Board elections at the Phone Co-op

I’ve been casting my vote in an election and it’s not been an easy matter. The election is for three members of the board of the Phone Co-op, and there are ten members of the co-op putting themselves forward, many of them clearly strong candidates.

Not easy to decide, but what a nice problem to have!  What a refreshing change from those fake elections for board places on building societies, for example. The Phone Co-op does not pay its non-exec directors particularly lavish fees (directors received just over £1200 a year, last time I looked), but nevertheless its elections are consistently contested and usually – as this time – attract a strong field of candidates.

Good corporate governance?  Give that co-op a tick.

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What we should demand from business

I have chosen in this blog to focus specifically on issues related to cooperative and mutual businesses, but I sometimes wonder whether that’s a mistake. What I mean is that, while those of us associated with the cooperative world ponder issues such as, say, member democracy or access to capital, the rest of the business world cheerfully gets on with its work of making money for investors and shareholders.

I think we need to look beyond the coop sector sometimes, and to start intervening in the way that we allow conventional companies to operate. As societies we permit company law to grant limited liability to businesses run simply to maximise profits, while requiring in exchange for this very generous concession almost no commitment from business to contribute to the wider social good.

Prem Sikka, professor of accountancy at Essex University, has a good piece in today’s Guardian. Talking in particular of the British retailer BHS now in administration, he describes the way that directors there were able to treat BHS as their private fiefdom, with no concern for employees,  pension scheme members, supply-chain creditors or other stakeholders.

Here’s his conclusion: “UK company law needs to be modernised. Companies are not the private property of shareholders. Rather they should be seen as public institutions that help to advance common interests, and create and distribute wealth. Directors should be seen as trustees of stakeholders rather than as agents of shareholders advancing sectional interests…. The current model of corporate governance needs to be swept away and replaced by stakeholder representation on the boards of major companies.”

I absolutely agree. Read his piece yourself here.

Cooperative governance, and how it could be better

Pauline Green, who has just stepped down as President of the International Co-operative Alliance, gave me a moving and inspiring interview yesterday for a feature I am writing for one of my clients, the International Co-operative and Mutual Insurance Federation. Pauline mentioned in passing the dire straits in which the ICA found itself at the start of this century, starved of funds and losing members fast. The achievement of Pauline and her colleagues since those dark days not only in stabilising the ICA but in making it an increasingly powerful and respected voice globally deserves proper recognition.

One sign of the ICA’s renewed energy is the determination with which it is trying to implement its current strategy, the Blueprint for a Co-operative Decade. This is represented among other things by the publications emerging from within the ICA. I enthused last week about the new Guidance Notes on the Co-operative Principles. Today I want to mention a second useful publication, on cooperative Corporate Governance.

As Pauline Green puts it in the foreword, “Governance is a key component of the co-operative difference. The cooperative values and principles call for an open, voluntary and democratic process of decision-making, and cooperative governance is an essential tool in applying those values and principles.” But as I think we all know, cooperative governance is not always all it might be. In fact, it can be pretty appalling.

Rebuilding the cooperative movement means among other things encouraging better governance, appropriate to the size and purpose of each individual coop. This new publication aims to start a debate. Among other things there’s a thoughtful account by Johnston Birchall on governance in large coops, and a (perhaps deliberately) provocative chapter from Cliff Mills, who criticises the old approach in the Co-op Group and calls for adequate professional expertise to be harnessed. And there’s a delightful account from Bob Cannell on Suma’s egalitarian – and highly successful – approach to governance and management. You’ll find the report here.

So how should Tesco choose its directors?

What are we to make of Tesco’s problems, which have seen four million pounds disappear from its market value and the suspension of four senior executives?

I think the answer must clearly be that its corporate governance systems are laughably amateurish.  All those non-executive chaps and chappesses (well, just two of the latter, to be honest) with their strings of other non-exec positions.  Gwyn Jones, for example, who (so Tesco’s website tells me) is also a director of HBO & Co. (UK) Ltd, INVESCO English and International Trust plc and has ‘interests’ in media and technology. Lady O’Cathain who is also a non-exec director of  British Airways plc, BNP UK Holdings Ltd and Thistle Hotels plc. John Gardiner who is Chairman of Laird Group PLC and a non-executive director of 3i Group plc. And etc etc.

The trouble is that these people obviously have no idea how to handle CEOs or strategically manage a major retail business.  I think we need a root-and-branch overhaul of the way that Tesco’s board of directors are chosen.  Perhaps Tesco’s customers could have a say.  I’m thinking of asking Lord Myners to offer some advice.

