Stripping Co-op of mutual status would solve nothing

If you have just offered the individual in question a number of inducements - say, three and a half million inducements - you might wonder about the problem, and why it wasn't mentioned earlier, but such is life. Sometimes people overestimate their abilities. Even a thumping package of "rewards" granted before there exists an achievement to be rewarded won't solve the problem.

The case of Euan Sutherland, now resigned from the Co-op Group, is not quite so simple, however. He joined the venerable institution from B&Q as long ago as last May. Presumably he did some research into the ethos, history and practices of the mutually owned enterprise before he took the job as chief executive. The Co-op, as he surely realised, is nothing like the plcs with which he made his reputation.

True, Mr Sutherland arrived just as the group was being reminded of that fact. The catastrophes inflicted on the Co-operative Bank were none of his doing. The mess he inherited, one which has seen 70% of the bank pass into the hands of American hedge funds and other bondholders, was obviously not what he anticipated during his first months in charge. The fact remains that the chief executive spent most of his time talking as though every problem can be fixed.

Hitherto he did not say, as he declared in a letter offering his resignation to group chair Ursula Lidbetter, that the Co-op, spread across supermarkets, pharmacies and funeral services, was "too difficult to govern". Clearly, he made no mention of this problem when a £3.6 million remuneration "package" was recently on offer. Nor does he seem to have explained why a group capable of a £585m operating profit as recently as 2011 is an impossible management proposition.

Mr Sutherland's pay deal gave a certain edge to his fateful letter. His proposed salary of £1.5m would have put him ahead of every FTSE 100 chief executive in the basic wages stakes. As the employee of a mutually owned business, however, he could not look forward to the share options which garnish the earnings of his peers. But the Co-op's board, in its wisdom, decided that the chief executive and members of his team instead deserved "retention payments".

Resignation suggests a certain lack of eagerness to be retained. In reality, the £1.5m offered to Mr Sutherland in addition to his wages was nothing less than a guaranteed bonus. In other words, it was a reward equivalent to 100% of salary, bearing no relation to success or failure, to share price (irrelevant to the Co-op), or to profitability. Since the group is expected to record a £2 billion loss before the month is out, mention of profits might as well be an elaborate joke.

Given his salary, disguised bonus, pension payments and cash to "buy out" a share deal with his previous employer, Mr Sutherland was in line for £3.66m a year. Now he walks away with only his wages and "great sadness". Until this week he had big plans to restructure the Co-op group into an entity more like a standard modern plc and less like its old self. Nevertheless, the chief executive also denied any desire for demutualisation of the organisation.

Clearly, some of the representatives of the Co-op's eight million members on its national and regional boards were not convinced. Why else would Mr Sutherland declare, as though out of the blue, that the group was "ungovernable"? He wanted to sell off Co-op farms, perhaps the 750 pharmacies, and achieve savings, as the euphemism goes, that could equate to 5000 jobs for a workforce that can only dream of a chief executive's salary. He seemed also to want a seat on the main board. Encountering opposition, Mr Sutherland issued what amounted to a challenge. The gamble failed

On the face of it, it was simple enough: if he didn't get his way, he was off. Given his history in business, he might have wondered who could blame him. In the modern corporate world the Co-op seems like an unwieldy, antique mixture, a throwback to another era that now stands in desperate need of rationalisation after its disastrous attempt to join the banking big league through merger with the Britannia Building Society.

But what would have happened if Mr Sutherland had got his way? The entire notion of a co-operative movement sits uneasily with the idea of an unfettered chief executive acting as he sees fit. It is arguable, in fact, that the two styles of doing business cannot be reconciled, just as the vast, guaranteed rewards doled out to a handful of managers don't square with the Co-op's cherished ethos.

Until a £1.5bn hole opened up beneath it, the Co-op Bank - a plc from the beginning, ironically enough - served as a standing rebuke to the decadence and greed of Britain's financial sector. The wider, mutually owned group has performed the same function for generations. It exists, goes the proud boast, for the benefit of those eight million members and for a wider social purpose than the enrichment of a few.

Mr Sutherland's pay deal, like his resignation challenge, called all of that into question. As with the inept attempt to expand the bank, an unearned 100% bonus was a symbol of the fact the Co-op saw no alternative but to fall into line with the rest of the corporate world. It surrendered to the belief that executive rewards come first and last. If Mr Sutherland had succeeded in getting his way and the control he desired, the Co-op's very democratic structures would have been destroyed. Instead, the movement has prevailed over the man.

In this argument, "ungovernable" becomes an interesting word. In the first decade of this century, the multiple of chief executive pay to average pay went from 69 to 150. In 2011, a report by the income inequality researchers One Society found that among FTSE 100 companies the ratio of top-to-bottom earnings stood at 262:1. The report noted: "For FTSE 100 CEOs, there is no statistically significant relationship between pay and company performance … Across the FTSE 100, rises in estimated executive pay outstripped rises in company value".

So who is truly ungovernable? RBS, 81% taxpayer-owned and posting an £8.2bn loss, argues that half a billion in bonuses is required to "keep people engaged" while warning that it still might not be able to attract the right individuals. Barclays profits drop by 32% yet it increases bonuses by 10%. Lloyds, still part state-owned, seeks shareholder permission to ignore restraint with 200% bonuses. The Co-op movement has been a bulwark against this shamelessness. So, for now, it remains.

Mr Sutherland seemed to forget who his real bosses were. There are eight million of them. If they have any sense, they will now crush even the hint of an attempt at demutualisation. That novelty has been a disaster for every asset-stripped building society. It will solve none of the Co-op's problems, with or without a £3.6m chief executive.