Some lessons from the Co-op
I’m reading Geoff Mulgan’s book The Locust and the Bee, a bit belatedly, and it provides a valuable lens through which to look at the Co-op affair. So, some quick notes on the affair, below the fold.
1. Makers and takers. The Locust and the Bee is about two competing forms of capitalism. The bees create value and the locusts extract it. While one of the features of late capitalism is that there are whole sectors, notably banking, that have become extractive, the Co-op was an interesting case of a Bee almost being captured by Locusts. (Amazon is another hybrid: it creates consumer value but extracts it from suppliers and employees.)
2. Values matter. Obviously Euan Sutherland did the right thing by leaving. A man who thinks it right to reward himself and his board so lavishly – in any business, not just the Co-op – is hopelessly out of touch with the ethos of the organisation he’s supposed to be running. And out of touch with the values of his core customers: my response to the leaked pay package proposal was to cut up my Co-op Visa card and send it back.
3. Retaining customers is more important than retaining board directors. The details of the pay packages – and some of the reasons why they were so unacceptable – were the subject of a measuredly angry piece by Will Hutton in The Observer. Here’s a quote:
The virus [of extravagant executive pay] has now infected the Co-op, one of our greatest retailers, but owned by its members as a co-operative. Board documents seen by the Observer show how degraded our business culture has become. In a closet deal executives are being paid twice their salary for simply staying put – a “retention” payment – because over 2013 and 2014 any performance related incentive in this troubled organisation would not pay out.
And the thing that I keep wondering about was the tone of the Board discussion as they discussed the largesse they were about to dump on themselves. Conspiratorial? Incredulous? Probably not. More likely, “Because we’re worth it.”
4. Agency theory has been a vast scam to enrich senior executives at the expense of pretty much everyone else. The whole executive bonus culture is based on a theory that to get the best from senior managers it is necessary to align their interests with those of shareholders by rewarding them lavishly for performance. It sounds as if it makes sense – but no-one who’s researched it can find evidence that it has any effect in practice. But because everyone else believes it it’s become a social and pay norm, at least among the executive elite.
5. They don’t like it up ’em. The most amusing part of the story is the manner of Sutherland’s departure, fulminating about the leakers on Facebook then resigning minutes later. In the age of social media, Rule One is if it can be leaked, it will be – so you’d better know what you’re going to say, what it’s going to look like, and how it’s going to understood.
6. It’s like the last six years never happened The world is awash with signals of change. John Lewis and Waitrose, employee-owned, are the most admired (and arguably most successful) retailers in Britain. The Fair Pay Review, the High Pay Commission, a Conservative Chancellor uprating the UK Minimum Wage, the Governor of the Bank of England complaining about bankers’ bonuses, repeated instances where shareholders have voted down executive pay proposals. You don’t have to look very far for any of these. But to judge from the news coverage, the Board of the Co-operative Group (the largest ethical business in the UK) and their advisors managed to miss all of this in their race to the executive trough. It was an astonishing myopia that makes you think the Co-op Board, even after Sutherland’s departure, isn’t fit for purpose.
Is the Co-op unmanageable, as Sutherland claimed? Probably not. But it clearly needs extensive reform, as its most senior non-executive director, Lord Myners, insists. But here’s the thing. You can’t make far-reaching changes to the operations and governance of an organisation if you’re also trashing its values at the same time. That’s why the ‘greed is good’ behaviour of Sutherland (and other Board directors who are still in post) was both self-destructive and self-defeating.
The image at the top of the post is from the Wikimedia Commons, and is used with thanks.