But the current mess isn't about the Co-Op Bank. That is in no worse shape than it was last week, or last month, or even last year. This is about the governance of the Co-Op Group - the sprawling conglomerate that encompasses supermarkets, farms, pharmacies, funeral parlours and health care as well as financial services. Managing such a diverse empire would be a challenge for any CEO, and recent problems in the financial services division coupled with poor performance in the over-extended retail division have created quite a headache for the Co-Op's executive management. In a couple of weeks time, the Co-Op Group is expected to report the worst results in its 170-year history. The last thing it needs is a dysfunctional Board. But, it seems, that is exactly what it has.
Euan Sutherland's resignation came two days after details of his pay deal were leaked to the Observer, causing a storm about boardroom "fat cats" taking over the Co-Op. I admit I found it hard to see how the pay was justified, particularly the bonus and retention payment: we would normally expect discretionary payments like these to be a reward for good performance and a share in profitability, not an up-front payment to persuade a chief executive to stay on in a failing firm. Particularly damning was the revelation that John Lewis Partnership, a successful workers' cooperative, pays its CEO considerably less than the Co-Op was planning to pay Sutherland. This made the Co-Op chair's argument that Sutherland's pay was "at the mid-range of comparable organisations" look somewhat weak.
However, it was not only pay details that were leaked, and in some ways the other leaks were more damaging. Boardroom decisions such as the sale of the farms and possibly the pharmacies were reaching the press prior to formal announcement being made. The source of these leaks could only be the Board itself. Sutherland claimed on Facebook that there were individuals on the Board who were determined to undermine him. I don't know whether their intent was personal, but it does look very much as if someone was out to prevent change at the Co-Op and was prepared to use underhand methods to achieve their ends. If this is the case, then Sutherland's observation that the Co-Op was "ungovernable" is accurate. It is impossible for a CEO to do their job if their decisions are constantly being undermined by dirty tricks.
Sutherland says he had been thinking about resigning for quite some time. I can't say I blame him: he has had a bruising ten months. But the reasons are not personal.
The offer of resignation occurred after a difficult Board meeting in which far-reaching changes to the Board structure were agreed, subject to the approval of the membership. It appears that Lord Myners, the independent director who is conducting a review into governance of the Co-Op, is recommending a two-tier Board - a corporate-style board with executive and non-executive directors, and a secondary board containing "members and colleagues", which would hold the primary board to account on ethical and mutual principles. This second board would contain the present elected representatives of the Co-Op membership. It is this structure that Sutherland and Myners persuaded the present Board to adopt. And this decision too was immediately leaked to the press, thereby undermining the democratic process within the Co-Op itself. I think it was this leak, rather than the pay details, that finally confirmed Sutherland's decision. He resigned the following day.
As Sutherland explained to Robert Peston, his resignation was a judicious sacrifice:
His hope therefore is that by resigning and highlighting that the group is a long way from mended (it still needs to reassure the banks that it is reducing large debts of £1.5bn, it has promised the Bank of England to inject £260m into Co-op Bank), the change to management structure he believes necessary will now happen.
"My hope is that from the resignation will come healthy reform," he said.
What form that "reform" will take is the question. Myners' proposal for a two-tier board is unpopular with the Co-Op's regional boards and elected representatives. The co-operatives movement itself is not unaware of the need for change: there is a "grass-roots" movement to push back against Myners' recommendations with ideas of its own, some of which are eminently sensible and should be taken seriously. But there is a very long-established layer of the cooperative equivalent of "middle management" which has a vested interest in keeping things exactly as they are. The comments of an unidentified "source" reported in the Guardian are typical:
"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."
I have heard similar comments from my contacts in the co-operative movement. There is a widespread view that the Co-Op is "different" and that a corporate-style governance model is not appropriate. Even though they are hardly a typical corporate governance model, Myners' proposals will be very hard to implement against such widespread opposition, and it may be that they will end up being substantially amended.
But Sutherland falling on his sword does not really change anything as far as governance reform goes. I fear that those who were intent on forcing Sutherland out in order to derail reform have misunderstood the situation. It is not the CEO's job to restructure the Board: that responsibility falls to the Chair. And the Co-Op Chair, Ursula Lidbetter, has made it clear that she too is in favour of reform:
"Euan's resignation must now act as a catalyst for the real and necessary change which the group must go through".
The question is whether a relatively inexperienced chair can push through reforms in the face of what appears to be determined opposition at Board level - and whether she has the authority to remove from the Board those whose behaviour has caused such chaos at the Co-Op.
So far she has acted sensibly: she told ITV's Richard Edgar that she was investigating the source of the leaks and would "deal with it". She also said that she would not seek to replace Sutherland until the governance changes have been agreed: the CFO, Richard Pennycook - a sound pair of hands acquired from the supermarket Morrison's - will act as CEO for the present. This is a pragmatic decision. Sutherland's remarks amount to a warning to potential successors not to touch the Co-Op with a barge pole until reforms have been made. Recruiting a replacement at the moment would be well-nigh impossible.
But despite a strong start from Lidbetter, I'm afraid I am not hopeful. Sutherland's observation that the Co-Op is run too much for the benefit of its activists and not enough for the benefit of its members and customers rings true to me. And if he is correct, then his resignation may give those who benefit from the current arrangement cause to celebrate - indeed it seems some already do. From the Guardian, again:
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."
If vested interests can force out a strong and experienced CEO, then an inexperienced chair should be a pushover. In which case the forces opposing change are those really in charge, and the Co-Op will continue to muddle along in a mediocre way, failing its customers and - ultimately - the members that it says it serves. It's a tragedy.
Related reading - the Co-Op Bank saga: