Co-op Group chief resigns over Flowers drug scandal

Guardian News and Media/London

The crisis at the Co-operative Group deepened yesterday when its chairman, Len Wardle, quit abruptly in the wake of allegations about drug taking by the former chairman of its embattled bank.

Wardlehad intended to leave the post, which he has held since 2007, in May. But he will now go immediately, and is taking responsibility for appointing the disgraced Paul Flowers to chair the bank three years ago.

Wardle is expected to keep receiving his £145,000 fee until May.

Flowers, currently suspended from his position at the Methodist church and his cherished membership of the Labour party, has been videoed handing cash to pay for drugs.

The new temporary chairman of the Co-op Group - which has a presence in every post code in the country through its supermarkets, pharmacies and funeral homes - was named as Ursula Lidbetter, currently deputy chair. She will now lead an ongoing review into the way the Co-op is structured after starting at the group as a buyer and department store manager in Lincoln.

She has been chief executive of the local co-operative since 2004 and was the first woman to head that organisation.

“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,” she said.

The Flowers’ scandal has put fresh focus on the way the Co-op is run and its links to the Labour party at a time when its bank is desperately trying to raise £1.5bn to stave off collapse.

The group is ceding control of the bank to bondholders, led by two US hedge funds. But bondholders, including 15,000 retail investors, have to agree to the rescue and accept losses on their bonds by the end of the month if the plan is to succeed. Many of the problems at the Co-op bank have been linked to the merger with Britannia building society in 2009 - now responsible for £550mn of bad loans at the banks.

But David Anderson, the head of the Co-op financial services division at the time of that transaction, put up a robust defence of the deal at an appearance before the Treasury select committee, insisting the two entities were stronger together than apart.

The Britannia deal “was not enough to bring down the bank”, Anderson, now a non-executive director at John Lewis, said on at least three occasions. “It contributed to the current situation,” but on its own was not to blame for the £1.5bn capital shortfall that the Bank of England has identified.

Anderson, a one-time boss of Yorkshire Building Society, also said he disagreed “with anyone who says this undermines the mutual financial model of business”.

Flowers chaired the bank until June when he left just as the scale of the problems emerged and Wardle said he was leaving because he had been in overall charge when the methodist minister was appointed in March 2010.

Wardle said: “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.”

Warlde has already said his successor should come from outside the co-operative movement, which currently requires its 20-strong board to comprise members of the mutual organisation. “I have already made it clear that I believe the time is right for real change in our operations and our governance and the board recently started a detailed review of our democracy. I hope that the group now takes the chance to put in place a new democratic structure so we can modernise in the interests of all our members,” Wardle said.