Pennycook: Why I wanted a pay cut Interview
How boss took on historic brand at the height of a crisis
CO-OP boss Richard Pennycook is that rarest of beasts – a company chief executive who asked for a pay cut. The accountant-turned-retailer declared in April that he should have his salary chopped and promptly gave up half a million pounds a year.
Perhaps this should not have been a surprise – after all he apparently did not want the job in the first place.
The 52-year-old joined The Co-operative Group at the height of its recent crisis, with its bank on the brink of collapse. He had just left Morrisons, where he had been finance director, and the last thing he was looking for was a new executive role.
‘When the Co-op bank blew up I’d already made a plan and was looking to take on a portfolio of nonexecutive and advisory roles. It was just at the point when I was available and I got a call saying: “Can you come and help; this is urgent”.
‘In my family history the Co-op was really important, a genuine institution. The thought that it might fail was completely horrendous. I said I would come and help fix the bank for three months and then go back to my original plan. Of course, three months became a bit longer,’
My grandparents talked about the Co-op and the dividend paying for Christmas
he says. Co-op soon hit a fresh crisis over its complex management structure as activist members clashed with the professionals at the helm of the group. The then boss Euan Sutherland stormed out in fury and Pennycook became interim chief executive. At the time he said he had no intention of becoming the permanent chief. A few months later he took the job.
So what changed? He says that at the time, ‘lay people were running the company’. The now notorious Methodist minister Paul Flowers, revealed by The Mail on Sunday in 2013 as paying for drugs, had stepped down just before Pennycook’s arrival. But the board was still dominated by non-business people.
‘It was clear to me that if we couldn’t fix the governance structure then this was not going to have a happy ending. If that happened I wasn’t prepared to be chief executive,’ says Pennycook. It was only when the governance reforms went through that I thought we had really created an opportunity for the Co-op to thrive again.’ Those reforms mean while members form a council the running of the group is, as Pennycook puts it, ‘by professionals’.
The turnaround has been marked. Co-op Group’s supermarket operation is now the fastest growing major supermarket in the UK barring German invaders Aldi and Lidl. Figures out on Friday showed sales rising at more than 3 per cent a year – a stellar performance in comparison with Tesco or Sainsbury’s.
Pennycook’s pay will be reduced next year from a base salary of £1.2million to £760,000. For a boss to ask for such a cut is almost unheard of. It was, he says, the right thing to do to reflect how the hardest work was over. ‘We were through the crisis and through the period of extreme effort and I personally wanted to reflect that,’ he says.
But don’t feel too sorry for him. That period of effort was well paid. Pennycook earned a total of £3.6million last year including his bonus and could earn a similar sum for 2016.
The crisis phase may be over but Co-op is still in the midst of radical change. And those changes have been costly. The group may be outperforming rivals on sales but the costs of restructuring, keeping prices competitive and raising staff pay meant profits fell sharply in the first half of this year.
Last week it relaunched its membership terms, shipping out five million new membership cards. The card provides a 5 per cent reward for Co-op brand purchases and 1 per cent passed on to local causes – to be decided by local members.
‘There are myriad examples of businesses who think in the right way and do business in the right way and the Co-op is one of those. What we are saying is, “You can own a part of it and have a say in how it’s run”.’
Pennycook says he wants to emphasise the community roots of the business and the ethical policies such as local sourcing and longer term supply contracts to help farmers plan for the future. And he says now is the perfect time for the Co-op to dust down its traditional credentials following the financial crash in 2008 and more recent corporate scandals such as BHS and the collapse of its pension scheme.
‘When something like BHS is playing out through the media it gives the impression of something that is not right in business. There are extremes of poor behaviour in any walk of life, as we all know.
‘I don’t think we want to preach and say the Co-op is somehow better than others, but there is a lack of trust in big institutions so there hasn’t been a better time for generations for the Coop to prove that a different model can be effective.
‘To achieve that the first thing we have to do is fix the business. We can’t be dewyeyed about it. But there is also a vein to tap into – disenfranchisement, disenchantment with big business and remote institutions.
‘My grandpar- ents always talked about the Co-op and when people got the dividend it helped pay for Christmas. As a child that gets ingrained in you. Along the way that got lost and we were all concerned that the Co-op had become a bit of a shadow of its former self. But this has been an opportunity to reverse that.’ He says things ‘couldn’t feel more different’ now than in 2013. ‘This is an organisation that overwhelmingly feels it is going in the right direction. We’re connecting with a new generation of membership – millions of members rather than just a few activists. ‘Our purpose is clear and the new governance structure is working really well and the board is a really high calibre.’ Pennycook admits that Co-op may have an image as a shop for older people, but he argues its ethos is in tune with the Facebook generation. ‘For the younger generations, for Millennials, they think in a very co-operative way – more connected, more thoughtful – but they haven’t thought about joining the Coop. We need to make it clear this is a different organisation and we’d love them to join.’ The crisis of recent years may appear to be something that would damage this halo, but Pennycook argues the heritage is deeper than a recent scandal and even argues that the way Co-op handled its crisis was an example of its ethical approach. ‘I think people can look through that and say this is an organisation with a 170-year history and many good examples of doing the right thing. And you can look at how we saved the bank as an example of us doing the right thing at huge cost to the group.
‘A private equity company would probably have allowed the bank to fail and say, “Let the taxpayer pick up the difference; let the Pension Protection Fund pick up the bill”.’
The Co-op Group is now a minority shareholder in Co-op bank alongside largely American investment funds.
In the Brexit era Pennycook also says he is concerned for thousands of Co-op workers from the EU whose future may feel uncertain. Co-op employs 70,000 people, a significant proportion of whom are EU nationals.
He told The Mail on Sunday: ‘This affects about 10,000 people when you add together our colleagues and their families. Irrespective of the discussion to come on immigration, which we all recognise is complex and has to take place, wouldn’t it be great and humane if we were able to say as a nation: “If you were here on June 23 and you were entitled to be here, then you can stay and you are welcome”.’
The younger generations, the Millennials, are more connected, more thoughtful