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CO-OPERATIVE NEWS / CORPORATE GOVERNANCE

IS SET TO BE THE NEXT CO-OPERATIVE CHALLENGE

Corporate
governance is set to
be the next
co-operative
challenge
UNITEDKINGDOM
Article by Paul Gosling
2 December 2013
The Treasury Select Committee hearings into the crisis at the Co-operative Bank have shone

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everyone knows this and perhaps wrongly assume that all directors of all societies lack
competence.
Paul Flowers evidence to MPs displayed his lack of knowledge of the Banks balance sheet
and his failure to ensure that senior Bank staff reported promptly to the board regarding
major developments. This followed Peter Marks comments to the same committee that
appeared to blame the elected directors and the corporate governance structures for the
movements problems.
We cannot now avoid a debate on how societies must strengthen their boards and improve
their corporate governance structures. These things are going to come out and we have to
be grown up about it, says Peter Hunt, the Chief Executive of Mutuo and former general
secretary of the Co-operative Party.
Our co-operative governance structures do not sufficiently control management,
continues Mr Hunt. Anything that is put in place now has to ensure that management is
held to account and that directors have the skills to do that. The Co-operative Group
structures dont do that. The same, surely, applies to most (or all) other co-operative
societies.
Governance structures of societies have been a long standing concern of mine, ever since I
unsuccessfully stood for the board of the former Leicestershire Co-operative Society. I was
convinced that the then chief executive, who died many years ago, instructed staff on how
to vote, effectively rigging ballots to ensure that member elected directors were people who
would be led by the chief executive. The purpose seemed to be to give the chief executive
an easy ride.
I dont know if a similar situation still applies in parts of the country. However, I do not
believe the system provides appropriately skilled non-executive directors on the boards of
many societies, nor does it ensure that all societies have sufficiently skilled senior
management. To be blunt, while some societies have superb executive leaders, others do
not.

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structure designed for local community businesses doesnt work when scaled up.
In preparation for this column, I phoned several co-operative societies to ask them what
training they do of their member elected directors to ensure they can do their job. Only one
society gave me an answer Lincolnshire. This happens to be one society that has
consistently impressed me. I fear that some of the societies that failed to respond may have
done so because they do little or no training of their non-executives.
Lincolnshires society engages an independent body to do an annual skills audit of its
directors. Flowing from the skills audit, an ongoing training programme is agreed for each
director, according to their needs, dealing with a range of issues . In addition, the society
appoints three directors who are not elected by members, but who are recruited to bring in
specific skills as required by the board.
Personal experience has underpinned my belief in the importance of relevant skills and
training. I was a (Labour and Co-operative) city councillor in Leicester from 1987 to 1991.
There was a small amount of training provided by the Labour Party, but to the best of my
recollection no training by the city council itself to help us undertake our roles as
councillors. Our approach as councillors was unsystematic, individualistic and based
according to what each of us believed was the best way to do things.
Some years later, I was engaged by the Audit Commission to write a case study on a London
borough that had serious problems with its corporate governance. Attendance at committee
meetings was inconsistent, with the result that there was inconsistent policy making.
Among other problems, investment returns were poor, because of the inconsistency of
investment policy.
That council undertook a comprehensive member training programme. Councillors were
taught how to chair meetings, quickly read committee papers, make effective contributions
to meetings, better understand the council structure and handle the media more effectively.
The quality of decisions improved substantially afterwards not least because as
councillors became better aware of what they were doing, they became more interested and

