LONDON--Co-operative Group Chief Executive Euan Sutherland on
Tuesday announced his decision to step down after only 10 months in
charge, stoking fears of an exodus of senior managers from the
struggling mutual.
Mr. Sutherland will be replaced by the group's chief financial
officer, Richard Pennycook, until a new CEO can be found, the Co-op
said in a statement. The management reshuffle comes after a tug of
war between Mr. Sutherland and the Co-op's 21 person board of
directors over how the mutually owned supermarkets-to-funeral home
conglomerate should be run.
Mr. Sutherland on Monday wrote to the Co-op's chair saying that
the group was "ungovernable" and offered to resign, according to
people familiar with the matter. On Tuesday his resignation was
formally accepted by the board. "I now feel that until the group
adopts professional and commercial governance it will be impossible
to implement what my team and I believe are the necessary changes
and reforms to renew the group and give it a relevant and
sustainable future, " Mr. Sutherland said in a statement.
According to people familiar with the matter, the offer to quit
was triggered by a leak over the weekend of details of a proposed
GBP3.7 million ($6.2 million) 2014 pay package for Mr. Sutherland.
He responded on a Co-operative Group social website Monday by
saying that someone appeared to be "determined to undermine me
personally, my team and the rest of the group board regardless of
the uncertainty and disruption this causes to our 90,000 colleagues
and our supportive members." On Tuesday he said he wouldn't be
taking any retention payments or long-term incentive payments.
Mr. Sutherland's departure comes as the mutual looks to reinvent
itself following the near collapse of its banking arm. The company,
which also runs supermarkets, pharmacies and funeral homes, is
considering selling off parts of its operations and changing its
governance. The group has warned that it will book substantial
losses when it next reports earnings later this month.
Ursula Lidbetter, chair of The Co-op, said in a statement
Tuesday that the resignation "must now act as a catalyst for the
real and necessary change which the Group must go through."
As part of this revamp, Mr. Sutherland had proposed a new
oversight structure that would see it governed by two separate
boards, the people familiar with the matter said. A traditional
company board with executive directors and professional independent
directors would run in parallel to the existing board made up of
the mutual's members.
In an attempt to get Mr. Sutherland to stay at the group, the
Co-operative Group board held an emergency meeting Monday night and
voted to support those proposals, the people familiar with the
matter said. The plans are now likely to be put to members at the
company's annual meeting in May.
However, the people said Mr. Sutherland's concerns about leaks
were reignited when details of the board meeting were reported in
the press early Tuesday. Mr. Sutherland ultimately decided that the
breach of trust was too serious and would thwart his efforts to
reform the company, a person familiar with his thinking said.
Mr. Sutherland joined Co-operative Group in May, just as a
capital shortfall was reaching crisis levels at Co-op Bank. He
helped stabilize the bank with a GBP1.5 billion ($2.5 billion)
rescue that saw bondholders swap their debt for 70% of the bank's
equity, but was criticized by some politicians and Co-op members
for failing to keep full control of the bank. As part of the revamp
Mr. Sutherland bought in a number of senior managers including Mr.
Pennycook.
The executive had pledged to modernize Co-operative Group's
archaic structure, and to rebuild trust with customers that was
damaged in the bank bailout. Co-operative Group is one of Britain's
largest private companies, with 2012 revenue of GBP13.5 billion and
8 million members eligible to share its profits through annual
dividends.
Right now, Co-operative Group is governed by a 21-person board
made up of 15 elected regional representatives, five executives of
independent co-operatives and one independent non executive. The
democratic system fell into disrepute when it failed to halt
management's near-fatal effort to expand Co-op Bank, and after a
former director at the group and bank, Paul Flowers, was caught on
tape in November and heard discussing an alleged drug purchase.
Mr. Flowers said at the time he had done things that were
"stupid and wrong" but didn't comment directly on the drug
allegations. He was arrested later that month and is on bail.
Write to Max Colchester at max.colchester@wsj.com and Margot
Patrick at margot.patrick@wsj.com
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