(Corrects 16 paragraph to say Co-op Group's stake in bank fell
to 30 percent, not 20 percent)
* Board not competent to perform duties -Myners
* Governance structure led to horrendous losses -Myners
* Funeral business could be worth 1 bln stg plus -Myners
* Former bank chairman pleads guilty to drugs charge
* Co-op chairwoman says board committed to reform
By Matt Scuffham
LONDON, May 7 Former government minister Paul
Myners has launched a blistering attack on the stewardship of
Britain's Co-operative Group and said it must reform in
order to survive.
Myners said the board of the 150-year-old mutual is not up
to the task of governing the customer-owned business, which has
been rocked by a 1.9 billion pound ($3.2 billion) funding gap at
its bank and an exodus of senior directors.
"The governance structure we have at the moment has led to
horrendous losses and a level of debt which is way above that of
equivalent commercial competitors. That needs to be fixed. This
board is not competent to perform the duties expected of it,"
Myners told reporters on a conference call on Wednesday.
Myners was appointed as Co-op's senior independent director
last December and was asked to review its governance. He quit
that post in April amid resistance to his proposals, but agreed
to stay on until the annual shareholders' meeting on May 17 to
complete his review.
Co-op, whose businesses range from supermarkets to funeral
parlours, is fighting to survive after posting the biggest loss
in its history, and has seen bitter infighting among members
about its future strategy and proposals for reform.
The group made a loss of 2.5 billion pounds in 2013 and its
net debt reached 1.4 billion pounds. It also faced embarrassment
when its former bank chairman Paul Flowers was arrested for
possessing drugs. He pleaded guilty on Wednesday.
Co-op is considering the sale of its pharmacy and farms
businesses to cut debt and Myners said it could come under
pressure to sell its funeral business, which he described as the
"jewel in the Co-operative portfolio" which "could easily fetch
in excess of 1 billion pounds" from a private equity buyer.
Myners, also a former chairman of retailer Marks & Spencer
, said the group's lenders, which include Royal Bank of
Scotland and Barclays, may intervene if Co-op
officials don't back proposals for reform at the May 17 meeting.
"If change doesn't take place the Co-op will continue to
decline and it is quite probable that banks, who already have
some direction on what the Co-op does, will take an even greater
interest," he said.
"This is not an easy exercise, to confront people with
unpleasant truths, but I felt it was my duty to do so. I was
under a lot of pressure from people to compromise. I said that
would be a disservice to the Co-operative movement," he said.
NOT FIT FOR PURPOSE
Myners' departure followed that of former Chief Executive
Euan Sutherland, who left after just 10 months saying the
organisation was ungovernable. Sutherland was unhappy after his
pay was leaked to a newspaper.
"The loss of Euan Sutherland is a catastrophe for the Co-op.
He was the right man and he was forced out by some people who
should lower their heads in shame because they certainly did not
behave in a way that Co-operative values and principles suggest
that they should," Myners said.
In his 184-page report, Myners said the current management
structure at the Co-op was "not fit for purpose".
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
"It places individuals who do not possess the requisite
skills and experience into positions where their lack of
understanding prevents them from exercising the necessary
oversight of the executive," Myners said.
Methodist minister Flowers was appointed chairman of the
Co-operative Bank in 2010 despite having little banking
experience. The bank fell under the control of bondholders
including U.S. hedge funds last year after a restructuring which
saw the Co-op Group's stake fall to 30 percent.
Myners said the Co-op should create a new streamlined board
led by a chairman with no previous association with the group,
six or seven independent non-executive directors and two
Myners also recommended a National Membership Council be set
up, consisting of about 50 individuals, including around 10
employees. This council would elect a steering committee of 12
members including representatives from independent societies.
In addition he proposed all Co-op members be given the right
to vote on the election of board members, the right to attend
general meetings and to approve significant transactions.
Co-op Chairwoman Ursula Lidbetter said reforms were critical
to the group's future. "The board has made clear its commitment
to far-reaching and fundamental reform of our governance," she
($1 = 0.5885 British Pounds)
(Editing by William Hardy)