On the Co-op Group and its little local difficulties

I didn’t spend several hours of my life yesterday at an emergency Board meeting, for the obvious reason that I’m not a member of the Co-operative Group’s Board of Directors.  Instead I spent around five minutes late in the evening talking to the BBC Radio 5 Live presenter Phil Williams and his listeners, discussing what we should make of the current troubles at the Group – or the ‘chaos at the Co-op’, as The Guardian puts it today.

It is never good news for a business when a chief executive and his or her Board disagrees on strategy, and ultimately if you’re in the top job and your directors don’t like what you’re proposing to do, you go.  But Euan Sutherland’s resignation from the Group yesterday clearly compounds the problems facing the organisation.

There are three major problems. Firstly, the business is suffering severe trading difficulties. Last year’s loss is not yet formerly announced, but we are told to expect it to breach the £2bn mark. Secondly, the Group is short of capital. And thirdly, there is no-one at the helm – the Group’s finance director is holding the fort pro tem, but the Group now has to find a suitably qualified chief executive for an organisation which has been unhelpfully described by the exiting chief executive as ungovernable.  I’m not sure that this will be a particularly easy job for the head-hunters.

Big problems. And big problems not only for a particular trading business but, because of the Co-op Group’s size and influence, for the whole cooperative movement in Britain.

So will this turn out to be the end-game for the Co-op – or could it just be the start of something new and better? 

The Co-op is not alone in struggling in today’s retail climate. Morrisons is not in a happy state and even Tesco is finding the times challenging. But it is possible to turn businesses in difficulties around: it wasn’t so long ago that Marks & Spencer, for example, was considered a basket case.  Even John Lewis had a wobble a few years back.

Let’s recall, too, that the cooperative business model is successfully bringing home the bacon in many other parts of the world.  As it is in Britain as well: several of the regional independent societies are not doing at all badly at the moment. So the answer for the Group isn’t necessarily to become a pretend-plc.

One issue for the Group, however, is that almost all senior executives with retail experience will be coming from the plc sector – and so unless the Board has a clear vision as to how a major modern consumer cooperative should be different from the rest, the tendency will be to drift increasingly towards being just another business. I confess I see this as the most likely outcome.

A second scenario is that the Co-op Group does what cooperatives have over the past fifty years done only too well: muddle through, gradually shedding assets along the way.  I think muddling through is no longer a realistic option, however.

A third scenario, probably (regrettably) an unlikely one, is that the Group rebuilds itself by doing something very different from the rest of the pack – that it, by redefining what should be different about a cooperative business, and using this to gain both ideological and business advantage.  The Group successfully did this to a limited extent twenty years ago in its emphasis on ethical banking and fair trade retailing.

This would definitely be the most interesting outcome and it might necessitate all sorts of radical changes.  I’ve been intrigued, for example, by the suggestion floated recently by Vivian Woodell of the Phone Co-op that the Group could de-merge itself into a number of independently run regionally-based coop societies.  It’s a back-to-the-future type approach which just might be the right way forward. There certainly needs to be more debate about the various options.

You’ll have noticed I’ve not said anything today about executive pay in the Group, the issue which began the present crisis when Sutherland’s remuneration package was leaked last weekend.  I’ve already blogged previously on executive pay in coops – and it’s an issue which I  want to return to soon.

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2 thoughts on “On the Co-op Group and its little local difficulties

  1. Hi Andrew

    I agree with you on lots of these points (and also tried to put these across on R5, a little earlier yesterday!).

    One area I think I am not sure on however, is trading performance. When the results emerge, I think we will see that the £2bn+ loss relates very largely to the Bank, and the writedown of assets. We know that Food had a good Christmas, which hugely impacts their overall performance. Farms and a number of the other businesses are generally neither very profitable nor vulnerable to major profit shocks. The rationale for getting rid of some business lines (trying to second guess Euan Sutherland’s previous strategic indicators), is because
    – they do not make much money
    – do not have any immediate business synergy (dread word), and probably most importantly
    – might bring in some capital that is earned more easily by selling assets than trading, as you rightly point out.

    I don’t underestimate the challenge for the new chief exec (interim or permanent), but I think it is not primarily to focus on addressing performance, but the issues of what the Group is for (what do members want? can we effectively manage all these businesses on their behalf?), and how to shore up the capital base.

    I too think Vivien’s regionalisation idea is interesting, but I am unconvinced about conglomerates, co-operative or otherwise, national or otherwise. I would prefer to see serious consideration given to releasing some of these business lines to operate nationally but independently – as co-operatives. This would enable member directors (and their executives and staff) to get close to one market / industry, rather than scratch the surface of a dozen.

    Nick

    Reply
  2. I think greater regional emphasis would be good for the food stores. Compare the monolithic range Co-op offer to the regional diversity in your average Spar. If they can do that why can’t Co-op?

    Reply

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