The embattled group plans to cut the number of seats in its boardroom from 18 to 11, made up of three directors elected by Co-op members, five non-executives, a chairman and two executives.
The new board will be made up of new faces, apart from interim chief executive Richard Pennycook, who plans to return to his former post as chief operating officer and continue to sit on the board once the reforms are in place next year.
"It will feel very different to the board today, which we have all acknowledged has been much too big [and] lacking the direct skills and competencies that are required of an organisation of this size and complexity," Mr Pennycook told reporters yesterday. "This marks the end of the rescue phase of the group."
The Co-op has asked recruitment specialists to advise on the qualities and experience needed in its new directors, and the amount they should be paid.
The shops-to-funerals organisation is also creating a council of up to 100 members, which will in turn nominate a senate to liaise with the board.
The reforms will also see the mutual adopt a "one member, one vote" policy, as recommended by former board member Lord Myners, giving its eight million members an equal say on major business decisions such as takeovers and new directors. However, the inclusion of three directors chosen by the Co-op's members falls short of former director Lord Myners' recommendations in March for an independent and experienced board.
Members will vote on the proposed changes at a special meeting on August 30, with the new board expected to be in place by next year's general meeting. Until then, a transitional board with nine members will stay on to oversee the 150-year-old group.
The Co-op lost £2.5 billion last year after it uncovered a £1.5bn shortfall in its bank's balance sheet during a failed attempt to buy 632 Lloyds branches.
The group has faced criticism from politicians and business insiders for its unorthodox structure. Euan Sutherland, who quit as chief executive in March after 10 months in the job, said the firm in its current state was "ungovernable".
Prime Minister David Cameron said in November that "there are clearly a lot of questions that have to be answered" about the appointment of former chairman Paul Flowers, who pleaded guilty to drug offences in May.
As well as the board changes, the Co-op has in recent weeks sold its pharmacy branches and farming businesses to shore up its finances.
Mr Pennycook said the firm's cash handling operations will shortly be sold, but that the Co-op has now completed all of the major disposals it had planned.