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Co-op accepts resignation of chief executive Euan Sutherland Co-op chief executive quits over issues with leaks and an ‘ungovernable’ board
(about 4 hours later)
The Co-operative Group has accepted the resignation of chief executive Euan Sutherland, who described the mutual as "ungovernable", in a fresh blow for the troubled group. The chief executive of the Co-operative Group has quit with a £1.5m payoff after being angered when leaks in the boardroom made public his controversial £3.6m salary and bonus deal.
Mr Sutherland apparently offered to stand down on a point of principle, after it was reported over the weekend that the Co-op was planning to offer him and other executives huge pay and bonus increases- including a £1.5 million base salary and £1.5 million retention payment, plus other perks. Euan Sutherland resigned after taking to Facebook to criticise the “disaffected people” in the “ungovernable” Co-op boardroom who had leaked his pay details. 
In a statement, Mr Sutherland said he had given "his all" to lead the Co-op's revival but warned that, under its current governance, it is" impossible to implement" the necessary reforms. While volunteering to forgo his controversial £3m retention bonus, he is still expected to walk away with a year’s pay, or £1.5m, and leave the struggling society in chaos.
He added:"The Group must reduce its significant debt and drive major efficiencies and growth in all of its businesses, but to do so also urgently needs fundamental governance reform and a revitalised membership." Mr Sutherland had only been with the Co-op for 10 months and was thrown into a firefighting role after a £1.5bn black hole was found in the accounts of its banking division.
Mr Sutherland will not accept his retention and long term incentive payments. Chief financial officer Richard Pennycook will act as interim boss. He then had to face the humiliation of seeing lurid details about the alleged drug taking of the so-called Crystal Methodist former chairman Paul Flowers.
Chairwoman Ursula Lidbetter said she accepted Mr Sutherland's resignation with "deep regret". Mr Sutherland, 45, had become increasingly frustrated by a succession of leaks from the unwieldy 20-strong board about his plans for the organisation, and when his pay details – branded “excessive” by many – were disclosed to a Sunday newspaper, he was evidently furious.
She added: "Euan’s resignation must now act as a catalyst for the real and necessary change which the Group must go through. I would like to thank Euan for his hard work and leadership and to wish him the very best for the future." He tendered his resignation on Monday, prompting chairman Ursula Lidbetter to convene an emergency meeting of the board to thrash out a sustainable route forward. This will take the form of a sweeping overhaul of the member-dominated boardroom, which currently consists of representatives elected or appointed by independent co-operative societies across the country.
Mr Sutherland joined the company in May last year, having been chief operating officer of B&Q owner Kingfisher. His predecessor, Peter Marks, earned only £1.3 million last year. On the advice of Labour peer Lord Myners, that board will be disbanded and replaced by a more conventional set-up, with a plc-style board of two executive directors answerable to an independent, non-executive chairman and five or six independent non-executives.
At the weekend, Mr Sutherland appeared to hit out at "an individual, or individuals, determined to undermine me personally" on the Co-op’s Facebook page. There will also be a member-representative board which will give oversight of the main board’s activities and ensuring, to quote a spokeswoman “that they continue to deliver co-operative values”.
He said: "We appear to have disaffected people who are determined to make life difficult and embarrassing for The Co-operative at a time when what we need most are professionalism and loyalty to the business." This was precisely the set-up Mr Sutherland had wanted, but was not enough to make him change his mind about quitting. In a development that must have further frustrated Mr Sutherland, his resignation, and the emergency board meeting which finished late on Monday night, were also comprehensively leaked this morning.
Last month, the Co-op announced plans to abandon key parts of its business as the reverberations from its banking scandal continue to shake the operation, ahead of it reporting what could be a £2bn loss later in May. The board finally announced it was accepting his notice hours later in a joint statement with him in which he declared: “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.”
Questions about the management of the Co-op were raised after the bank unveiled a £1.5 billion hole in its balance sheet last summer. The recapitalisation of the bank left the Co-op Group with a 30 per cent stake- with the rest held largely by hedge funds. His resignation letter was described by the BBC as a back-me-or-sack me ultimatum. However, in the event, it appears he had made up his mind to go regardless.
The crisis at the bank deepened after former chairman and Methodist minister Paul Flowers was arrested over drug allegations in November last year. Former chairman Len Wardle resigned in the wake of the scandal He will be replaced with immediate effect by Richard Pennycook, currently the chief financial officer, who has been appointed interim group chief executive. He is well-regarded in business circles for having stabilised Morrison’s when he was the finance boss there.
Ms Lidbetter described the mutual's management woes as "the biggest crisis in our 150-year history", but insisted the group is on a "long and complex" road to recovery. Ms Lidbetter said: “Euan’s resignation must now act as a catalyst for the real and necessary change which the group must go through.”
Mr Sutherland insisted in his resignation letter that further sweeping changes were needed, including many more job losses. That is also expected to mean an end to donations to Labour MPs.
Meg Hillier, the Labour and Co-operative MP for Hackney South and Shoreditch, told the BBC: “He is running an organisation that is still run by its members, and he needs to be accountable to them. The Co-operative movement is a mutual movement where we make decisions together.”
Ms Hillier’s views are typical of many who want it returned to financial health but also seek to retain the mutual governance which Mr Sutherland found impossible to work with. Now his successors must persuade members to vote for the Myners reforms at an AGM on 17 May.
Profile: Euan Sutherland
Euan Sutherland, at 6ft 6in, has been described as the tallest man in retail. In the end, it was a bank which cut him down to size.
When he accepted the chief executive’s role at the Co-op Group in 2012, he thought he was joining a business on the up. But by the time he’d started in May, Co-op Bank was unravelling and dragging the whole society down with it. 
Mr Sutherland set about rescuing the organisation from collapse, culminating in handing over 70 per cent of the bank to US vulture funds.
He would probably never have joined from his post as chief operating officer at B&Q-owner Kingfisher if its chief executive Ian Cheshire had not said he fancied staying on for a few more years. His decision to quit the Co-op this week may have looked hasty. But Mr Sutherland has only ever stayed in jobs for a few years before moving on, meaning that, at 45, he has worked at Boots, Mars, Coca-Cola, DSGi, Matalan, Superdrug and Kingfisher. 
Jim Armitage
Timeline: Countdown to crisisTimeline: Countdown to crisis
21 October 201321 October 2013
The Co-operative Group is forced to give up majority control of its bank due to a £1.5bn shortfall in capital, allowing US hedge funds to take charge.The Co-operative Group is forced to give up majority control of its bank due to a £1.5bn shortfall in capital, allowing US hedge funds to take charge.
6 November 20136 November 2013
The bank’s former chairman, the Rev Paul Flowers, gives a disastrous performance before the Commons Treasury committee, quoting wildly inaccurate figures.The bank’s former chairman, the Rev Paul Flowers, gives a disastrous performance before the Commons Treasury committee, quoting wildly inaccurate figures.
17 November 201317 November 2013
Mr Flowers is outed as buying and using illegal drugs a few days after his committee appearance.Mr Flowers is outed as buying and using illegal drugs a few days after his committee appearance.
19 November 201319 November 2013
The group’s chairman, Len Wardle, resigns over the Flowers scandal.The group’s chairman, Len Wardle, resigns over the Flowers scandal.
12 December 201312 December 2013
Lord Myners appointed to the Co-op board to review the group's governanceLord Myners appointed to the Co-op board to review the group's governance
11 March 201311 March 2013
Chief executive Euan Sutherland resignsChief executive Euan Sutherland resigns