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One of the UKs largest and most successful social enterprises, the Bryson Group, is also
committed to the highest quality of corporate governance. The Group contains seven
subsidiary social businesses, each with their own boards. It has a combined turnover of
34m, a trading surplus of 1.5m and 690 staff. This is small by comparison with some
societies, but it is a very fast growing business that has won several awards for combining
commercial success with achieving social objectives.
Bryson Groups boards contain only unpaid non-executive directors, all of whom have
relevant professional experience and who can and do challenge the Groups management.
They would not be providing good governance if they did not challenge us, says Chief
Executive John McMullan. At the same time they provide encouragement and support.
Strong governance is important on a number of levels. It gives confidence to people
receiving services, to funders and it is incredibly helpful to staff that they can present ideas
that are understood.
Training for the non-executives is overseen by Brendan Mullan, the unpaid company
secretary of the Bryson Group. Corporate governance is a speciality of mine, he says. I
advised the Bryson Group to get a structure right in terms of good governance, he says.
To get the right skills is part of that.
Mr Mullan continues: Debate and challenge lead to good decisions. Getting the right
people on the board is essential. A lot of effort goes into this. Professional skills recruited
onto boards include finance, legal and human resources. Recruitment can involve
conversations with the Institute of Directors, the CBI and local universities to identify strong
candidates. Only leaders in their field are invited onto the boards, says Mullan. But even
so, directors are trained after being selected, recruited and appointed.
Directors are monitored and appraised each year. An initial one day training workshop
provides an introduction to the work of the Bryson Group and its subsidiary companies.
Sessions explain responsibilities under the Charities Act and the Companies Acts, along
with training on financial oversight and risk oversight.

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extent of contributions to board meetings and whether these provide a challenge to senior
management. Where directors scores are weak, they will be spoken to. Directors gain a
recognition through this process of whether they are effective and may step down if they
recognise they are ineffective.
Boards undertake collective self-assessments to see where they are weak. This has led
recently to a greater focus on risk management for directors and boards. Additional
training has been provided in-house to meet recognised needs. While managers are
allowed to manage, the Group operates a statement of reserved matters that are strategic
decisions, which only the board can decide.
Democracy is at the heart of the co-operative movement so a structure based on
recruitment and appointment is not something that can be imported wholesale into
societies. But these and other approaches may give us ideas about how to ensure directors
are given support to improve their skills and also of the need for the presence of
professional non-executives.
Ironically, points out Peter Hunt, it was actually the Co-operative Banks board that most
looked like that of a plc, yet it was the one that came most spectacularly unstuck. It is also
worth noting that, according to the Financial Times, the two deputy chairmen of the Bank
who were put in place by the then regulator, the Financial Services Authority, as
minders of the under-qualified Paul Flowers were the only two board members who
opposed the Project Verde deal. Despite the two most qualified directors opposing the bid,
it was pursued.
These experiences seem to raise more questions than they provide answers. Peter Hunt
suggests we learn from public sector mutuals in terms of providing a democratic
framework, while allowing experts to make the operational decisions. He also believes, as
does Peter Marks, that preventing senior executives from also sitting on the board as
members is a mistake, which reduces operational accountability.
We dont want to throw away the democracy of the co-operative movement in all this,

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account.
Public service mutuals have a second tier body to ensure the entities operate in accordance
with their purpose, but these bodies are not there to direct the way the business is run.
These bodies called councils of governance in foundation trusts appoint the board
chairs and non-executive directors, ensuring directors have the competence to do their jobs.
We do need a proper academy for all this, but lets not train people to undertake
inappropriate roles, says Mr Hunt. You dont have to elect people to the main board. But
you do have to ensure the main board is skilled and holds managers accountable to the
membership.
The challenge, it seems, has multiple strands. We need to attract and retain high calibre
senior management, but ensure they are accountable to both a skilled board and,
indirectly, to the wider membership (being the consumers). We need to ensure directors are
capable of making the right strategic decisions and are able to produce a strategy that is
consistent and consistently applied over the years (the Bank board failed to do this). We
also need to engage the membership so that it takes informed decisions.
If we can agree that together this provides the objective for where we need to go, we should
then be in a better position to decide on how we achieve this.

AUTHOR: Paul Gosling

Paul Gosling is a journalist, broadcaster, author, researcher, copywriter, public
speaker and co-operative analyst. He specialises in the economy, public services
and personal finances.

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3 Comments

Petet Malcolm

Speak for the people of the United Kingdom.

Petet Malcolm

There must be millions of socialist voters out there to make a difference.

Petet Malcolm

When are we going to get the needs of the people put to the forefront of
democracy in this country ? . We are sick and fed up with political Democracy,
we, the people must get our say ?. Socialism is the only answer . Our
representatives in parliament, excuse me while I puke, our MPs do not really give
a toss about us, they have their own agendas . Socialism is our only alternative.

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