Flagging Co-op loses its head

Is the resignation of Lord Myners a disaster for the Co-operative Bank? Matthew Partridge reports.

The Co-operative Group "confronts profound financial and strategic challenges", says Lord Myners who last week resigned from its board after being brought in in December to advise the group in The Guardian. "The consequences of not addressing this do not bear contemplation by those who care about the group or who depend on it."

After the Paul Flowers scandal, Myners proposed reforms that would simplify the mutual's governance, making it more like a publicly listed company. These are due formally to be voted on next month.

The Daily Telegraph's Anthony Quinn thinks that Myners' departure "sums up everything that an outsider needs to know". While his reforms were "sensible", it sadly "looks unlikely that come the 17 May vote, his proposals will ever be heard of again".

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This is adisaster, because the current system"has allowed board members of both the group and the bank to hold their hands up in horror at the excesses of the past".

While "political sensibilities" willprevent the banks, to whom theCo-op owes money, from "pulling the rug" from under it, Quinn wonders how long they will keep "supporting abusted flush".

Former cabinet minister John Prescott, writing in the Daily Mirror, has a very different take on Myners' resignation.In his view, the former banker wanted"to slash the power of the smallerco-operatives which make up the group and give the board and chief executive more control but less accountability". This was "just the kind of structure that messed up the big banks".

Now, "instead of staying and trying to work out a compromise, Myners has taken his ball home, causing even greater instability". We "should be proud of the Co-op". After all, it has eight million members and 6,000 co-operatives committed to the principles of the Rochdale Pioneers, workers who banded together to opena store selling food they otherwise couldn't otherwise afford.

The Financial Times seems torn between both sides. "There is no doubt that poor oversight contributed to the failures that have brought the group to its present pass." Furthermore, it thinks that "there are things to like" about Myners' proposals.

The problem is that, by vastly reducing the power of the board, they would "turn the Co-op into a halfway plc". This could undermine the Group's "unique selling proposition".

While "it should be possible to achieve change while living within co-operative principles", it also has to decide "whether to stay in the banking business and how it can restore its flagging retail arm".

Dr Matthew Partridge

Matthew graduated from the University of Durham in 2004; he then gained an MSc, followed by a PhD at the London School of Economics.

He has previously written for a wide range of publications, including the Guardian and the Economist, and also helped to run a newsletter on terrorism. He has spent time at Lehman Brothers, Citigroup and the consultancy Lombard Street Research.

Matthew is the author of Superinvestors: Lessons from the greatest investors in history, published by Harriman House, which has been translated into several languages. His second book, Investing Explained: The Accessible Guide to Building an Investment Portfolio, is published by Kogan Page.

As senior writer, he writes the shares and politics & economics pages, as well as weekly Blowing It and Great Frauds in History columns He also writes a fortnightly reviews page and trading tips, as well as regular cover stories and multi-page investment focus features.

Follow Matthew on Twitter: @DrMatthewPartri