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Co-operative Group chief executive Euan Sutherland tenders resignation Co-op Group accepts chief executive Euan Sutherland's resignation
(about 4 hours later)
The Co-operative Group was thrown deeper into crisis on Tuesday after the new boss Euan Sutherland tendered his resignation in the face of opposition to his reforms for the mutually owned chain of supermarkets, funeral homes and pharmacy chains. The Co-operative Group was thrown deeper into crisis on Tuesday after its chief executive quit after just 10 months in the job – in the face of opposition to his reforms for the mutually owned chain of supermarkets, funeral homes and pharmacies and following a leak of his two year £6.6m pay deal.
Sutherland is said not to have turned up to work on Monday and instead offered to resign in a letter to the chair Ursula Lidbetter – herself promoted in the fall-out of the crisis at the banking arm – on a point of principle that the group was "too difficult to govern". Euan Sutherland, who has been fronting a campaign to encourage the public to have a say in the future of the 170-year-old mutual, had not turned up to work on Monday after the Observer published leaked details of his pay. The leaks prompted the 45-year-old to claim on Facebook that "an individual or individuals" were determined to undermine him.
The board convened a late night telephone conference call to agree to recommend changes to its management structure that would have given Sutherland a seat on the board in a more conventional style for a major company's chief executive. After he resigned in a letter to the group's chair, Ursula Lidbetter – herself promoted in the fallout of the crisis at the banking arm – on a point of principle that the group was "ungovernable", she said it was with "deep regret" that she accepted his decision to go.
The resignation of the 45-year-old former boss of B&Q came after he used Facebook to criticise leaks of his £3.6m pay deal to the Observer last weekend. He took the helm on 1 May – just as the scale of the problems inside the bank were being uncovered – and claimed that "an individual or individuals" were determined to undermine him. Sutherland – who said he would not take the controversial £3m retention payments he had been offered for 2013 and 2014 – is to be replaced temporarily by Richard Pennycook, the highly regarded former boss of supermarket chain Morrisons who had joined the Co-op as finance director. Pennycook, whom Sutherland was planning to promote to chief operating officer, said: "I and the team will plot a steady course in the coming months."
If Sutherland does go, it is unclear what the scale of his pay-off would be – but he was on course to receive £6.6m over two years. Sutherland walked away from the high-profile job despite an offer by the board – following a conference call last night – to agree to recommend changes to its management structure that would have given him, as chief executive, a seat on the board in a more conventional style for a large company.
Currently the board is made up of 20 elected members from the Co-operative movement and an independent member – Lord Myners, the former City minister – appointed last year when the scale of the problems at its bank first emerged. Sutherland took the helm on 1 May last year – just as the scale of the problems inside its bank were being uncovered. The bank is now just 30% owned by Co-op Group after a radical £1.5bn restructuring leaving bondholders, led by US hedge funds, with the rest.
Myners is in the process of drawing up a series of proposed changes to the governance of the group and is due to publish them next month while a review by Sir Christopher Kelly into the group's problems is also to be published shortly. The group's board is made up of 20 elected members from the Co-operative movement and an independent member – Lord Myners, the former City minister – appointed last year when the scale of the problems at its bank emerged.
Myners is in the process of drawing up a series of proposed changes to the governance of the group and is due to publish them next month. A review by Sir Christopher Kelly into the group's problems is also to be published shortly.
While the group board may have voted to make changes to its structure, the regional board of the complex organisation also needs to approve any changes, which could still be difficult to achieve.While the group board may have voted to make changes to its structure, the regional board of the complex organisation also needs to approve any changes, which could still be difficult to achieve.
At a meeting two weeks ago in Manchester, where Co-op is headquartered, the group's 100 senior regional elected members are thought to have been briefed by Myners. He is said to have criticised the board, frustrating many of those present. At a meeting two weeks ago in Manchester, where the Co-op has its headquarters, the group's 100 senior regional elected members are thought to have been briefed by Myners. He is said to have criticised the board, frustrating many of those present.
When he was appointed senior independent director last year, there was speculation Myners was being lined up to be the next chairman – an independent one rather than one from within the co-operative movement. When he was appointed senior independent director, there was speculation that he was being lined up to be the next chairman – an independent one rather than one from within the co-operative movement.
He is thought to have considered recommending that the board comprise an independent chair and also include executive directors – but also looked at the idea of a German-style dual supervisory board/management board set-up. Sutherland's parting shot was to call on the group to reduce its debt and drive through efficiencies – he was planning thousands of job cuts – also calling for "fundamental governance reform and a revitalised membership".
There is thought to be resistance among some members to reducing the influence of "democrats" from a group that can trace its roots back to the Rochdale pioneers in 1774 with one source with knowledge of the group saying it would be "disingenuous to say there aren't people already uncomfortable with the changes". There is thought to be resistance among some members to reducing the influence of "democrats" from a group that can trace its roots back to the Rochdale pioneers in 1774. One source with knowledge of the group said it would be "disingenuous to say there aren't people already uncomfortable with the changes".
"Euan wants it his way or nothing and that isn't how the Co-op works. I have a degree of sympathy with him but not to the extent that we undermine what has been here for 160 odd years. It is a coming together of people – it's a co-operative. You need different leadership skills in a co-operative than at a plc, where you are just the man. There's more selling than telling in the Co-op," the source said. The source added: "Euan wants it his way or nothing and that isn't how the Co-op works. I have a degree of sympathy with him but not to the extent that we undermine what has been here for 160 odd years. It is a coming together of people – it's a co-operative. You need different leadership skills in a co-operative than at a plc, where you are just the man. There's more selling than telling in the Co-op.
"What we have here is a clash of cultures between plc people and the Co-op people. Euan is a plc animal and he is used to responses on a timescale and of a type that the Co-op isn't used to. We have tried this in the past to bring people in from outside at a senior level and it has never worked. Because they have not grown through the culture they try to make the beast dance in a way that the beast doesn't want to dance," according to the source. "What we have here is a clash of cultures between plc people and the Co-op people. Euan is a plc animal and he is used to responses on a timescale and of a type that the Co-op isn't used to. We have tried this in the past to bring people in from outside at a senior level and it has never worked. Because they have not grown through the culture they try to make the beast dance in a way that the beast doesn't want to dance."
Controversially Sutherland and seven of his top managers are to receive retention deals – essentially guaranteed bonuses – for 2013 and 2014. As recently as Sunday he had been planning to announce changes to his top management team next Monday, including the promotion of finance director Richard Pennycook to chief operations officer. Along with seven of his top managers, Sutherland was to receive retention deals – essentially guaranteed bonuses – for 2013 and 2014. As recently as Sunday he had been planning to announce next Monday changes to his top management team.
Sutherland joined as the bank's capital shortfall was uncovered, sparking a battle with bondholders, including US hedge funds, which has left the group with just a 30% stake in the bank. The Co-op's reputation was further damaged when Paul Flowers, chairman of the bank and deputy chairman of the group, was alleged filmed buying illegal drugs.
The group, which is on track to report £2bn of losses on 26 March, declined to comment.