Saying it with Flowers: Co-op chief Len Wardle quits as beleaguered group plunges into crisis

Former chair Paul Flowers was exposed for allegedly buying and using illegal drugs in a newspaper sting at the weekend

The Co-operative’s crisis has deepened after its chairman, Len Wardle, brought forward his resignation amid further revelations about the activities of Paul Flowers, the former chairman of its reeling banking business.

With questions mounting about how a man with Mr Flowers’ limited banking experience was allowed to take command of a significant deposit taking institution, it emerged that he had quit as a councillor in Bradford two years ago after “inappropriate but not illegal” adult content was found on his computer.

It was discovered when he put the machine in for servicing and resulted in the Methodist minister’s immediate resignation.

The affair emerged in the wake of the crisis at the bank and his being filmed apparently buying drugs.

Mr Wardle said in a statement: “The recent revelations about the behaviour of Paul Flowers, the former chair of The Co-operative Bank, have raised a number of serious questions for both the Bank and the Group. I led the board that appointed Paul Flowers to lead the bank board and under those circumstances I feel that it is right that I step down now, ahead of my planned retirement in May next year.”

Ursula Lidbetter, currently group deputy chair and chief executive of the Lincolnshire Co-operative Society, will succeed him and oversee the group through a review of its governance, announced in the wake of the revelations about Flowers. Management has already been overhauled and Mr Wardle has advocated the appointment of a strong and independent external chairman to oversee the group.

Its sprawling interests range from food retailing to pharmacies to funerals in addition to its beleaguered banking business, but it is the crisis at the latter that has led to an unflattering light being cast on the group, and on its regulators.

The bank will soon formally pass into the hands of hedge funds who were holders of its bonds after the Bank of England identified a £1.5bn hole in its accounts.

The Co-operative Group will retain a 30 per cent stake, which is sufficient to ensure the bank lives up to commitments to steer clear of investing in unpleasant regimes and environmentally destructive projects that  will be written into its constitution.

But the reverberations from its plunge into crisis continue.

The bank has put the blame for that crisis in large part on the loan book Co-op inherited as part of the merger with the Britannia Building Society.

Today, one of the architects of that merger, former Co-operative Financial Services chief executive David Anderson, came under fire from MPs investigating the collapse of Co-op’s attempt to pull off yet another merger, with Lloyds Banking Group’s Verde business.

The Conservative Angela Leadsom described the decision to push ahead with the Britannia deal in late 2008 and early 2009, when the financial crisis was at its height, as “bizarre”. “Isn’t it astonishing timing that the first talks took place at height of the financial crisis?” she said.

Mr Anderson hit back, saying: “The risks were less than carrying on on our own separate ways. We had very full due diligence. We had advice that there was value to Co-op in the deal.”

He left when the deal was completed, with the merged business being run by Britannia chief executive Neville Richardson. Mr Anderson had earlier described the merger as “the right thing to do at the time” and argued that problems with Britannia’s now infamous book of commercial property loans were not evident. He put the failure of  the bank down to a multitude of factors.

In an earlier appearance Mr Richardson, who departed two years ago, denied the loan book was a problem under his period in charge and sought to place the blame on regulatory changes, the actions of his successors and on the organisation trying to do too much at once. This included integrating the bank with the other parts of the business and a multimillion IT project that went badly wrong.

But the Bank of England has refuted this version of events and the claim and counter-claim, combined with the series of revelations about the conduct of Mr Flowers, have presented a picture of a deeply dysfunctional organisation.

Mr Flowers came to prominence at the Co-op through his work as a local Labour councillor and through his membership of the movement’s political arm.

First securing election to an area committee, he then joined a regional board, which supplies 15 members of the main Co-operative Group board. This structure – and the opportunity it presents to political figures like Mr Flowers to gain power over the group’s commercial activities – will be part of the review.

Ms Lidbetter said on her appointment: “These are very difficult times for The  Co-operative Group and the wider movement, but I believe that we can and will come through this period stronger than ever by facing up to our challenges. I look forward to working with the new management team, who have already started on the important work of turning around our businesses. In addition, I look forward to working with my fellow board members and the wider membership as we change the way we are organised and governed in the interests of all our seven million members.”

If Mr Wardle’s wish is realised of seeing a strong, independent and external chairperson appointed from outside the institution, she may be the last of her kind.

Timeline: Countdown to crisis

21 October 2013

The Co-operative Group is forced to give up majority control of its bank due to a £1.5bn shortfall in capital, allowing US hedge funds to take charge.

6 November 2013

The bank’s former chairman, the Rev Paul Flowers, gives a disastrous performance before the Commons Treasury committee, quoting wildly inaccurate figures.

17 November 2013

Mr Flowers is outed as buying and using illegal drugs a few days after his committee appearance.

19 November 2013

The group’s chairman, Len Wardle, resigns over the Flowers scandal.

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