Co-op is Crap

Here's an interesting article from The Guardian about the shambolic performance of the Co-op Group which has led to American hedge funds gobbling up most of its assets after a £1.5 billion in the Co-op Bank was exposed.

Now the catalyst for the Co-op's collapse seems to have been the acquisition of the Britannia Building Society which I was a member of for years as it was the favoured financial institution of many trade unions including Nupe and Unison.

In fact if I remember correctly, the former Deputy General Secretary of Unison, Tom Sawyer, went on to become a director and board member of the Britannia Building Society as well as becoming general secretary of the Labour Party.

What a small world, you have to admit, but increasingly I am coming to a view that the Co-op is crap and that I should ale my business elsewhere.      

Ethical banking, my arse.

Extent of Co-op shambles laid bare by Lord Myners

Co-op's independent director says the group has been undermined by 'reckless' dealmaking and 'shocking' debt

By Sean Farrell and Jill Treanor

Lord Myners said management standards at the Co-op were worse than at banks before the credit crunch. Photograph: Gary Calton for the Guardian

The shambolic state of the Co-operative Group was laid bare in a scathing verdict warning that the survival of Britain's biggest mutual organisation was at stake.

The Co-op has been undermined by "reckless" dealmaking, "shocking" levels of debt and governance standards far worse than even the banks before the credit crunch, according to Lord Myners, the group's senior independent director who was charged with overhauling the boardroom.

In an exclusive interview with the Guardian, the City grandee who was installed as a Labour minister at the height of the credit crisis said: "I have observed the bad governance of the banks, but this is on an altogether worse level.

"The rate of deterioration has increased over the last half dozen years because of the recklessness of the strategy being pursued and supported by the board."

He added that the entire retail, funeral home, pharmacy and farming conglomerate would deteriorate further unless it was radically reformed.

Myners, also an ex-chairman of Marks &Spencer and Guardian Media Group, said the Co-op's reputation as a business run democratically by its members was a myth.

He said the company's most senior managers were left to waste billions of pounds on disastrous corporate transactions because the directors drawn from the Co-op movement were not qualified to keep them in check. "Few of them have any serious business experience and many are drawing material financial benefits from their positions."

Myners said the Co-op's elected directors – who include a plasterer, lecturer, tax official, nurse and farmer – had overseen "breathtakingly value-destructive" deals, including the takeover of the Somerfield supermarket chain and the Britannia building society.

It was the Britannia deal that left the Co-op bank facing a £1.5bn financial black hole and resulted in the bank being taken over by US hedge funds.

Myners, called in to review the group's governance in December, proposed far-reaching changes that he said would ensure it could stay true to the Co-op's democratic ideals and still be run on commercial lines.

In a report rushed out – just days after the group's chief executive, Euan Sutherland, quit and branded the organisation "ungovernable" – Myners concluded that:

• The group's "massive failure of governance" had "gravely damaged the organisation", letting its business decay and leaving it financially weak.

• Its members, who supposedly own the business, have almost no say in what the board or managers decide.

• Unless the governance is reformed "it will run out of capital to support its business".

Myners said it was a tragedy that Sutherland had quit because the Co-op owed its survival through last year's bank crisis to him and his team. He said what he had uncovered at the Co-op was so serious that the group had no choice but to change.

"What I think I have exposed is that the Co-op is not a democratic organisation and has a deeply flawed governance structure, and if it doesn't address these issues the pace of decline will simply increase. The reality is that the Co-op has been in decline for 60 years."

The organisation had "the worst governance I have ever witnessed" and "shocking" levels of debt, some of which was hidden by complex property deals, he said. The group currently has debts of £1.2bn. "This is folly in the extreme. This really pains me."

He said that the group, led by £1.2m-a-year chief executive Peter Marks until last year, had been obsessed with making large acquisitions instead of competing in the cut-throat world of grocery retailing, which is its main business.

The crisis at the Co-op came to a head last week when Sutherland resigned, after just 10 months, when the Observer revealed his £3.6m pay package. Sutherland said that senior colleagues were determined to undermine him and he blamed them for a series of damaging leaks. Myners claimed Sutherland never intended to take the £2m of bonuses awarded on top of his £1.5m salary. The money was agreed before Myners became involved and, he said, should have been revealed earlier.

Britain's biggest mutual company was plunged into chaos last May when a £1.5bn financial hole was revealed at its banking arm. The capital shortage had forced the Co-op to abandon its bid for more than 600 Lloyds bank branches and has led to US hedge funds owning most of the bank.

The problems deepened in November when the bank's former chairman, Paul Flowers, was alleged to have bought class A drugs and used rent boys.

Myners said the Co-op had lost almost all the customers it picked up when it bought Somerfield in 2008 for £1.6bn. He said taking over the Britannia had almost bankrupted the Co-op bank and the attempted Lloyds deal, codenamed Project Verde, was misconceived: "Somerfield was reckless. Britannia was reckless. Verde was reckless."

Myners said he had worked four days a week for three months examining the group's "labyrinthine" structures and coming up with proposals. He will be paid £1 for his efforts.

The Flowers affair triggered a string of inquiries into the turmoil at the group, whose ethics and democratic structure had been lauded as an alternative to the big bonuses and ruthless business practices of City-controlled companies.

Myners said his proposals would make the group more democratic by involving its currently- ignored wider membership while making sure people with business experience were in charge of commercial decisions.

He faces opposition from within the group's senior ranks who accused Sutherland of trying to scrap the values established by the Rochdale pioneers who founded the group in 1844. But Myners argued even his most entrenched opponents now realised the status quo could not stand.

Myners said the group's directors had been paid hundreds of thousands of pounds in the last few years as the group was driven close to ruin.

"It depresses me. It's a controlled anger," he said.

He rejected claims he had alienated board members with his uncompromising verdict on their abilities and the Co-op's record.

He called for the replacement of the group's 20-strong elected board with a smaller board of six or seven non-executive directors with business experience and two executives from the group.

Members would be represented on a new National Membership Council to hold the board to the group's values and principles. Directors would be elected and reelected each year by all members, overhauling the current system which puts power in the hands of a few hundred activists.