It was announced last week that the Co-Operative Group has made losses of almost £2.5bn in the ‘most disastrous’ year in the organisation’s history. But why has the historic mutual failed so catastrophically and could any of the mistakes have been avoided?
The group has lurched from one well-publicised crisis to another over the past year with a number of resigned bosses and huge losses along the way. One of these departed leaders, Euan Sutherland, was appointed as Co-Op boss despite seemingly not agreeing with the structure or culture of the organisation that had been in place for around 150 years, something that reeks of ineffective succession planning. The Group should have identified a leader with well aligned beliefs and behaviours to the business they were joining. By not doing so, the selectors not only disrupted the business, but also spent an initial £2.1m on compensating Sutherland and are still paying out a reported £2,700 a day on his severance package.
And it’s not just Sutherland who has been wrongly appointed for a senior position at the Co-Op. Paul Flowers, the so-called ‘Crystal Methodist,’ was also removed from his role as Chairman in the wake of a number of well-documented scandals. While the organisation may not have been able to predict the shape Flowers’ misdemeanours came in, some of this could still have been avoided. By regularly evaluating and assessing senior management, businesses should be able to spot any potentially disruptive behaviour before it becomes a serious and damaging issue. If the Co-Op had done this it could have identified the signs before they became a matter of national concern.
But it’s not only certain top individuals involved in the Group who have been at fault. The organisation itself seems to be burdened with a number of fundamental flaws. The dynamic of the board in particular has come under question. Having a farmer, a plasterer, a nurse and a former engineer, amongst others, occupying the top positions at the company may be an admirable attempt to reflect the customer base, but it’s more likely an attempt to create diversity for diversity’s sake. Regardless of such individuals’ technical skills and good intentions, is it really likely that they’ll possess adequate commercial knowledge to lead a major organisation in the 21st century?
The Co-Op also faces issues with its organisational structure. The mutual is governed by a complex set-up that involves overlapping jurisdictions between national and regional boards, meaning it’s difficult to change any aspect of the executive layout. In fact, it was this that caused Lord Myners to quit earlier this month, citing the fact that regional boards would not accept his reforms.
One way to solve this particular issue could be to simply improve transparency between executives and the Group’s members. Richard Pennycook, the Co-Op’s interim chief executive highlighted this as a major concern upon his arrival in the business and it could partly explain why so many poor managerial decisions appear to have gone unchallenged over the past few years. By developing this transparency, board members would automatically become more accountable for their actions which would, hopefully, improve the Group’s fortunes.
One of the simpler things the Group could do to halt the slide is simply to realise that the world changes. Particularly at the moment where we may be going through one of the most rapid periods of change in history. The Co-Op only needs to look at businesses like Blockbuster and Woolworths to realise that dated ideas and strategies will mean your company is left by the wayside. It may be wise to also note the example of Telefónica, which diversified its telecoms business in the wake of a shifting market place and a period of downturn. The organisation now works across financial services, leisure and its existing telecoms base after drilling down to the fundamentals of the business, which helped to successfully turn the company around. The Co-Op could learn a sharp lesson here about what it needs to hold on to and what it might benefit from losing.
Perhaps, however, the issue is even simpler. With record losses being made and a reported 645 outlets currently vacant or being sublet at rates lower than the rent paid to landlords, might it be time for the 10-person board – which collected retention bonuses of more than £4million last year – to experience a shake up after years of poor decision making? After all, questions have been asked about how these people got their seat on the board and whether the Co-Op has really just become a self-perpetuating oligarchy.
The board needs to professionalise. Lord Myners has reported facing ‘bullying’ tactics since joining in December and an unwillingness to change the existing structure from long-term board members. These senior figures need to realise they’re managing other people’s money and their poor decision making and unprofessional behaviour is risking the security of the organisation’s customers. They also need to ensure they’re getting the very best people to lead in the future. After all, that’s what true diversity is about, getting the very best people, rather than just ticking boxes.
The Co-Op has some challenges to overcome and it’ll need strong leaders to right the situation. We just have to hope it has the right people in place this time round.
Darren Timmins is Head of Otravida Search, an executive search and selection organisation delivering bespoke and agile talent solutions.