members, deploring their impotence before the hierarchy erected between the foundation and the head of the movement. A quick glance at the group's democratic infrastructure leads us to believe that members are indeed far from the decision-making process. They elect their delegates within 48 territorial committees, these delegates then elect their own representatives within seven regional boards, who can then elect 15 of the 21 members of the board of directors. An electronic platform was even implemented to allow members to directly share their opinions and comments, but the initiative did not produce the desired results.

Nonetheless, in June 2013 the world toppled over. The board of directors admitted that the company's reserves were basically ₤1.5 million (CAD$2.8 billion) in the red. A new CEO was soon appointed. They also invited Lord Paul Myners, former president of Marks & Spencer and Guardian Media group, to sit on the board as an independent administrator and assigned him special powers to review the group's governance. Then, the year ended with a scandal: The president of the banking branch (The Co-op Bank) had to resign following an affair involving sex and drugs. Annus horribilis.

And it keeps on going and going. In March 2014, the new chief executive officer submitted his resignation stating that the cooperative group was "ungovernable." The straw that broke the camel's back: information leaks led him to believe that total compensation for top level executives was going to double, bringing his own salary to three million pounds (CAD$5.6 million). Clearly, this infuriated members who recalled that at Mondragon (a world reference in cooperation), the nine to one ratio between the highest and lowest paid person was respected and they could still attract good management candidates.

In April, Lord Myners submitted his report on administrative reform. Draconian changes were proposed, such as the implementation of another, more restrained board of directors comprised of ten managers and professionals. Some people elected into their positions, specified Lord Myners, were not qualified to run such a large and complex business.

The report created quite a stir. Lord Myners was accused of ruining the nature of the cooperative group. The entire executive also came under attack: Doubt was cast over the equity of the cooperative (how can they justify millions of dollars a year for their top executive?), the executives had hidden intentions (were they trying to lead the group to demutualization?) as well as the bad recruitment choices (why seek people who don't have a cooperative culture?).

In May, faced with an outcry of protests, Lord Myners resigned from his seat. Gathered together in a general meeting, members unanimously adopted a reform that assigned members greater control over their endeavour, required better skills of their elected board members and added an article to the internal rules of governance that prohibits the group's demutualization. The devil is in the details, however, we'll just have to see how these guiding principles are interpreted.

The latest news is that the Co-op Group only owns 30% of its bank branch (The Co-op Bank) and completely let go of its pharmaceutical (The Co-op Pharmacy) and agricultural (The Co-op Farms) activities. Times are tough, really tough. May this unfortunate story serve as a lesson. Governance and proximity, two issues that are eminently sensitive for cooperatives.
 

Colette Lebel, agr.
Director Cooperative Affairs
La Coop fédérée
Email: colette.lebel@lacoop.coop
Fax: 514 850-2567
 



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