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Co-op Group accepts chief executive Euan Sutherland's resignation Co-op chaos: chief executive quits 'ungovernable' group after pay furore
(about 5 hours later)
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. The Co-operative Group, Britain's largest mutual, was in renewed turmoil last night after its chief executive walked out, branding the organisation as "ungovernable" and raising questions about the future of the 170-year-old supermarket, funeral homes and pharmacy business.
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. Euan Sutherland, who joined only 10 months ago, did not turn up to work on Monday after the Observer published details of his £6.6m pay deal for 2013 and 2014. The report prompted him to launch a blistering attack on "an individual or individuals" attempting to undermine him in a posting on the group's Facebook page. That protest in turn provoked an angry response from Co-op staff and members.
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. Although the 45-year-old former head of B&Q had told the group's 90,000 staff – who are braced for at least 5,000 job cuts – that he was determined to see though "the vital transformation of our business", he had a sudden change of heart.
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." On Monday he fired off a resignation email to the Co-op's chair, Ursula Lidbetter, telling her the Manchester-based group was "ungovernable".
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. As he quit he attacked the group's "professional and commercial governance" and pledged not to take £3m of controversial retention payments.
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. However, he will still have been paid £2m for 2013, including £1m for buying him out of incentive deals at his previous employer. He is likely to be handed some or all of his £1.5m salary for 2014. Other members of his executive team are still expected to be handed retention deals of at least £8m.
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. Sutherland's departure exposed the rift between those keen to reform the group, which is on course to report £2bn of losses through its banking operation, which nearly went bust last year, and those who are reluctant to embrace the changes he thought necessary to restore the fortunes of the ailing business. The Co-op is also attempting to recover from a string of reputational hits, including allegations of drug taking by the former chairman of its bank, Paul Flowers, a methodist minister.
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. Amid fears for the future of the debt-laden group, which has 4,500 outlets across Britain, it was left to the finance director, Richard Pennycook (best known for transforming the supermarket Morrisons) to temporarily step up to the role of acting chief executive. He pledged to "plot a steady course" over the coming months.
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. Lidbetter, who was herself parachuted into the top job during last year's crisis, had convened a late-night conference call of the board after failing to persuade Sutherland to change his mind. She said his departure should now be "a catalyst for the real and necessary change which the group must go through".
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. At the hastily convened board meeting, which ended at close to midnight, a number of management changes were agreed to alter the boardroom, which is currently occupied by 20 members of the Co-operative moment and one newly appointed independent member, Lord Myners, the Labour peer and former chairman of Guardian Media Group.
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. Myners is said to have fought hard to persuade the board to embrace his ideas to create two separate boards – one modelled on a standard plc with an independent chair, executive directors and part-time non-executives, and another made up of members of the Co-operative movement.
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". It is not clear if the existing Co-op board was unanimous in their support for Myners' plan, but it must yet be ratified by the traditional regional boards. It was not clear if the regional members were prepared to adopt the changes as some were said to have been rankled by Myners' plans, during a meeting in Manchester two weeks ago.
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 1844. One source with knowledge of the group said it would be "disingenuous to say there aren't people already uncomfortable with the changes". Jim Lee, former secretary of the Scottish Co-operative party and an influential member of the Co-op movement, said: "I'm pleased that Euan Sutherland has gone. I know that there has to be change but I think he imagined we would agree to a traditional business model being imposed on the Co-op. That was never going to happen."
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. Another source close to the group said it would be "disingenuous to say there aren't people already uncomfortable with the changes" which would reduce the influence of "democrats", who trace their roots back to the Rochdale pioneers of 1844. "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," the source said.
"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." Andre Spicer, professor of organisational behaviour at Cass Business School, said the argument about Sutherland's pay illustrated the clash of cultures. "By tendering his resignation, Sutherland was laying down the gauntlet to those who were questioning his more managerial approach." "While Sutherland's resignation is likely to make some members of the co-operative movement happy it will further undermine the group's reputation. This means stakeholders are going to get even more jittery. It will also make finding a new candidate for the job difficult. A faltering Co-op is bad news for the UK economy as a whole. It is a significant player in many sectors such as retail, funeral care and banking."
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's parting shot was to call on the group to reduce its £1.2bn debt and drive through efficiencies. He also called for fundamental governance reform and a revitalised membership.
He had been leading a "have your say" public campaign which asked if £1m of donations to the Co-operative party and its 32 MPs aligned to the Labour party should continue.
Gareth Thomas, the MP who chairs the Co-op Party NEC, said it was right Sutherland had quit if he could not be a successful boss of the group.
"The Co-operative is going through a tough and turbulent time and what is now important is that a chief executive is recruited who has a vision for coupling the best of the Co-op's past with a clear vision for the future," Thomas said.
The future plans of Sutherland – who had adopted a high public profile as he attempted to steer through change – were not immediately clear. He was expected to spend Wednesday at a retail conference to discuss the subject of leadership. Last night he cancelled.