The issue we have to get right: governance in cooperatives

Expect yet more headlines about the Co-operative Group this week, as Lord Myners’ report on corporate governance in the Group is published.

Pretty well everyone involved in the cooperative movement thinks that the Group’s governance structure needs reform, but that’s about as far as consensus goes at the moment. One of the problems is that many activists fear that governance reform is effectively a euphemism for a comprehensive sell-out of cooperative principles, leaving management in charge of a business which would rapidly become almost indistinguishable from a plc. Some of the voices raised after Myners’ initial report come from this perspective. These get muddled, though, with special pleading from cooperative apparatchiks who have spent their lives working their way through the democratic ranks and now have much to lose (in terms of both power and money) if their role in the Group’s governance is reformed.

An intelligent debate becomes more difficult when the enemies of the cooperative movement are also actively at work in the media and elsewhere in trying to do down the whole idea of a democratic cooperative business model.

What’s the right way forward? Personally, I am rather more interested in the idea of a dual governance structure for the Group, with a members’ supervisory board and an executive board, than the Board of the independent Midcounties society (a group who are usually at the more radical end of things, but who are leading the battle against this proposal of Myners). There are, I think, some successful examples of dual board structures working well for larger cooperatives abroad, where the members’ board acts as the guardian of the organisation’s strategic adherence to cooperative principles. And just consider Britain’s building societies for a moment: isn’t it possible to imagine that a large society such as Nationwide might actually be more accountable to their members if its board had a members’ supervisory board watching over its actions – and the scale of its directors’ remuneration?

Britain’s cooperative movement has become remarkably insular and is almost entirely ignorant of how coops abroad do these things. So an absolute must-read in Johnston Birchall’s latest report for Co-operatives UK, The Governance of Large Co-operative Businesses. As Birchall says in his report “we need to engage in some serious mutual learning on the question of how to ensure member-centred governance in very large co-operatives”.

I concur. And we urgently need much more research work undertaken internationally. Even with Birchall’s considerable academic knowledge, I still feel that we aren’t yet at a position where we know just how well the managements of large coops around the world are working to meet their members’ needs. Some of the coops mentioned in his report have, I suspect, governance structures just as rackety as the Co-operative Group’s own practices

Yes, there are cooperative success stories out there

A small workers’ cooperative in the town where I live asked me over the weekend if I would write a short article for their forthcoming customers’ newsletter.  They were concerned that the media coverage of the Co-operative Group’s trading and governance problems would be encouraging the idea that all cooperatives were badly run. Could you point out, they asked me, that workers’ coops are still an excellent business model?

I’ve been happy to send across a short piece which I hope does what they’re after.  Because they’re right: it is very important that the message gets through that the Co-op Group is only one of around six thousand coops in Britain, even if it is far and away the largest.

We don’t knock the whole plc model just because a company like Woolworths hits the buffers, and we shouldn’t allow the cooperative business model to be dismissed on the back of the Group’s shortcomings. (But having said that, the Group should make us think very carefully about how management and corporate governance is to be organized in coops.)

I’d define a well-governed coop as one which is true to its cooperative principles, one which gives its members real engagement in its strategic management, and – not least  –  one which also is successful in trading terms.

There are, I’m pleased to say, quite a few cooperatives which could make a case for being in the short-list when it comes to being well-governed.  I’m going to mention one, and it’s not because they bribed me with a free vegetarian lunch when I visited their headquarters at Elland just off the M62 a week or two back.

Suma, the wholefood wholesaler which operates as a workers’ coop, had its most successful year in its thirty-something year history last year, increasing turnover from £30m to approaching £34m.  Net profit was up too, so the coop was able to pay its members a significant bonus. (Suma practises wage parity, by the way).

There’s clearly some entrepreneurial flair at work, and I was interested to be told of the way they are working to grow their export trade which is now responsible for more than a tenth of turnover.  But they also have worked hard to make their strategic management structures work, without having other obvious models to follow. Suma’s six-strong management committee is responsible for the strategic direction of the coop: members are elected to serve a maximum of two two-year terms, and there is built-in gender balance.  Operationally, Suma has Function Area Co-ordinators, responsible for the different areas of the business.

Suma talks of its aim being to provide a high-quality service to customers and a rewarding working environment “within a sustainable, ethical, co-operative business structure”.  It looks like they’re not doing too badly in meeting these aims.