Sutherland offers to resign

Euan Sutherland has tendered his resignation in a letter to Co-op Group's chairman, Ursula Lidbetter, having become concerned that the sprawling mutual, with its democratic structure, is unmanageable.

An emergency telephone board meeting was convened last night to talk him out of it. In a meeting that lasted from 20:00 to 23:00 GMT, the board agreed that a new, more conventional, board would be put in place, that would allow the Co-op to be managed in a more conventional way.

But that reform has to be agreed by the Co-op's members and their elected representatives, Which is not a certainty.

And as of now, Mr Sutherland's resignation stands.

Mr Sutherland's decision to resign was precipitated by leaks over the weekend that his pay for 2013 and 2014 would be £3m, which he saw as an attempt to stymie needed modernisation of the group.

Co-op Group is still perceived by its banks to have too much debt, and an executive told me he feared it could be put into administration, if the executive management is seen to be fracturing.

If it were put into administration, that would then raise a question about whether Co-op Group would put the £260m it has agreed to inject into Co-op Bank as part of its rescue.

Today the Co-op's board will tell its regional boards about the proposed new governance structure, that would involve commercial decisions being taken by what would look like a conventional public company board - in other words a board with professional non-executives and two executives.

The elected Co-op board members would not be on that management board, but would have a new parallel board.

The traditional elected Co-op board members see Mr Sutherland's attempt to create a more conventional governance structure as a coup to undermine the mutual ethos of the Co-op.

However Mr Sutherland and his senior executive team believe that these Co-op movement grandees are on a course to destroy the Co-op, failing to recognise the scale of its financial woes.

UPDATE 1000 GMT

There is a battle for the soul of the Co-op underway, between a professional executive team brought in to rescue the financially stretched mutual and those who have worked in the Co-op movement most of their lives and have been elected to positions of considerable power.

The leader of the executive team, Euan Sutherland, delivered his resignation letter to the chairman Ursula Lidbetter yesterday morning because of his growing despair that his ability to modernise and improve the Co-op is being frustrated by leaks and what he sees as guerrilla tactics by his critics.

To be clear, Ms Lidbetter backs Mr Sutherland, and wants him to withdraw his resignation.

She hasn't succeeded yet. But last night's emergency board meeting did agree to a radical reform that would meet most of what Mr Sutherland wants.

It would create a conventional board to run the Co-op, which would include two executives and five professional non-executives.

Or to put it another way, the ultimate decision-making body for the Co-op would no longer be a board consisting entirely of elected representatives.

And here's the irony - it was that elected top board, chaired by Ms Lidbetter, which does not contain a single executive, that last night approved the creation of a conventional board and, in a sense, voted to marginalise themselves.

But the problem is that not all members of the board want the destruction of this democratic structure.

And they still have the power to block its imposition. Because the top board is not sovereign when it comes to such governance or structural changes.

This reform can only be approved by the annual meeting, scheduled for 17 May. In that annual meeting, roughly 75% of the votes belong to regional boards, which vote in blocs rather like trade unions, and 25% are with the independent co-operative societies.

What is unclear is whether Euan Sutherland's very dramatic resignation will make it more or less likely that the annual meeting would approve a structural reorganisation that would massively lessen the power of roughly 600 Co-op Group activists.

But as I said earlier, Co-op Group remains highly indebted.

And if its banks came to believe that the group's four senior executives, Mr Sutherland, Richard Pennycook, Nick Folland, and Alistair Asher, were no longer in charge, they would - I am reliably told - give serious thought to seizing control of Co-op and putting it into administration.

UPDATE 1320 GMT

Any minute now the Co-op Group will confirm the resignation of Euan Sutherland as chief executive.

His colleagues however think they still have 48 hours to get him to change his mind.

Whether he does change his mind depends on whether the regional boards of the Co-op Group indicate that they are likely to support a radical reform of the governance of the huge mutual, which would involve the creation of a public-company-style board for the group.

My soundings tell me that the elected Co-op officials on these boards may come round to these massive structural changes over time. But that there is very little chance of them agreeing the reform in time for the annual meeting in May.

Co-op executives are expected to learn this when they speak to the regional boards this afternoon.

This means, I think, that Mr Sutherland's departure will not be reversed.

What does that mean for the stability of the group?

Well the banks, led by Barclays, who are owed £1.5bn, are being supportive for now, I am told.

But to avoid the risk of the group being put into administration, there would have to be palpable evidence that the group is being run by a stable management team pretty speedily.

UPDATE 1850 GMT

I have just interviewed the chairman of Co-op Group, Ursula Lidbetter.

She told me she deeply regretted the resignation of Euan Sutherland, whom she described as a great leader.

She felt that he earned the £3m he had been awarded for his performance in 2013, but respected him for not taking half of this, his retention bonus.

She also said that she hoped that the sense of crisis generated by Mr Sutherland's departure might lead to an acceleration in the reforms of the governance of Co-op Group, the introduction of a more conventional management structure.

She had originally expected these to be agreed by elected officials in November, but she now hoped approval would come at the annual meeting in May.