By Costas Pitas and Paul Sandle
LONDON, March 14 Britain's Co-operative Group
, described as "ungovernable" by its chief executive as
he quit this week, must reform or else face extinction, the
group's senior independent director Paul Myners said on Friday.
The 170-year-old mutually owned-group, which includes food
shops and funeral parlours and a stake in Co-op Bank, needs a
smaller board with the skills to hold executives to account,
said Myners, a former government minister and business grandee
in a report commissioned by the group.
Unless it changes, the Co-op will "run out of capital to
support its business," he warned.
The Co-op has been hit by a succession of scandals, with
regulators finding a 1.5 billion pound ($2.5 billion) capital
hole at its banking arm which eventually led the group to lose
control of that business, and the bank's former chairman being
arrested in an investigation into the supply of illegal drugs.
The Co-op has been "gravely damaged" by the scandals, Myners
said, linking them partly to an unwieldy structure that reflects
its foundation in local and regional co-operatives.
The Co-op's board is elected from regional boards and
independent Co-operative Societies, and is entirely
non-executive, meaning no director is involved in day-to-day
Myners said he was "deeply troubled by the disdain and lack
of respect" for the executive team he had witnessed from some
members of the group board.
"Elected directors have simply not been up to their task of
holding the Executive to account," he said.
Co-op chief executive Euan Sutherland, brought in 10 months
ago to turn around the group, quit on Tuesday, saying it was
impossible to reform it unless directors adopted a more
Myners said the organisation needed a chairman or woman with
no previous connection or involvement with the organisation.
He said the board should be cut down to six to seven
independent non-executive directors in charge of all commercial
and financial matters instead of the current 20-member elected
board, and no independent societies should sit on it.
A National Membership Council of 100 members including
around 20 employees ought to be set up to ensure the mutual's
co-operative values and principles were adhered to, he added.
A spokesman for Co-op Bank, which is 70 percent owned by
shareholders other than the Co-op Group after it recapitalised
late last year, said it had already made significant advances in
reforming its own governance and leadership.
"The Bank's Board looks very different today and is managed
and governed completely independently to the Group," he said.
The final recommendations will be submitted for
consideration by the elected membership at the business' 2014
Annual General Meeting in May.