Yesterday, the Progress-Update-of-the-Independent-Governance-Review from the Myners Review was published. It answers many of the issues I raised yesterday about what was reported to have been agreed in principle by the Group Board earlier this week.
The Myners Interim Report is a carefully thought out but blunt piece of work that faces up to a lot of realities to improve the existing system. As Ed Mayo tweeted, no punches were pulled.
Let’s look at its recommendations one by one:
“The creation of a new Group Board made up of an independent chair with no previous association or involvement with the Group, six to seven independent non-executive directors, and two executive directors. The non-executive directors would have the skills and experience of NEDs sitting on the boards of The Co-operative Group’s primary competitors. This new, far smaller Board would replace the existing 20-strong elected Board; it would be responsible for all commercial and financial matters and would have full power and responsibility for the operation and management of the Society.”
This would ensure director competence and the accountability of executives to people with commercial experience but what about member control, including election by members, and other mechanisms for members to influence their society? The answers are found (to some extent) in later recommendations. To understand those we need to see the next recommendation – a National Members’ Council (NMC).
“The establishment of a National Membership Council (NMC) of around 100 individuals, including provision for representation of around 20 employees. This new Council would have powers to ensure that the Group adheres to co-operative values and principles, and that these are reflected in its corporate vision, strategy and operating practices. The NMC would elect from its membership an Executive Committee of 12 which would also include corporate representation from independent societies.”
This representative body is not the same as, for example, the old CRS Council which had no powers. It can propose people to the Nominations Committee for Board approved nomination in the Board Elections (below). It protects the Group from demutualisation by being able to veto certain rule changes, and it oversees the social programme, holds the board to account on ethics, stewardship, strategic leadership and operational performance. Much will turn on the precise roles and responsibilities of the NMC, and the powers underpinning those roles and responsibilities; but clearly a radical new constitutional settlement between commercial competence and democratic representativeness is needed, and this proposal has real credibility. There is an important and necessary tension between those two elements of member-based governance, and any new settlement must capture that tension. Importantly, it is proposed that the NMC has a secretariat of its own, and this needs careful thought.
“Group Board directors would be subject to annual election/re-election by all members. Vacancies would be openly advertised and candidates would be appointed on merit against clear criteria of skills and experience. A Nominations Committee of the Group Board would be established on which two members of the NMC would serve. The Nominations Committee would also be responsible for commissioning an annual review of board effectiveness and reporting to the Annual General Meeting in light of this review.
The NMC would be encouraged to propose Co-operative Group members possessing the requisite competence to the Nominations Committee for consideration as Group Board candidates.”
This would combine an electoral process with a system designed to vet competence. It is similar to the one used in building societies but there are member reps on the Nominations Committee. If people pass the nomination process they are Board recommended candidates in annual elections in which all members participate. I assume that there would also be a rule allowing other nominations from the membership but only those vetted would be “Board Candidates”. They would probably stand a better chance of winning as in the building society model but there would also be member input to the Board nomination process. There will be much debate about whether this approach preserves ultimate member control, but assuming that nomination to the board by members as well as by the board would be possible then in electoral terms it is clearly arguable.
The Nomination Committee’s annual review of board effectiveness gives genuine feedback to all members through the annual general meeting on how the board is doing. The NMC could presumably comment on that report and it could be debated both there and at the AGM.
One Member One Vote – both to the Board and the NMC – is fully preserved and indeed extended fully within the Co-op Group for the first time – currently it is mediated through the sales proportions of regions and the area committee and regional board system.
Elections to the Group Board and the NMC would be conducted on the principle of “one member, one vote”. NMC members would be elected by all members for a term of three years. Detailed voting arrangements, including the structure of regional/national constituencies and the method of voting would be the subject of analysis and consultation in Phase 2. Once the proposed arrangements were approved, the present membership architecture would be disbanded and transitional arrangements put in place. A revised remit and role would be developed for Area Committees.”
The detail on the fuller role of the NMC then follows. I have referred to parts of it above.
The NMC would have two primary roles: first, as guardian of the values and principles of the Group’s constitution. The NMC would protect the Group‟s position as a member owned organisation. In this capacity it would hold certain powers to veto further changes in the revised constitution; nothing would be done to increase the vulnerability of the Group to takeover or demutualisation. The NMC would also hold the Group Board to account on ethical matters and oversee the Group‟s social goals programme.
That answers the classic building society problem of demutualisation by bribing members with shares in the PLC it will become as the elected NMC stands in the way of that. It therefore helps to secure the co-operative structure while giving all members a voice through OMOV.
The second primary role of the NMC would be to hold the Group Board to account for its stewardship and strategic leadership of the organisation and for the operational performance of the Group. In this capacity, the NMC or its Executive Committee would have the right to be consulted on key strategic and operational initiatives along with any aspects of the management of the Group. A “significant transaction rule” would be introduced, giving the entire membership a vote on large deals which can currently be approved by the Group Board alone.”
If the point about a “significant transaction rule” finds its way into the new constitution, it will give co-op members, for the first time, the same legal rights as PLC shareholders to decide on major transactions instead of a more watered down “consultation meeting” as the Co-operative Code for consumer societies currently recommends (see paragraphs 22 to 24 on page 8) but most society rules do not require. That boosts democratic control. However, here again the details of the roles and responsibilities of the NMC will be important. The “right to be consulted” may need to be developed further if member control is to be firmly established. Holding the Board to account for its strategic leadership will be of limited value if the Board has unfettered powers to determine strategy.
“To facilitate its work, the NMC and its Executive Committee would be supported by a secretariat. Arrangements would be put in place to safeguard confidentiality of information shared by the Group Board and Executive with NMC members.”
This provides the back up needed to do the NMC’s job effectively across the whole business. The regional structure has always had the problem that, while it made sense in a delegate based democratic structure, it bore no relation to the way the nationally controlled businesses were managed.
“Independent societies would cease to sit on the Group Board and a new enhanced structure would be established to promote trade and protect interests in common between the Group and these independent societies. The independent societies have a high and necessary dependence on a viable, efficient and competitive Co-operative Group.
The Group’s structures need to support the current business and business relationships, including with corporate members. This proposal completes the process of removing independent societies from positions of major influence, in a society which was founded and for more than a century controlled by independent societies. Whilst this is logical in the context of the proposals as a whole, its acceptance by independent societies will depend upon the “new enhanced structure” referred to, and upon any changes to the current capital owning arrangements.
“All rule changes would contain a so-called “sunset clause”, under which the constitution of The Co-operative Group would return to the current status quo after a period of four to five years without a member vote to retain the new structure”
This gives members a chance to revert to the present system if they don’t vote to support the new one after five years. So even voting through these changes in May is intended not to be irrevocable.
So this is the outline of a new governance structure to address the problems of the old one. The outline of the overall architecture is becoming clear, though the shape and functions of the annual members meeting will be an important part of this.
Many will find this Interim Report painful reading. Whilst much detail needs to be worked out – some of which will be in stage 2 –these proposals have the makings of a practical and democratic structure for a large 21st century co-operative. The absolute priority for all of us is to secure a basis for the survival of the Co-operative Group as a co-operative. This means engaging with the process and supporting the development of detailed arrangements which will be fit for purpose; fit for purpose for a business of this scale, but also fit for purpose to provide an even stronger basis from which to challenge conventional investor-owned businesses.
That is the prize. For the sake of the future of UK Co-operation, we must all do what we can to help the Group to win it.
© Ian Snaith 2014 This work is licensed under a Creative Commons Attribution-ShareAlike 2.0 UK: England & Wales License.
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