Today’s FT coverage of the Co-op Group: why I’m sceptical

The Financial Times runs a front-page story today on the Co-operative Group which lays into the Group’s governance structures.

But I’m sceptical about the accuracy of the journalism. The story begins “At this month’s Co-operative Group board meeting to approve the 2013 accounts, its executives were braced for a grilling over the disastrous £2.5bn pre-tax loss. Instead, the members’ opening questions had a rather more banal flavour: the quality of groceries. “When will the Co-op start stocking Fairtrade bananas?” asked one member. “Why doesn’t it sell eggs laid by ‘happy chickens’,” said another.”

Why am I sceptical? Because almost exactly the same story (right down to the mention of the alleged happy chickens) emerged several months ago, in a leak designed to cast doubt on the qualities of the Group’s democratic governance arrangements. And – as anyone with even a smattering of knowledge of cooperatives would know – the Co-op Group has sold fairtrade bananas for many a long year and (like every other major supermarket) also sells free-range eggs.

So, pretty clearly, I would say that the FT is wrong. These questions were not asked at this month’s Board meeting (or at least not in those terms).

It’s possible that the FT writers could have confused the ordinary members’ meetings which take place around the country and which are open to all seven million or so of the Group’s card-carrying members (I blogged on the one for my area last year), where questions like this could conceivably have been posed. It’s rather more likely that the FT is talking of recent Boardroom discussions where Board members have presumably raised with senior executives how the Co-operative Group can more effectively harness its residual reputation as an ethical retailer to achieve competitive advantage – and where discussion about the quality and supply chain provenance of the food being sold is absolutely a legitimate matter for boardroom attention.

So we have to assume that today’s FT piece is mischievous. A pity, because the FT has previously offered some good objective reporting on the Co-op Group story.

Co-op Group: finding the way forward

There’s a lengthy assessment by John Harris in today’s Guardian G2 section of what has gone wrong at the Co-op Group and what perhaps can be done to put things right.  I’m mentioning it partly because a number of people today have contacted me asking if I was the author:  I’m not, but I understand the confusion.

The Guardian did reuse some material of mine on cooperative history for a sidebar attached to the piece and whilst the sub-editors helpfully remembered to attribute this to me, they curiously omitted to add John’s by-line to the main piece.  Just so you know!

John quotes Jo Bird of Co-operative Business Consultants in the article.  Jo is the prime organiser of the Ways Forward: Cooperative Renewal conference, taking place on Friday 16th May in Manchester.  This is a follow-up to the very successful first Ways Forward event in mid-Jan.  I’ve been asked to speak at one of the sessions on “corruption v transparency in cooperatives”, a theme which is all too topical, I fear.  More on the conference in a later blog, I think.

Pay differentials in cooperatives

I resisted the temptation recently to comment on the issue of apparently excessive executive pay in the Co-operative Group when the story broke, although the question of pay in coops is something I’ve discussed here before.

I’ve been tempted back to this subject by a piece in today’s FT from Luke Johnson, the businessman who made a fortune from the Pizza Express restaurants and now has interests in, among other things, Giraffe and Patisserie Valerie. My eye was caught by Johnson’s comment that “I am not convinced large salaries are that effective in delivering superior results… I think paying a chief executive 100 or even 200 times the basic pay of the lowest-paid worker in a company is both ineffectual and bad for capitalism”.

I once argued at a national cooperative conference that cooperative businesses should take a strong ethical position on executive pay and have a pay differential of no more than 20 times the lowest paid employee. I’m not sure I was popular with the CEOs present, but even this sort of ratio is open to challenge: is any human being’s work really worth twenty times somebody else’s?

More recently, and partly in the light of the Co-operative Group pay issue, I’ve been pondering this again. I do recognise that a pay differential rule in coops of, say, 1:20 would unduly affect very large coops. The chief executive of a cooperative business turning over, say, a few millions of pounds would probably find their pay even at twenty times minimum wage broadly in line with those of other similar-sized non-cooperative businesses; the chief executive of a multi-billion pound cooperative business would not. So a pay differential rule could mean large coops struggled to find senior staff with appropriate experience elsewhere (since humans being humans, not many people accept pay cuts) or encourage coops to stay small. Neither is necessarily desirable.

Whilst it would be nice to think that other cooperatives could replicate the position at the workers’ coop Suma, where all staff receive the same wages regardless of the work they do, this is not going to happen. I had hoped that the issue of executive pay in cooperatives was going to be on the agenda at the forthcoming Québec summit (Monique Leroux, the CEO of host cooperative Desjardins, has herself had her pay entitlement queried by members) but it doesn’t now seem to be happening. So in the interim, my tentative proposal would be something along these lines.

Cooperatives should pay staff at the living wage level, not just the minimum wage rate. There should be a norm of coop pay differentials being no more than 1:20, and the ratio should be published annually in members’ reports. And there should be a ‘comply or explain’ principle, so that coops which exceeded the 1:20 ratio should be obliged to state why they’d chosen to do so.

The Co-op Group: breaking up is hard to do?

I commented in this blog a few weeks back about the suggestion floated by Vivian Woodell of the Phone Co-op that one way forward for the Co-operative Group could be to restructure itself as a series of autonomous regional societies. I see this idea has now resurfaced, this time from Patrick Gray in a piece today in the Guardian’s Comment is Free blog.

Patrick Gray is the elected President of the Midcounties Co-operative Society, one of the country’s more go-ahead independent coops. He talks of the Group in due course considering “a staged process of allowing its regions to spin off (taking their share of debt with them), putting them back under the direct control of local members as self-governing societies”.

This is an intriguing idea, putting completely into reverse the moves in the cooperative movement over recent decades towards the ‘one big society’ – or in other words, towards what we now know as the Co-operative Group. Midcounties is one of a very small number of regional societies not to have allowed itself to fall into the Group’s embrace.

I can see that there could be attractions in the idea of the Group unravelling recent history and establishing a network of autonomous regional cooperatives, which would presumably continue to share the already-existing joint buying group and the national coop brand. I could see how these regionals could, for example, choose to structure themselves as multi-stakeholder coops, inviting employees to participate (and perhaps invest) jointly with the shopper-members. Perhaps other individual investors could also be brought into the governance framework.

Could this really be achieved, however? I imagine the drive would have to come from one or more of the Co-op Group’s existing seven Regional Boards and whether the current composition of these Boards is adequate to the task is a moot point. It would be easier to start in Wales and in Scotland, where there are strong national cooperative development agencies and where there could be political support for the idea of new retail coop societies. I admit to pondering as well whether this idea could work in my own part of England, Yorkshire, where the former Yorkshire Co-op disappeared first into United NorWest and then into the Group a decade or so ago.

Downsides? Management energy and effort being distracted into these restructures at a time when the Group is in need of focusing on its core business activity. And perhaps a longer term worry that smaller regional coops would struggle to find the competent senior management they would need to succeed. What we wouldn’t want to end up with is a network of unsuccessful mini-Co-op Groups across the country.