Co-op Group fends off legal threat over governance

The Co-operative Group is set for another showdown with members on Saturday a year after they approved sweeping governance changes, after its board was forced to compromise over the appointment of directors.

The Midcounties, the largest of the independent societies that own part of the Co-op Group, threatened an injunction against the board over the "untransparent" process of nominating and electing new directors. Member representatives agreed a year ago to replace the Co-op's 22-strong board of members with a plc-style one half the size that included executives. A 100-strong council of members was created that retained the right to nominate candidates for three directorships.

The election process has been thrown into controversy after Midcounties threatened to take legal action to block the appointment of these directors.

Dame Pauline Green, a former Labour MEP and president of the International Co-operative Alliance, and Nick Eyre, a former secretary of the group, were not selected in what some members believed was an effort to "purge" those with a history in the group. Dame Pauline said she was told the board wanted "fresh co-operators".

But the Co-op agreed on Friday to binding arbitration on how future contests will be run and the Midcounties board is expected to drop its threat. The truce paves the way for former Labour minister Hazel Blears, Ruth Spellman, chief executive of the Workers' Educational Association and Paul Chandler, former boss of the fair trade group Traidcraft, to join the board.

Nevertheless, other flashpoints remain for the Co-op. The council has called on members to vote to retain donations to the Labour-affiliated Co-operative party - something the group wants to review. It also wants the Co-op to maintain its range of Fairtrade products.

For the first time, more than 2m members have been able to vote at the AGM, rather than just their elected representatives.

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The meeting will be the first chaired by Allan Leighton, the former boss of Asda and Royal Mail and the son of a Co-operative store manager, who was brought into the group for his turnround skills.

Richard Pennycook, the former Wm Morrison finance chief who is chief executive, has focused on cutting the group's debt and investing in convenience stores to attract new customers.

He is battling with a grocery market in which prices are falling about 2 per cent per year while trying to retain the group's ethical credentials such as selling only free range eggs.

The Co-op's grocery market share, at 6 per cent, continues to fall as it shuts larger stores to focus on small convenience outlets. Fast-growing German discounter Aldi - which opened its latest shop in the former Co-operative store in Immingham in Lincolnshire on Thursday - could overtake it within 12 months, according the Kantar Worldpanel, the research group.

John Thanassoulis, of Warwick University business school, said the Co-op had a difficult balance to strike but "they have attracted some excellent people to work for them".

Revenues from the Co-op's food business fell 2 per cent to £7.09bn in 2014, although its convenience business held its own, with like-for-like sales growing 3.2 per cent. "We can compete with the best," Mr Pennycook told the BBC on Wednesday.

In April, the Co-op Group reported profit before member payments of £216m in 2014 against losses of £2.3bn a year previously, when scandals at its banking arm forced huge and destabilising management changes. The group's debts fell by 43 per cent to £808m.

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