* Sutherland says impossible to reform Co-op
* Co-op to report full-year earnings on March 26
* CFO Pennycook becomes interim CEO
By Paul Sandle and Brenda Goh
LONDON, March 11 Euan Sutherland, the man tasked
with rescuing Britain's 170-year old Co-operative Group
, quit on Tuesday and warned it was impossible to reform
the mutually owned company unless its directors adopted a more
The Co-op, which runs a bank, supermarkets, and funeral
homes, suffered what Sutherland called the worst year in its
history in 2013 when it discovered a 1.5 billion pound ($2.5
billion) capital hole in its banking business.
Problems at the group, which is owned by its 7.2 million
members and extols an ethical approach to business, were
compounded by a drugs scandal involving the bank's ex-chairman,
Methodist minister Paul Flowers who had little financial
Sutherland wanted to reform the group's unwieldy governance
structure to bring a higher level of corporate experience to the
group. It has a tangle of boards populated by members elected
from regional units of the organisation.
But after 10 months in the job, he tendered his resignation
on Monday in a letter saying the Manchester-based group was
"ungovernable," a source said earlier.
Sutherland, a former boss of Kingfisher's home
improvement chain B&Q, said in a statement on Tuesday that he
"had given his all to the Co-op and had hoped to lead its
"However, I now feel that until the group adopts
professional and commercial governance it will be impossible to
implement what my team and I believe are the necessary changes
and reforms to renew the group and give it a relevant and
sustainable future," he said.
Sutherland said the company needed to reduce its debt, which
was about 1.2 billion pounds in August 2013, and drive major
efficiencies and growth in all of its businesses. But that
needed fundamental governance reform and a revitalised
membership to happen.
He will be replaced on an interim basis by Richard
Pennycook, the group's chief financial officer, the Co-op said.
Sutherland's fight with parts of the board had become
increasingly public after they resisted his efforts to turn the
group into a more conventionally run business, such as the
retailer Tesco or department store John Lewis.
Sutherland wrote on the group's page on social network
Facebook at the weekend that unidentified board members were
seeking to undermine him by leaking details of his 3.7 million
pound ($6.15 million) pay package - more than double his
predecessor - to the media.
"We appear to have disaffected people who are determined to
make life difficult and embarrassing for The Co-operative," he
The board of the Co-op, Britain's biggest mutual, is elected
from regional boards and independent Co-operative Societies, and
is entirely non-executive, meaning no director is involved in
day-to-day operations. Sutherland did not sit on this board.
The businesses are managed by three subsidiary boards, which
Sutherland was on, one each for food, banking and specialist
Sutherland's resignation triggered an emergency board
meeting on Monday evening, the source said, during which
directors agreed to put forward reforms including a new board
led by an independent chairman.
Ursula Lidbetter, chair of The Co-operative Group, said in
a statement on Tuesday: "Euan's resignation must now act as a
catalyst for the real and necessary change which the group must
Andre Spicer at the Cass Business School said he did not
think Sutherland's resignation would break the group, but it
showed that attempts to reform it into a more mainstream
business were going to be difficult, if not impossible.
"It's also going to be a very, very tough position to
attract someone of a similar kind of stature," he said.
Sutherland, a Scot who trained at Coca Cola, and
who has almost two decades of retail experience, was due to
announce changes to his executive team on March 17 ahead of the
group's full-year results on March 26.
His interim replacement Pennycook spent nearly eight years
as finance chief at Wm Morrison Supermarkets and was
widely credited with steering the grocer back on track after a
problematic integration of rival Safeway which it bought in
The Co-op is selling assets such as its farming business and
is expected to report a record loss of over 2 billion pounds
stemming from its banking unit.