Governance questions and the Paul Flowers debacle

by Karen hope

As a recruiter of Trustees and Chairs onto the Boards of charities I am only too aware of what constitutes good governance in the recruitment process.  With the spectacular fall from grace of Paul Flowers and the disbelief as to how he came to be appointed as the Chair of Co-op Bank, before the current internal and external investigations deliver their findings we can only speculate as to what went so badly wrong.

Mr Flowers himself, already a Director of Co-op Bank and Co-op Group when he was appointed as Chair, said before the Treasury Select Committee that he was put through a “rigorous and considerable appointment process”.  He was the unanimous choice out of four candidates being considered for the role.  He said it was historical practice at the Co-op to “always appoint a Chair from within its numbers” so one assumes the other three candidates were also Co-op people.

As part of that process he said he was also put through a “rigorous process with robust interviews” with the FSA as it then was, to see if they felt he was an appropriate person to be Chair of the Board. That was undertaken by a panel at the FSA and he said was “very searching” and it was their judgement that he was an appropriate person for that role.

According to the CEO of the now FCA, Martin Wheatley, who was part of the FSA at the time Paul Flowers was seen by them in 2010, under the rules in force when Mr Flowers was appointed, the FSA was not required to “challenge” him because he was already on the bank’s board, thus absolving the FSA of responsibility.

Robert Peston, the BBC’s Business Editor, commented that Mr Flowers had never worked in the banking sector in “any senior capacity”, but had been appointed Chairman of the Co-op Bank as a result of a “power struggle within the co-operative movement.”

So we have different perspectives on how and why Mr Flowers got to be the Chair.  Before we have any insight into the internal process that delivered him into this role, questions around governance could be asked about the practice of always appointing a Chair ‘from within its numbers’ if this is in fact the case.  Then one needs to look at the checks and references that were made and taken up, which should be standard practice whether it’s an internal or external appointment.  This is quite apart from Mr Flower’s competency to do the job, which as the Treasury Select Committee discovered, did not hold up to even superficial scrutiny.

Len Wardle who stepped down as Chairman of Co-op Group following the scandal, having led the board that appointed Mr Flowers, has indicated that his successor should be an outsider.  He believes the Group should “take the chance to put in place a new democratic structure so we can modernise in the interests of all our members.”  I would question why the Co-op has chosen not to see the benefits of at least considering outside candidates for such an important role historically.  At the very least they would then have other candidates to put alongside internal candidates to ensure they are getting ‘the best person for the job’.

The benefits of bringing ‘new blood’ into an organisation cannot be overstated. They challenge the status quo, questioning accepted patterns of behaviour which may not be in the organisation’s best interests, shining a light on the dark recesses that can harbour incompetence, a culture of working to rule, cronyism, and worse.

Ursula Lidbetter, the temporary Chair and former Deputy Chair of Co-op Group, is now leading/chairing the Group through the current governance review, which will include consideration of how the Board is constituted and chaired. She joined the Co-op as a graduate trainee and one only hopes she has enough independence of thought to balance the historical practices of a bank whose values are about doing good with the need for transparency and public accountability.

Governance practice has again been in the news recently with the publication of the NAO report about the failure of The Charity Commission to stop a charity that’s alleged to have been abusing its charitable status.  Regardless of the effectiveness and competence of the regulator though, shouldn’t charities be recruiting competent Trustees who understand their responsibility to ensure the organisation meets its regulatory obligations and complies with its governance rules….?

Karen is a key Achill partner sepcialising in finding top quality people for senior roles at H.E.D.S.


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